I’m closing on my townhome tomorrow (yeah!) and have yet to get a decent explanation of why I’m paying $900 to a title company. It seems they did a “title search” for existing liens and are providing an office for me and the seller to sign papers. Any citizen can do a title search through county property records, right? So can I open my own title company? What would I need to know? And can title companies really justify their existence–are they necessary if a buyer or seller is willing to do the leg work?
The work of title companies varies from state to state. Here are their major functions, though.
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Title searching. You can do title searches by hand at the county, but who would trust you. A title company is a disinterested third party and presents results in a (we hope) speedy and standardized format.
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Title Insurance. A title company is usually an agent for an insurance company that will issue an insurance policy that covers the purchaser of the policy in the event that the title search was wrong.
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Escrow. Title companies frequently offer escrow services.
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Closing agent. Title companies also frequently offer to supervise real estate closings to ensure that the documents are all completed properly. Their closing agents are usually notaries, too.
Here is Florida’s FAQ on title agent licensing.
Sure you and/or the seller can do the work, but who will assume the liability if clear title is challenged down the road? The title insurance protects both the buyer (from future claims on the title) and the seller (from fraud or errors during the close). Also, your lender will probably not let you have the money unless you have the title insurance.
Most people don’t understand that, in most counties, titles are not filed by property, just by date when they are recorded. The title companies sift through all of these records and create files for each property, showing each title, change of title, lien, easement, condition, covenant, etc. A “naive” title search on an old property would be lengthy, tiresome, and prone to error; such errors can incur costs of millions of dollars to set right a complex title defect (billions of dollars if you’re talking about, say, a commercial property in downtown San Francisco).
Being a title searcher myself I can tell you with certainty that the idea that anyone can walk in off the street and perform a comprehensive and correct search is very much wrong.
What we do may seem easy enough on the surface. But that’s only because we know all the little quirks of the programs, the filing systems, etc. There are so many chains of if-then-go tos that only the most seasoned veteran could deal with them all.
Even after doing this for 3+ years I don’t know nearly everything there is to know.
And as for opening your own business, that would be nearly impossible to do with no experience. It would take many years of training and apprenticeship to be at a high enough level for people to trust your work.
As another note, not all jurisdictions rely on a deeds registry for real property. IAAL who is in a Torrens-based jurisdiction for real property registration. In a Torrens-based land registry system the agency of the government responsible for administration of the land registry will issue title to a parcel of land.
The Torrens system (named after the Australian who developed it) is based on principles that facilitate commercial transactions in a jurisdiction by providing government offered certainty as to the state of the title (for both ownership and interests). The title represents conclusive proof of ownership of a parcel of land.
This ensures that those searching the register do not need look beyond the title to confirm who is the party authorized to deal with the land. They are free to deal with the registered owner. A Torrens-based system will also provide for compensation offered by the Land Registry to persons who relied on the title where the Registrar made an error in stating ownership on terms defined by the governing legislation.
In my jurisdiction anyone with internet access and a credit card can complete title searches of active titles online in real time.
In Canada, the predominant registry for titled real property in western Canada are Torrens based land registries with similar governing legislation. Some other provinces, including Ontario and New Brunswick, are gradually converting from deeds registries to Torrens-based registries, whether by land registration district or as transfers occur.
Well, considering how easy it is for strangers to get information about one’s person (credit history, marriage records, etc.) you’d think they could change this.
That seems a little, uh, well…uh, stupid to me.
No, it’s cheap – filing records by property means digging through old files, expanding files that change title frequently, creating new files, shifting files around as space requires, and – biggest expense – taking responsibility for the accuracy of the files.