What Is a Title and Escrow Company and Why Are They So Important in Real Estate Closings?

December 20, 2016

According to the website of Florida's Chief Financial Officer, "a title is the foundation of property ownership. Anyone who purchases real property also obtains a title to the land. The title is the buyer's legal right to possess the property and use it within the restrictions imposed by zoning codes or other established limitations." A title company verifies that the title of the property being purchased is free of any errors, debts, liens, and other encumbrances. It also prevents the buyer and lender from losing their investment in the future. Escrow, on the other hand, is a financial agreement held by a neutral third party who keeps and controls the funds of the two parties involved in a specific transaction. Escrow accounts are typically established when a real estate purchase or sale is made and the specialized agent holds the funds until the closing and verifies that both parties have fulfilled their end of the transaction. A title and escrow company offers both services to homebuyers, sellers, lenders, and real estate brokers.

A title and escrow company is in charge of holding the escrow account where the funds will be kept, but also of verifying that the title of the property is clear, releasing the funds once both parties have reached an agreement and all the conditions under which the escrow was established have been met.

When buying or selling a home, it is generally necessary to obtain a title clearance certificate and title insurance as part of the closing process. Title insurance is a policy that protects both the lender and buyer from loss in case a property ownership dispute takes place. As such, a title insurance company needs to make sure that the title is clear and free of any encumbrances and clouds and that there are no issues with the property in question.

On the other hand, some of the duties of an escrow agent include: acting as an impartial third party, writing the escrow terms as per the instructions of the seller and buyer, working with and thoroughly following instructions from all parties involved, protecting the funds and/or documents in their possession, and paying relevant bills. Furthermore, escrow agents are in charge of providing accounting information pertaining to the escrow transaction or transactions, ensuring funds and property alike will not be released until all the stipulated conditions are complete, and disbursing funds or transferring the title after all the stipulated conditions are met.

Property title searches thoroughly examine all public records regarding the title of a specific property to verify that there are no liens or other claims against the property, excluding the ones that are removed upon closing the purchase transaction. This step is extremely important because it verifies all former owners have officially given up their rights to that specific property. Title searches may include the following information:

• A judgment lien, which is a court ruling in favor of a creditor who is owed money. A record of the lien is established in the county where the property is, and the lien or liens are attached to the debtor's property. In Florida, a judgment lien will be attached to the debtor's property for ten years (regardless of a change in ownership).


• The legal description of a real estate property is the one used in legal documents, describing the location and identifying the plot of land or building being sold within set boundaries.


• Property tax information makes sure that all taxes on the property are up to date. The state of Florida doesn't collect any property taxes, but local governments do. Residential and real estate property tax records are held in each Floridian county, retained by the Property Appraiser.


• Mechanic's liens are those filed against the title of a property to secure the interests of those who have supplied labor or materials to improve said property. It's a way for contractors, suppliers, and laborers to ensure payment from the owner during and after a construction project.

This is just some of the information that might come to light during a title search, but it does not leave out other information the client may require, such as vesting of the title, federal tax liens, mortgage(s), and others.

If you are looking for premier escrow and title services in Florida, give us a call at (305) 235-4571 or fill out the contact form. One of our representatives will be happy to answer any questions you may have. You can also follow us on your favorite social media. Find us on Facebook as Key Title & Escrow, or follow us on Twitter @KeyTitle_Escrow.

Sources:
Florida's Chief Financial Officer
Nolo
Legalmatch
Florida Assessor and Property Tax Records Directory