From start to finish, the home buying and real estate process can be a time-consuming, extensive process with many moving parts. For many, purchasing a home tends to be the largest financial investment individuals make during their life.
That’s why protecting the title and your investment should be a top priority during your real estate transaction. If you aren’t aware of all of the pieces involved or helped with navigating them, you can get lost, confused, and potentially put into a situation where you’re out of a home.
Thankfully for you, there are title companies that want to help you and ensure you have the tools you need to have a successful experience. In this blog, we’ll cover the basics of title companies, escrow, and how they work together to protect you.
What Is A Title Company?
To answer your first question: A title is a document that details who owns the property, while a title company is a company full of title agents that help people finalize their mortgage by controlling the closing process, providing title insurance that protects the buyer from any potential endangerments, and transferring the property from buyer to seller.
Title companies not only protect the buyer, but also the real estate agents, lenders, and sellers by offering different types of title insurance. The main types are a lender’s policy and an owner’s policy.
Lender’s Policy
A lender’s policy is used to protect the lending party from potential damages surrounding the claim on a property.
Owner’s Policy
An owner’s policy, on the other hand, is used to protect owners from circumstances that could negatively affect the sale including fraud, tax liens, tampering of documents, and more. Owner’s policies are crucial given the value that is at stake if one of the circumstances isn’t taken care of prior to closing.
What is Escrow?
Escrow is a legal arrangement agreed upon by the buyer and seller where a third party holds earnest money (a good faith deposit showing you are going to purchase the home) and other crucial items in an escrow account until all conditions are met and the deal has been executed.
While the sums of money are being held, both parties are working on the conditions that include signing documents, completing housing inspections, fulfilling purchase agreements, verifying the title, and more. Once all conditions are met and the deal is executed, the money will be released and applied as a downpayment.
What Are Common Title & Escrow Problems?
You’re probably wondering about more specific problems that could affect escrow. Here are some common problems to avoid so that you don’t run the risk of extending the escrow process.
- Lending problems (Ex: buyer makes a credit purchase before closing)
- Home inspection issues
- Bank delays (wire transfers taking too long)
- Public record errors (name misspellings, flip-flopped address numbers, etc.)
How Do Title And Escrow Work Together?
Think of title and escrow as Batman and Robin. They work together to protect you from harm’s way (anything that could affect the closing process). Titles take care of any accidents or potential disruptions (as mentioned above), and function to protect the interests of the buyer. Escrow protects both sides by making sure that all terms are properly met prior to the final transaction. At the end of the day, the real estate process needs these protections to avoid chaos and dysfunction.
This material is provided as a courtesy and for educational purposes only. Please consult your title professional for specific information regarding your situation.