A title company facilitates a real estate transaction between a buyer and seller. The title company searches for any liens on the property, collects all of the funds and holds them in escrow, prepares all of the documentation to transfer title, disburses all of the funds to the appropriate parties at closing and insures the buyer against any claims to the title that may appear after the closing.
The title company acts as an independent third party to the transaction. They have no vested interest in either the buyer or the seller and therefore work objectively, similar to a judge in a courtroom. However in reality this is not always the case.
A title company works like other businesses that depend on referrals to generate income. The title company's clients consist of mortgage lenders, realtors and property investors. These people send the title company their deals on a regular basis. They also expect the title company to make sure their deals close so everyone makes money. If the title company can't close these deals then they will send them somewhere else. This gives the title company a vested interest in making sure the closings from their regular clients go smoothly, even if it means stretching a few rules.
Real estate title law is governed by statutes passed by that State's legislature and Departments of Insurance or Professional Regulation. However, a title company has some leeway in how they interpret those laws and regulations. Everything is not always black and white. For example some title companies will ignore a lien against a property if it is more than ten years old while others will insist it be satisfied. Some title companies will hold money in escrow if something can't be cleared up on title before closing and others will not. The determining factor in these decisions is normally what will make the title companies client happy.
Title companies will cut corners and rush a deal to closing if their client is threatening to pull all their business from them if they don't. They will take added risks which could cost you time, money and aggravation in the future. Let's say the title company finds a lien against the property and does not hold enough money in escrow to satisfy it fully then that lien will stay on your title. Even though you have title insurance that does not make it instantly go away and clean up the cloud on your title. You still have claims to file against the original title companies underwriter and might need to hire an attorney. Also if you are selling the property and this lien comes up then you may lose your potential buyer. They may not want to wait around until you get things straightened out and decide to purchase something else.
If you are involved in a real estate transaction you always want to use your own title company whenever possible. If the contract states that a party other than yourself has the right to choose the title company than you can still hire your own, it just means you will have to pay for their services in addition to what the other company will charge. This fee is well worth it.
Your own title company will tell you if a lien on title can be covered by escrow funds and how much should be held. Or they will tell you the lien must be paid off or satisfied before you close. They will also tell you if the other parties company is charging you too much money for their services. Many times a title company will have an agreement in place with their client's wherein they pass many of their fees onto the other side of the transaction and charge their client's nothing. If this is happening on your closing then you can dispute the amounts you are being charged. The savings from this alone can offset the cost of hiring your own title company to protect you.
Title searches are not always perfect. I am surprised at how often title companies miss things when they search for liens. Your own title company may find liens on title the other company missed. Having two independent searches done will benefit you.
Hiring your own title company gives you piece of mind. You know they have no one's interest before yours. They will make sure any gray areas in handling the closing are done in your favor. Think of it as hiring your own attorney. You would not want to use another person's attorney to represent you in the same matter. It would be a conflict of interest. Hiring your own title company protects you the same way hiring your own lawyer protects you.
Daniel Doran is a 20+ year veteran in the real estate industry. He is a previous owner of a law firm, mortgage and title company. Daniel has also written several books on mortgage modification, short sales and real estate investing. He currently specializes in Commercial Finance and Real Estate Development and is a graduate of Manhattanville College and Brooklyn Law School. You can contact Dan at Buildings By Owner.