Newbie real estate investors are often confused as to what a title company really is and the role of a title company in closing. I decided to write this blog to clarify the difference between using a title company to close a deal or a real estate attorney…or both! A Title Company is actually an Insurance Company that offers Indemnity Insurance, which is standard practice in the US. Here is the Wikipedia definition:
"Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the United States as a result of an alleged comparative deficiency of the U.S. land records laws. It is meant to protect an owner's or a lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy".
Title companies are generally staffed by real estate "experts" and paralegals. However, they will generally have an Attorney on retainer. The important thing to realize is, that the attorney on retainer is going to protect the title company and NOT necessarily you the investor.
When you hire a real estate Attorney to represent YOU, they have a fiduciary responsibility to you as their client and not to other parties. Your attorney will protect you from potential mistakes in the closing process. Many deals have been lost because the policy was not written correctly; there was information missing, or no policy at all. Not to say that Attorneys do not make mistakes. However, they will be more thorough than a group of people that process transactions daily and not consider your situation. Also most Title Companies are not familiar with "Simultaneous Closes" and creative real estate transactions whereas a real estate attorney will be. When interviewing a real estate attorney, ask if they invest in real estate. It will be to your benefit to work with an attorney that invests too, they will have a deeper understanding of what you need.
I'm not trying to bash Title Companies; bottom line is they are not there specifically for you the investor. The bulk of a title company's business will be the one-time homebuyer. They will typically build "junk fees" into the closing to get the most bang from their buck from that one transaction. Title Companies are not banking on repeat business with the one time homebuyer; it could be years before they represent that client again. Your real estate attorney will be able to eliminate a lot of "junk fees" in a closing that would otherwise be added on by a title company. This is mostly because the Attorney would want to keep you as repeat business and will profit from your long-term business relationship. Also an Attorney will point out additional liabilities and give legal advice that a Title Company has no responsibility to do.
The best-case scenario is an attorney owned Title Company. You will have the best of both worlds. If there is not an attorney owned Title Company in your area and it's necessary to use both separately… ask your attorney which Title Company they recommend? I suggest interviewing the Title Company to make sure they are investor friendly. Ask them questions about their record with investor only transactions. Do they know what a "Simultaneous Close" is? Do they know the guidelines for the state? Before closing always make sure your Attorney looks over the deal first. You have the right to have a third party adjudicate your transaction first.