Here at Brewer Offord & Pedersen, our attorneys and staff assist customers every day with their real estate needs, whether that be assisting with a real estate transaction or helping to resolve a real estate dispute. However, recently when helping clients with completing a real estate transaction, I have been asked, “Why are we involving a title company?”, or “Why do we need to pay a title company for this transaction?”. In today’s blog, let’s answer those questions and others by discussing what a title company actually does, and why they are so essential to the real estate transactions that occur every day throughout California.
What is a Title Company?
To start, the answer to what a title company does is right in the name, it is a company that specializes in “title”. In real estate, “title” refers to the legal right to own, use, and transfer real property. Title represents the legal ownership of the property and takes into consideration ownership rights, liens and encumbrances, and the legal description of the property.
Ownership rights are simply the collection of rights attached to a property, including the right to occupy, sell, lease, or transfer the property. Liens and encumbrances include any claims or liabilities against the property, such as mortgages, easements, taxes, or judgments that may affect the owner’s rights. The official recorded description of the property’s boundaries and location is the legal description. Each of these factors is a matter of public record that title companies have become experts in searching for and uncovering prior to a transfer of real property ownership.
A title company is responsible for ensuring that a property’s title is clear of any liens, encumbrances, or other claims that could jeopardize ownership for a purchaser or lienholder, and title companies accomplish this by conducting a thorough search of public records to verify the legal ownership of the property and to identify any potential issues or claims against it. This process helps ensure that the seller has the right to transfer ownership (or take a lien against the property) and that there are no outstanding legal disputes connected to the property that could affect the subsequent owner and/or lienholder.
Additionally, after examining the title, a title company can provide “title insurance” to protect the buyer and lender from financial loss due to title defects or claims that were not discovered during the title search. Title insurance covers issues such as undisclosed liens, fraud, or errors in public records that may arise post-closing.
Having a “clear title” means that there are no unresolved claims, liens, or legal issues that could affect the new owner’s ability to use or sell the property. The title company’s role is to ensure that the title is clear and that both the buyer and the lender are protected throughout the transaction.
What is the History of Title Companies?
The origins of title companies in California can be traced back to the period following the Gold Rush of 1849. As people flocked to California and began acquiring land, the need for a reliable system to verify and secure property titles became apparent. Early land transactions were often complicated by conflicting claims and unclear ownership due to the complex history of land grants from Spanish and Mexican authorities.
California’s first legislature adopted a recording system for land titles in 1850, laying the groundwork for the title insurance industry. As the state developed, so did the complexity of property transactions, leading to the establishment of title companies to handle the growing demand for title searches and insurance.
Today, title companies are an integral part of the California real estate landscape, providing essential services that help property sellers and buyers have smooth real estate transactions. Because of their important role in California real estate, title companies in California have faced increased regulatory scrutiny and efforts to enhance consumer protection. State and federal regulations have been implemented to ensure transparency, prevent fraud, and protect consumers during real estate transactions.
Why Title Companies are Important
Title companies are essential for ensuring that the process of buying and selling property in California is smooth, secure, and legally sound. A clear title is fundamental to property ownership, and title companies are crucial in securing this clarity.
Their expertise helps prevent fraud by uncovering fraudulent claims or forged documents before they can affect ownership, and by providing a thorough title search and insurance, title companies protect your investment and ensure a seamless closing process.
By understanding the role of title companies, you can approach your real estate transaction with greater confidence. Their work safeguards your property rights and offers essential peace of mind, making the real estate journey more secure and reassuring. And in the rare occasion that a claim of title arises post-closing and you purchased title insurance, title will help defend against any claims on title, allowing buyers and lenders to have more peace of mind.
If you are in need of help with questions about title or any other real estate matter, the attorneys and staff of Brewer Offord & Pedersen LLP are always available to answer your questions and address your concerns from beginning to end for just about any real estate matter you may encounter. Also, having been in the community for over 30 years, we have built quality relationships with local title companies that can make your experience even smoother.