Last updated: March 19, 2019
US real estate transactions are contingent on the issuance of title insurance, the purpose of which is to protect the owner from claims against his title and from defects related to the title to the property. To obtain title insurance policy, a title agent, also known as the “escrow agent” in some US States, must be selected by either the buyer or seller. Selection varies according to the State and even to the prevailing customs in the county in which the property is situated.
The title agent is not the actual insurer, it is an intermediary which acts on the insurer’s behalf and works with the parties to comply with the conditions for obtaining title insurance. The title agent plays a key role in each US real estate transaction, being responsible for most the requisite work for the issuance of the title insurance.
To better illustrate the position and duties of both the title agent and the insurance company in a US real estate transaction, let’s take the example where ABC Florida Title Company (“ABC”) is selected as the title agent for such transaction. In this scenario, ABC is an authorized agent for Big Title Company (“BIG”), the latter being the insurer actually providing the title insurance policy.
As the insurer, BIG is an important party to the transaction. However, it does not play an active role with any of the parties to the transaction. It solely instructs the title agent of the conditions for the issuance of a title insurance policy and the exceptions hereto. The title agent communicates these conditions and exceptions to the buyer and the seller.
As title agent to the transaction, ABC will begin its work by verifying the title history of the property. For that purpose, it will conduct appropriate title searches to identify defects such as liens and encumbrances on the property, which could prevent transmission of free and clear title. Such defects, if not found prior to the purchase, would ultimately affect the new owner’s title on the property, and may result in the loss of title to the property.
During the transaction process, ABC will act as the intermediary between all parties to the transaction, working with them to ensure the title insurance conditions are met. The title agent will work with the title insurance company (BIG) and its underwriter to get the specific conditions and exceptions of the title insurance policy. Also, when a transaction is contingent on the buyer obtaining financing from a lender, the title agent will work to ensure the buyer complies with the lender’s additional conditions.
The title agent also works with the buyer and the seller to ensure they both meet their respective specific title insurance policy conditions. Additionally, acting together with the seller, the title agent will work to clean any title defect. The title agent will also allocate the closing costs between the buyer and seller pursuant to the contract and State law. When a transaction closes, the title agent disburses the net sale proceeds to the seller.
While a competent title agent will make sure that these issues are resolved prior to closing, a less diligent title agent may simply add an exception to a title insurance policy or not impose thorough conditions for obtaining title insurance rather than do the work necessary to clear up all defects. Due to the crucial role of a title agent in a US real estate transaction, the choice of a title agent is an important one. This is illustrated by the fact that First American Title Insurance Company has found that approximately 25% of real estate transactions are likely to be affected by title defects.
The comments offered in this article are meant to be general in nature and are not intended to provide legal advice regarding any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate for your circumstances.