What are Title Companies? What do they Do? A Homebuyer’s Guide

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A title company plays a crucial role in most real estate transactions. They are responsible for ensuring that the property’s title is clear of any legal or financial encumbrances, which means it’s ready for transfer to the new owner. 

What are Title Companies? Title companies ensure seamless real estate transitions by verifying title legitimacy, checking for liens, and offering insurance for potential disputes.

What Does a Title Company Do?

Title companies play a key role in real estate transactions. They facilitate transfers of property titles between buyers and sellers, verify that a property title is legitimate, ensure no liens are on the property, and provide insurance to protect against title disputes or errors. Generally acting as neutral third parties, they help make home buying/selling smoother.

Title company’s services include:

  • Conducting title searches and examining the property survey, as well as any public records, to identify title defects or issues.
  • Issuing title insurance policies that protect buyers and mortgage lenders from financial losses resulting from title defects.
  • Acting as an escrow agent, holding and disbursing funds and documents for all parties involved in the transaction.
  • Coordinating and facilitating real estate closings, ensuring a smooth transfer of ownership.
  • Providing peace of mind for buyers and sellers by guaranteeing clear title to the property at the time of transfer.

What Are Title Services With Respect To Mortgage?

Title services in mortgage refer to the process of verifying the property’s title and issuing title insurance to protect the lender’s financial interest. 

A title company plays a crucial role in providing these services by conducting a title search, identifying and resolving any title defects, and issuing a lender’s title insurance policy to protect the mortgage lender from financial losses resulting from title issues.

Cartoon images of a man in a suit shaking hands with a couple, a giant hand holding a house and key, a magnifying glass with a GPS tag above it, a gear, a stack of coins and a clipboard.

Benefits of having title services for a mortgage

  • Ensures the property has a clear and marketable title.
  • Protects the buyer and mortgage lender from financial losses due to title defects.
  • Provides peace of mind to all parties involved in the transaction.

How Do I Choose a Title Company?

When choosing a title company, it’s essential to consider the following factors:

  • Reputation: Look for a title company with a strong reputation and positive customer reviews.
  • Experience: Choose a title company with extensive experience handling real estate transactions similar to yours.
  • Location: It’s often beneficial to work with a title company familiar with the local real estate market and regulations.
  • Fees: Compare the fees and costs associated with the title company’s services.

Thanks to Adler & Herbach’s affiliation with the title agency United Settlement Services (USS), we offer sellers 50% off their title fees! Contact us today, or click here to learn more about USS.

Should You Shop Around for a Title Company?

Yes, shopping around for a title company is recommended. Comparing the services and costs of different title companies can help you find the best fit for your needs and budget. While your attorney may recommend a particular title company for your transaction, feel free to ask questions about his or her recommendation to make sure you are comfortable with your selection. 

Failing to shop around could result in higher title insurance costs and less comprehensive title services.

For Buyers

Be an informed buyer! Let our legal expertise guide you through title company decisions for your home purchase.

For Sellers

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Deed vs. Title Insurance

Although both the deed and title insurance are crucial components of a real estate transaction, they serve different purposes. 

A deed is a legal document that transfers ownership of a property from the seller to the buyer, while title insurance is a policy that protects the buyer and mortgage lender from financial losses resulting from title defects.

Cartoon of a man signing a giant clipboard next to a stack of coins.

Why both are important in a real estate transaction

  • The deed represents the legal transfer of ownership from the seller to the buyer, providing proof of the buyer’s claim to the property.
  • Title insurance protects the buyer’s ownership rights and the lender’s financial interest in the property from potential losses arising from title defects, liens, or other unforeseen issues.

Who pays for title insurance?

In Illinois, the seller pays for the owner’s title insurance policy, while the buyer pays for the lender’s title insurance policy as part of their closing costs. However, the party responsible for paying title insurance costs may vary depending on the specific terms of the purchase agreement and local custom.

Escrow Company vs. Title Company

An escrow company is a neutral third party that holds funds, documents and other assets on behalf of the buyer and seller during a real estate transaction. 

A title company, on the other hand, specializes in conducting title searches, resolving title issues, and issuing title insurance policies.

While their functions are distinct, it is very common for a title company to also act as an escrow agent, holding funds and documents until the closing process is complete.

How Does a Title Company Determine That a Title is Valid?

To determine the validity of a title, a title company performs a comprehensive title search and property survey. 

This involves examining public records, such as deeds, mortgages, tax liens and other legal documents, to identify any potential title defects or encumbrances that could affect the property’s ownership.

Issue Title Insurance Policies

Title insurance policies are contracts that protect the buyer’s ownership rights and the lender’s financial interest in a property from potential losses resulting from title defects or issues. 

There are two primary types of title insurance policies: owner’s title insurance and lender’s title insurance.

Cartoon of a man carrying a case and holding an umbrella above a giant clipboard that reads INSURANCE POLICY.

Who pays for lender’s title insurance?

In Illinois, the seller typically pays for the lender’s title insurance policy. However, this may vary depending on local customs and the specific terms of the purchase agreement.

How does title insurance protect your ownership rights?

Title insurance protects your ownership rights by covering the legal costs and compensating for any financial losses resulting from title defects, liens, or other issues that were not discovered during the title search process. 

In the event of a claim, the title insurance company that underwrites the policy will either defend your ownership rights in court or reimburse you for any losses incurred due to the title defect.

Managing Closing

The title company plays a vital role in managing the closing process of a real estate transaction. They coordinate with all parties involved, including the buyer, seller, mortgage lender and real estate agent, to ensure a smooth transfer of ownership. 

The title company, assuming it is serving as escrow agent, also handles the disbursement of funds and the recording of the deed and other legal documents.

What does a title company do for you during the closing process?

During the closing process, a title company manages several tasks, including:

  1. Coordinating with all parties involved in the transaction.
  2. Reviewing and preparing legal documents, such as the deed and closing statement.
  3. Holding funds and documents in escrow until the transaction is complete.
  4. Disbursing funds according to the purchase agreement and mortgage loan terms.
  5. Recording the deed and other legal documents with the appropriate government authority.

To learn more about the closing process, visit northsidelegal.com/closing.

How Do Title Companies Make Money?

Title companies generate revenue through fees charged for their services, such as title searches, issuing title insurance policies, and managing the closing process. 

The cost of title insurance is usually based on the home’s purchase price, while other fees may be fixed or vary depending on the complexity of the transaction.

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How much do title company services cost?

The cost of title company services varies depending on the type of service, the complexity of the transaction, and the home’s purchase price. Typical costs include title search fees, title insurance premiums, escrow fees and recording fees. 

If you’re a seller, for a $267,383 home (the median home value in Illinois), you would pay around $2,500. If you’re a buyer, you would pay around $575.00 for lender’s title insurance and around 2% of the purchase price in other closing costs. Find a detailed breakdown of closing costs on a house here.

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Choosing the right title company is crucial for a successful real estate transaction. They ensure that the seller is legitimate and has the right to sell the property, all requirements are satisfied, and the buyer’s ownership rights are protected. 

By understanding the key aspects of title companies and their role in real estate transactions, you’ll be better prepared to navigate the home buying process with confidence.


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