FAQs
A title insurance company is a specialized insurance company that protects homebuyers, lenders, and property owners from financial losses caused by problems with the property’s title (legal ownership).
The title is the legal proof that someone owns the property outright and has the right to sell or mortgage it. A “clean title” means there are no hidden claims, liens, or defects that could challenge ownership.
When you buy a house, even after a title search, some hidden issues might not show up until later. These are called title defects or title risks. If one pops up after closing, it can cost tens or hundreds of thousands of dollars to fix—or you could even lose the property.
Common hidden title problems include:
- Forged deeds or signatures in the past
- Undiscovered liens (e.g., unpaid taxes, contractor liens, HOA dues)
- Fraud or identity theft in the chain of ownership
- Mistakes in public records (wrong legal description, clerical errors)
- Unknown heirs claiming ownership
- Old mortgages that were never properly released
A Title Insurance Company prevents most of the problems by finding them before you close, defends your ownership in court if anyone challenges it later and pays money to fix covered title problems, sometimes hundreds of thousands of dollars at no extra cost to you.
Without title insurance, you would be on the hook for all legal fees and losses if an old hidden claim ever surfaces. With it, the title insurance company takes on that risk for a one-time fee paid at closing.
1. Before Closing: They Investigate the Title (Title Search & Exam)
The title company (or its agent) digs through decades of public records: deeds, mortgages, liens, court judgments, tax records, wills, divorces, etc.
They look for anything that could cloud ownership (liens, easements, fraud, errors, competing claims).
They issue a Preliminary Title Report / Title Commitment that shows:
- Who the current legal owner is
- Any problems (“exceptions”) that must be fixed before closing
- What the final policy will and won’t cover
- This step catches 95%+ of issues before you own the home.
2. At Closing: They Clear Problems & Issue the Insurance Policies
They help resolve red flags (e.g., pay off an old lien, get a release from an ex-spouse, correct a legal description).
They make sure the seller actually has the legal right to transfer the property to you.
- They issue two policies at closing:
- Lender’s policy (required by your mortgage company)
- Owner’s policy (optional but strongly recommended — protects YOU)
You pay a one-time premium (usually 0.5–1% of the home price).
3. After Closing: They Protect You if a Hidden Problem Appears
This is where title insurance is worth its weight in gold. Even the most thorough search can miss things that are not in public records.
If someone sues you claiming they own your house (or part of it), the title company:
- Provides and pays for your legal defense (100% covered, no deductible in most policies)
- Pays valid claims or settles with the claimant
- If you somehow lose the title entirely (extremely rare), they pay you the full policy amount (home value at closing or current value, depending on the policy type)
4. Ongoing Protection (Forever for Owner’s Policy)
Owner’s title insurance lasts as long as you or your heirs own the property — no renewals, no extra payments.
Lender’s policy lasts until the mortgage is paid off.
Owner’s title insurance policy
- Protects the homebuyer (you) for as long as you or your heirs own the property
- One-time premium paid at closing (usually 0.5–1% of the purchase price)
- Covers your equity and ownership rights
Lender’s title insurance policy (required by almost every mortgage lender)
- Protects the bank/lender in case the title has problems
- Also a one-time premium (usually paid by the buyer)
- Only covers the lender, not you
Only once. There are no recurring payments, no monthly bills, no annual renewals, and no premiums ever again.
An escrow service is a neutral third-party company (or sometimes a lawyer or specialized escrow firm) that acts as a trusted middleman during a real estate transaction. It holds money, documents, and instructions until every single condition of the sale has been met — then it releases everything to the right parties at the right time.
Think of escrow as a “safety box” that protects both the buyer and the seller from getting cheated.
In simple terms; escrow = the referee and the bank vault combined.
It makes sure nobody gets the money or the house until everyone has done exactly what they promised in the contract.
Once everything is complete and everyone signs off, escrow “closes” and disburses all the money and documents in one coordinated moment — that’s why people say “we closed escrow” when the deal is finally done.
- The buyer can’t lose their earnest money if the seller backs out for no reason — escrow returns it.
- The seller is guaranteed to get paid the exact net amount promised — escrow handles all the math and payoffs.
- Prevents fraud: No one can run off with the down payment because it’s sitting in a regulated, insured escrow account.
| Category | Specific Duty / Service | What It Means in Practice |
|---|---|---|
| 1. Neutral Third Party | Acts as a completely impartial middleman | Has no loyalty to buyer, seller, agents, or lenders — only follows the written contract and lender instructions. |
| 2. Hold & Safeguard Funds | Receives and holds in a regulated escrow trust account: • Earnest money deposit • Buyer’s full down payment & closing costs • Lender’s loan proceeds • Any seller carry-back funds | All money is FDIC-insured, audited, and cannot be touched until closing conditions are 100% satisfied. |
| 3. Receive & Hold Documents | Holds original documents: • Signed purchase contract & addenda • Deed from seller • Loan documents from lender • Title commitment • HOA docs, payoffs, etc. | Keeps everything in order and secure until recording and disbursement. |
| 4. Follow Written Instructions | Strictly obeys two sets of instructions: 1. Joint escrow instructions (signed by buyer & seller) 2. Lender’s closing instructions | Will not close or release a single dollar unless every item is completed exactly as written. |
| 5. Order & Coordinate Services | Orders on behalf of the transaction: • Title search & title insurance • Payoff statements (seller’s mortgage(s)) • HOA resale certificate / estoppel • Home warranty (if purchased) • Natural hazard disclosure report • Wire fraud verification | Makes sure everything arrives on time. |
| 6. Prepare the Settlement Statement | Creates the final HUD-1 or ALTA Settlement Statement (now called Closing Disclosure for loans) that shows every dollar in and every dollar out for buyer and seller. | Must balance to the exact penny. |
| 7. Prorate & Calculate Adjustments | Calculates and prorates: • Property taxes • HOA/condo dues • Prepaid or delinquent interest • Rents (if investment property) • Insurance (if escrowing) | Determines who owes whom for the exact day of closing. |
| 8. Clear Title Requirements | Makes sure all “requirements” on the title commitment are satisfied (old liens paid, judgments cleared, etc.). | Coordinates payoffs and lien releases. |
| 9. Schedule & Conduct the Signing | Sets up signing appointments (separately or together), notarizes documents, explains (but does not give legal advice). | Often done in their office or via mobile notary. |
| 10. Balance & Disburse Funds on Closing Day | On the exact day of closing: • Wires payoff to seller’s lender(s) • Pays real estate commissions • Pays title insurance premiums • Pays recording fees, transfer taxes, HOA transfers • Wires net proceeds to seller • Sends loan funds to title company for recording | Everything happens in the correct order within minutes. |
| 11. Record Documents | Electronically or physically records the new deed and new mortgage/deed of trust with the county recorder the same day (in most states). | This is the moment you officially own the home. |
| 12. Issue Title Insurance Policies | “After recording | the title underwriter (or the escrow company if it’s also the title agent) issues the final Owner’s and Lender’s title insurance policies.” |
| 13. Post-Closing Duties | Sends recorded deed to buyer, final Closing Disclosure, title policies, and 1099-S (if required) to IRS. Returns earnest money if the deal fails (according to contract terms). | Wraps everything up cleanly. |
| 14. Fraud & Wire Protection | Verifies all wiring instructions, uses secure portals, calls to confirm changes in payoff or proceeds instructions. | Protects against the #1 closing scam (fake wiring instructions). |
