A title company is a business that makes sure a property’s ownership is clear before it changes hands, insures that ownership and, in many states, runs the closing itself. When you buy a rental property with a loan, a title company is almost always involved.
What a title company does
- Title search. It reviews public records for the property: past deeds, mortgages, liens, judgments, easements and tax status.
- Title commitment. It issues a report saying what it will insure, what must be fixed before closing and what will be excluded.
- Clearing problems. It works with the parties to pay off old mortgages, release liens and fix errors.
- Escrow and closing. In many areas it holds the deposit, prepares the settlement statement, collects and pays out funds and oversees signing. See escrow.
- Recording. It sends the new deed and mortgage to the county to be recorded.
- Title insurance. It issues policies that protect against covered title defects found later.
Owner’s vs lender’s title insurance
| Lender’s policy | Owner’s policy | |
|---|---|---|
| Protects | The lender’s loan | The owner’s equity |
| Required? | Almost always, by the lender | Usually optional |
| Amount | Up to the loan amount | Up to the purchase price |
| Lasts | Until the loan is paid off | As long as the owner or heirs hold title |
| Paid | Once, at closing | Once, at closing |
Title insurance looks backward. It covers problems that existed before you bought, such as a forged deed in the chain, an unknown heir or a recording error, rather than events after closing.
What it costs
Title charges are usually a one time cost at closing and include search fees, settlement or escrow fees and the insurance premiums. In some states premiums are set by regulators; in others they vary by company. Ask for a fee estimate early and compare it with the loan estimate from your lender. Who pays each charge, buyer or seller, depends on local custom and the purchase contract.
Example
An investor buys a $350,000 fourplex with a $262,500 loan. The title search finds an old mortgage from a previous owner that was paid but never formally released. The title company obtains the release before closing, issues a lender’s policy for $262,500 and an owner’s policy for $350,000, records the new deed and wires the seller’s proceeds after paying off their loan.
Why it matters for landlords
Every property you buy depends on clean title, and every refinance will check it again. Keep your settlement statement and owner’s policy with your property records, since they show your cost basis and protection. Record the purchase, closing costs and loan in your books as soon as you close. TenantLoop’s accounting keeps those opening entries with the property so later reports start from the right numbers. This is general information; a real estate attorney can advise on a specific deal.
Related terms
Where it gets confusing.
Who chooses the title company?
It depends on local custom and the contract. In some areas the buyer chooses, in others the seller does. Federal rules generally stop a seller from requiring a buyer to use a particular title insurer as a condition of sale in many residential deals.
Do I need an owner's title policy if the lender already requires one?
The lender's policy protects only the lender's loan. An owner's policy protects your own equity. It is usually optional, paid once at closing, and lasts as long as you or your heirs own the property.
What happens if the title search finds a problem?
The title company lists it as a requirement to clear before closing, such as paying off a lien or getting a missing signature. Some issues are listed as exceptions the policy will not cover.