Title and settlement services: A step-by-step overview

Your closing costs may be presented upfront as one lump sum. But it’s important to understand that the cost of your closing is divided into two parts: “title services” and “settlement services.” 

Getting a mortgage for your home has many steps. There are many different professionals involved. One of those professionals is called the title company, and their job is to make sure that no one else has any claim on your new home. If someone has a legal right to your house, you will lose it. So it’s important that there are no claims on the house when YOU buy it.

If you have already received your mortgage loan estimate, you may also notice a cost for “title fees.” These fees cover the costs for the title insurance and settlement fees that relate to the title due diligence work, issuing title insurance, and preparing settlement documents. 

What is title?

Title is the legal record of the ownership of real estate property. In order to acquire a clear title for a real estate purchase, a title search must be done on properties before they are purchased, especially when multiple parties are involved in the transaction. The process is overseen by a company called a title company. A title company will also issue an owner’s title insurance policy to protect against any problems with land ownership that could prevent an individual from owning land.

Title is an essential part of the real estate transaction–in fact, it is one of three key components to successfully completing a “real estate deal” (the other two being the contract and the escrow). Without a valid title, there can be no real estate closing or transfer of property.

What does the title company do?

A title company is an independent, third-party organization that reviews real estate transactions for legal compliance, assists with the escrow process, and manages the escrow account. It’s their job to research any title claims, make sure all documents are in order, and approve or decline a title insurance policy.

If all goes as planned, the title company does not get involved until you’re ready to close and pay them for their services. They then submit a final title report to their title insurers, who provide insurance coverage for each transaction.

Title companies provide unbiased and experienced third-party monitoring services that reduce risk and reduce costs. Your title company is a vital player in your real estate transaction. While many don’t understand their role, title companies are an honest and fair go-between to keep things on track and ensure every piece of your property will transfer smoothly from seller to buyer.

If you are a potential home buyer, you need to know what goes on at closing when you are purchasing a home. Do you know what to expect? How long does it take? Here’s an overview of the process based on what title companies do during your mortgage transaction.

• Starting the Process

A purchase agreement is a signed contract between the buyer and seller. It gives all parties who will be involved with the sale, including buyers and sellers, information about the sale. When both parties are ready to take action, a purchase agreement may be signed by each party indicating the commitment is understood by both parties.

The escrow agent initiates the closing procedure by opening a title order. The file begins to be processed. Tax information, loan payoffs, survey (if necessary), homeowner/maintenance fees, inspection repair estimates (if necessary), flood certificate (if necessary), assessment payment(s) are gathered and verified.

• Title Search and Examination

The title search is conducted by lawyers and licensed or certified appraisers. The title search is used to gather information about the property used as collateral/loan and determine if there are any liens, easements, or encumbrances on the property. For property transfer, a title search is conducted to ensure that the seller still owns the property and that he has no commitments regarding other properties.

The title search is conducted using public records. The records searched include mortgages, deeds, paving assessments, wills, liens, divorce settlements, and other documents that affect the ownership of the title of the property. 

Title examination is the examination of the documents that are found during the title search and affect the title of the property. It begins with locating the current owner of the property being searched. Once the owner is identified, ownership is examined to determine if there are any known liens or other encumbrances (i.e. mortgages, judgments, or mechanics lien claims). The title analyst will then either certify that the title is free and clear and no further investigation by a licensed investigator is required (no defects in the title) or note known defects (encumbrances) in a preliminary report. In addition to factual findings, your attorney will also engage in a discussion about any specified legal requirements pertaining to your inquiry.

• Fix any title-related disputes 

If the title company finds any issues with your escrow, they’ll report them back to you and begin working to resolve them. They may chat with the seller to learn more about ownership disputes or ask for paperwork to prove that someone else doesn’t own the home. For example, if the problem involves an unpaid tax payment, the title company can work with the seller of the home to resolve it. Title companies work hard to get everything perfect before you’re obligated to follow through on your home purchase. 

• Issue Title Insurance

After a title company is completely sure that a property is free of any title disputes or errors, they give a green light to move forward with the process and issue title insurance policies. 

Title insurance policies protect future homeowners and lenders from unexpected claims and legal problems relating to a property’s title.

A lender’s title insurance policy is mandatory in every purchase and refinance mortgage transaction. In fact, it’s one of the first items that’s checked when applying for a mortgage loan. You may have even heard of it as an “MIP” (mortgage insurance premium).

• Settlement or Closing the Transaction

After you have your title insurance policies and all the requirements by the lender are met, the title company can schedule a closing date, also knows as the settlement date. Your lender and your title company will work together to prepare for your mortgage closing.

The settlement process usually takes between three and four hours. On closing day, you will need to pay several fees, as well as taxes and insurance premiums at settlement, so you will want to consider arranging for a loan (or savings) to cover these costs. Your title company will be able to help you with this as well.

Once the title company accepts the liability of the sale, they will ask you to sign documents and send them in to be countersigned and notarized. This basically just means you are signing over ownership of the property and that all information is true and accurate.  The title company will take care of getting everything signed, notarized, and sent back to them before sending it to your lender.

• Post-Closing Mortgage Funding and Recording

If everything went well on the closing day, your title company will submit your mortgage loan for recording at your county’s records office. After that, the local officials will make note of the details for public record. 

Now, the title company will lay out funds for the new mortgage loan, homeowners insurance (if applicable), and taxes. The borrower will receive information about meeting their future mortgage obligations in a closing statement that also includes final calculations of interest costs and fees paid at closing. This statement must be signed by all parties to close on the home purchase.

Final Thoughts

While the title search and settlement may seem less thrilling than hunting for your dream home, it’s a crucial step in the home buying and mortgage process.