Title companies provide title insurance services to buyers, sellers, lenders and developers, essentially anyone who has an interest in real estate. Services vary throughout the country, depending on local practices and laws. In many states, title companies handle escrow as well as perform and insure title searches. A title search involves searching public records to ascertain if the seller has the legal right to sell the property. In other states, attorneys conduct title searches.

A title company can be central to the transaction. Here’s how:

• It receives a buyer’s earnest money, which is deposited in an escrow account until the closing, or final settlement.
• It reviews the owner history of the property, checking for who purchased the property, who sold it, and when.
• It performs a tax search to verify the present status of taxes.
• Some title companies conduct on-site inspections to verify lot size, the location of improvements, and evidence of unrecorded easements.
• It conducts a judgment search to determine whether there are any general liens against the property.
• It issues a “Commitment of Title Insurance” to the lender after completion of the title search. It receives instructions and documents for the closing, and prepares a final Settlement Statement. At the closing, which may take place at the title company’s office, the title company is responsible for collecting and disbursing the monies.

At this point, you may be wondering why you even need insurance following an exhaustive title search. Unfortunately, it’s nearly impossible to guarantee a title is clear of hidden defects—those circumstances that could find you in a tug of war over the property. Examples of hidden defects include 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.

Because only the title to the land and not the land itself can be purchased, a homeowner risks losing his home and the land under it unless he possesses a clear title. 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, in court, if necessary, and cover the owner’s losses up to the full value of the policy.

A title company can be crucial to the process of buying a home, so select a company that’s known for service. If you need a recommendation, talk to your real estate professional.