What Does the Title Company Do in Texas?

Takeaways

• The title company has two roles in the transaction – insurance agent and escrow officer
• They hold all the money as a third party and release it after closing only once everything has been completed
• The title insurance protects the buyer and lender in case there are ownership issues

The title company in Texas is usually responsible for two different roles – providing the title insurance, and acting as the escrow officer. Sometimes, different title companies can handle these two roles, but it’s almost always the same title company.

Who picks the title company? It’s negotiable in the contract. If the buyer is paying for the owner’s title policy (not common in the Fort Hood area), then the buyer may insist on the title company.

Title Search

The title search is the first item a title company initiates once they get a copy of your executed contract. The purpose is to make sure the seller actually owns the home, free and clear.

They check the following:

• Chain of Title. They verify the property’s ownership history, making sure that ownership properly transferred from each owner in the past. This also checks to make sure all spouses are accounted for and on board with selling.
• Tax Search. Ensuring that the taxes are paid and current on the property.
• Judgment Search. The seller might be prohibited from selling the property if there is a judgment against the seller – at least until the judgment is paid off.

Most title companies have third party services of their own that actually complete this work.

This is a good time to remind you that Texas is a community property state. That means that, for married couples, everything you buy is half owned by your spouse, even if only your name is on all the purchase documents. If you are in the middle of a divorce, and thinking about buying a home, your soon-to-be-ex will own half your home if you close before the divorce is finalized.

Title Commitment

The title commitment is the result of the title search. The title company sends it to both the buyer and seller, detailing any issues with the title that need to be resolved and disclosing encumbrances on the property like deed restrictions and easements.

A buyer might have an issue with these easements. For example, Tuscany Meadows in Harker Heights technically limits homeowners to owning no more than two dogs (though I’d think this restriction is often ignored). The buyer can walk away from the contract depending on the terms in the contract within a negotiable number of days after receiving the title commitment.

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Title Insurance

You closed on your home!

What if you found out later that the previous seller didn’t even own it?

This is an extreme example of when title insurance can be helpful. Extreme – but has happened just nearby in Georgetown, TX. The title search usually protects against any hiding ownership claims or liens, but just in case, the title insurance protects the new owner against title issues that happened before they bought the home.

The cost of title insurance is fixed by the State of Texas, and the same at every title company.

Oftentimes, the title company uses a third party for their title insurance as well. For example, several local title companies use Stewart Title for their title insurance.Escrow

Escrow

Other States have lawyers that deal with the closing and escrow. In Texas, this is most commonly handled by the title companies.

The title company is responsible for the escrow – the account that holds everyone’s money until the transaction is complete and they can pay everyone.  The first encounter with the escrow is the buyer’s earnest money. The buyer deposits the earnest money with the title company within three days of an executed contract. The title company holds onto that until closing when it is credited back to the buyer, or returns it to the buyer if the buyer cancels the contract for a valid reason. Having a third party hold that money instead of, say, the seller, ensures that the money is dealt with fairly.

At closing, they handle all the money in the transaction. The lender wires the loan amount to the title company. The buyer and/or seller bring any money that they owe, per the transaction. They hold onto any repair escrows due to contractors per the contract. Once everyone has signed at closing, they then release the funds – paying the seller, Realtors, and paying off any existing mortgages.

Closing

Finally, the title company handles the actual closing. On closing day, the buyers and sellers come to the title company to sign (usually at different times – it’s best that buyers and sellers not meet if possible). The title agent has all the paperwork, including everything that the lender still needs signed. The buyer/seller, their agent and title agent go through closing together. If money is owed, the buyer or seller can either bring in a cashiers check or wire the money to the title company beforehand.

What you’ll need

• IDs (some title companies require two forms of identification)
• an original power of attorney if applicable
• certified check (or started the wire) for any funds due
• your spouse (even if the loan is only in one spouse’s name, Texas is a community property state and there will be some forms for the other spouse to sign)

If you are out of the area or can’t make closing in person, it is possible to get the documents and sign them with a notary. Most title companies also offer a mobile notary who can meet you wherever convenient and sign the documents, though title companies often have to charge an extra $75-$150 for a mobile notary. In rare instances, notaries aren’t even needed for closing.

Common Title Issues

• Unexpected Liens. Sometimes minor like a $250 city lien for mowing tall grass, they are also sometimes major, like second mortgages that the seller didn’t disclose.
• Divorce Messes. You may have a contract with the “owner” – but you need to have permission from both owners, if there is a spouse out there somewhere.
• Bankruptcies. Recent seller bankruptcies can complicate a transaction if the property is still tied up in bankruptcy proceedings.
• Probates. Death is always complicated, and inherited properties can have issues with heirs or incorrect/incomplete documentation when it comes to selling the home.
• Foreclosures. Foreclosed homes are more prone to having incorrect/incomplete title documentation that can sometimes delay closing, sometimes by months
• Taxes. Property tax time (October-December) can become confusing, depending on when the seller or their lender paid the taxes. Be sure to call your title agent with any questions on when taxes are being paid and by whom.

Conclusion

Don’t be bashful about reaching out to the title agent with any questions about the process. They understand the business extremely well.

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Recommended Title Companies

The title company is at the very center of the real estate transaction. A quality title company can make a world of difference to the buyer and seller’s experience.

Here are some title companies I recommend in the Fort Hood area.

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