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Do you need a title company when buying or selling a house?

On Behalf of | Jul 24, 2023 | Real Estate Law, Title Liens |

Buying or selling real estate is different from other kinds of financial transactions in many ways. One difference is the number of entities involved: You may have not only a buyer and seller, but also, in most cases, a real estate agent and a title company. You may also have lawyers involved.

You may be tempted to seek ways to cut some of these parties out of your real estate transaction, and so you may wonder if you really need a title company to be involved. In this blog post, we will discuss what title companies do and whether it’s a good idea to do without them.

What is title?

First, we should explain what “title” means in this context.

For most personal property, we don’t think much about legal ownership. If you own it, you get to keep it and use it, and sell it, if you so wish. But with real estate, cars and some other items of high value, the legal issues are more complex.

In real estate, the person who has title to a property has the legal rights of ownership in that property. When real estate professionals talk about a house’s title, they refer to the historical record, or chain, of ownership of the house over the years. This is not the same thing as a deed. A deed is a legal document that buyer and seller sign when transferring title to property.

Issues with title

The above description of title may seem fairly straightforward, but the picture can get murky over the years. Ownership of a house may change hands many times in multiple ways, creating a complicated chain of title.

If you look through the history of a 70-year-old house, you may find that ownership was bought and sold several times, and passed on through inheritance more than once. Some of these transfers may not have been done properly. Each of the owners may have had separate mortgages. Some of them may have had legal or financial difficulties that led to liens being placed on the home. In some cases, two siblings may have legally inherited the property, but only one was listed as the owner on the deed. All this could mean that multiple parties have some claim to a share of the ownership in the property.

What title companies do, and why you probably need one

Lenders and buyers hire a title company to research the chain of title to uncover any opposing claims of ownership, which are known as “encumbrances” on the title. They can also look into issues such as unpaid taxes or encroachments on your property, such as when a neighbor has built a fence that’s technically on the wrong side of the property boundary. Typically, a title company doesn’t fix all these problems by itself, but it can help you resolve them.

Once the title company has helped you to resolve these issues, it can provide title insurance to protect you should any encumbrances pop up in the course of the sale.

Generally, you are not legally required to hire a title company, but your lender may require you to do so as a condition of giving you a loan. It’s also just a good idea to work with one. As you can see from this brief overview, title issues can be complex and difficult to resolve without help.