Becoming a homeowner is one of the biggest decisions of our lives. From being financially ready, finding the perfect real estate agent, and deciding what you’ll need in a home to be equipped for your future, it’s all a huge step. Navigating the world of real estate and its jargon can be overwhelming and at times, confusing. Title and escrow are some of the most common terms you’ll hear in the industry. Often used interchangeably, they are both crucial yet very different parts of the home buying journey.
The word "title" refers to your legal rights to own, use, and dispose of a specific property. The title company ensures the property's title with policies to the buyer and the lender to protect against problems with the property or the title. The real estate process is one that involves a lot of different moving pieces to get to the end goal. Money, property, legal policies, and a lot more are mixed into a process that will sweep you away if you aren’t prepared, properly informed, or assisted. Luckily, a title company’s escrow accounts are present to preserve your interests and protect your investments in real estate.
The legal right to own, use, and dispose of a particular property is referred to as "title." This means that if you hold the title to a property, you have the right to access the land as well as make any changes you deem necessary. Title can be split between owners so one can hold partial or full interest in the property. So if down the line you decide to transfer or sell your title, you can never legally give away more than your share of the title.
If you do decide to transfer, a title check would be performed which means there would be a search to ensure there are no circumstances that would challenge your right to ownership. This could be late real property tax payments, illegal activity on the property, or money owed to mortgage companies. People often work with title companies that offer insurance to protect you in cases where you believe you are being wrongfully challenged. There is always a lot of money being dealt with in the home buying and real estate world. A trustworthy title company is always a good idea so you can sleep soundly knowing your financial investments are protected.
There are two types of title insurance policies you can get, a standard policy or an ALTA Homeowner's policy - both defend the homebuyer for the entire property value. In addition, if you are financing the deal your lender may require you to get a Lender’s Policy that defends the lender’s interest in the property in the amount of the mortgage loan. You can talk with your real estate agent to see what would work best for you.
Escrow is a neutral third party that holds and manages the payment of funds between the two parties in a transaction. When the terms of the contract are met, escrow ensures that the contract is honored and that payment is sent to the respective places and at the correct times.
Whether you are a buyer or seller in a real estate transaction, you always want to be absolutely sure your property or money is going to be protected when all is said and done. The official definition of escrow is “a deed, a bond, money, or a piece of property held in trust by a third party to be turned over to the grantee only upon fulfillment of a condition”.
Simply put, the escrow agent follows the official written instructions in a fair and unbiased manner. This can involve receiving payment and documentation needed, filling out or obtaining required paperwork like tax documents or insurance policies, and completing the final delivery of all transaction parts to the appropriate parties.
If the buyer or seller is waiting on additional documents or new financing options, they are responsible for completing and obtaining the needed items prior to completing the transaction. The escrow agent will always need everything before the transfer of any property or payment can take place.
How Title & Escrow Work Together
Having a trusted title company and escrow agent is one of the best things you can do to protect yourself during a home buying (or selling) journey. Title is the best way to protect against instances that call into question the sellers ownership and the buyer's interest. Escrow agents keep the payment and transaction details as an impartial third party to ensure everyone is within the contract. There is so much going on throughout a real estate transaction that having third parties to help ease the stress can make all the difference on your journey.