First time home buyer in San Jose, CA FAQ: What exactly does a title company do?

First time home buyer in San Jose, CA often asks me: what exactly is a title company and what does it do?

Title companies provide title insurance to buyers, sellers, lenders and developers. Services vary throughout the country, depending on local practices and laws. In many states, title companies also handle escrow, performing title searches and offer title insurance. This is the case for Northern California. More locally, in Santa Clara County, this is generally part of a seller's closing cost; though in our neighboring Alameda county, it's a buyer's cost. Regardless of who pays for it, it's important to understand the function as it protects your real estate interest.

Title companies conduct a chain of title, which is a review of the owner history of the property, checking for who purchased the property, who sold it, and when. They preform judgment searches to determine whether there are any general liens against the property, as well as tax searches to verify the present status of taxes.

Then they issue a "Commitment of Title Insurance" to lenders after completion of the title search and they receive instructions and documents for closing. Title companies also prepare a final settle statement.

In its dual capacity as an escrow holder, they act as a neutral third party of the principals - buyer, seller, lender, and borrower. They help with with the transfer of ownership by ensuring that the terms of the transaction are completed. This includes safeguarding all funds (including buyer's deposit) and documents. Once all the details have been settled, the escrow holder disburses the funds and documents to the appropriate parties.

Another important role of the title company is to issue title insurance. Although a title search is performed, it's nearly impossible to guarantee a title is clear of hidden defects such as mistakes in interpretation of wills and other legal documents, impersonation of the real owner, forgery, missing heirs, falsification of records, and confusion stemming from similar names. Title insurance guarantees the title as reported.Should hidden defects surface at any time challenging an owner's rights, the title company will defend the title and may cover the losses in accordance with the title insurance.

Indeed, a title company plays an crucial role in the home buying and selling process. So selecting a company that is well known for its integrity and service is important. If you need a recommendation, talk to a real estate professional you trust.