A title company is the neutral third party that makes sure the property you are buying can legally change hands and that the money moves safely when it does. In answer to the question of what title companies do: they research the ownership history of the property, clear up any legal or financial claims attached to it, issue insurance policies that protect you and your lender from hidden defects, hold the funds in escrow, handle federal tax reporting, oversee the signing at closing, and record the new deed with the local government. Their work runs from the first records search through the moment your ownership is officially on the public rolls.
Verifying Ownership and Searching the Title
The first job is confirming that the seller actually owns the property and that nobody else has a competing legal claim. Examiners work through records kept by county clerks, tax assessors, and court offices, tracing the chain of ownership back several decades to make sure every past transfer was properly executed. They pull federal and state tax-lien records for unpaid obligations that could attach to the property, and they review civil court filings for pending lawsuits or judgments that might affect ownership.
They also look at recorded surveys and land maps to identify easements, which are rights that let a utility company or neighbor use part of the property. They flag restrictive covenants, the rules (often set by a homeowners association) that limit how you can use or modify the land. Any gap in the ownership chain, such as a missing deed from a previous spouse or an improperly recorded inheritance, gets flagged before you commit money to the purchase.
A standard search only catches claims that have been formally recorded. Debts cities and counties track internally, like unpaid water bills, code-enforcement fines, or open building permits with outstanding fees, often never make it into the recorded files. A separate municipal lien search looks for those, and it is worth asking your title company whether one is included.
Clearing Title Defects Before Closing
When the search turns up problems, the title company works to fix them before you close. These defects are called “clouds” on the title. Common ones include mechanics’ liens filed by contractors who were never paid, delinquent property taxes that could eventually trigger a foreclosure, and old mortgages from previous owners that were paid off but never formally released in the public record. For an unreleased mortgage, the title company contacts the original lender to obtain a satisfaction or discharge document confirming the debt was paid.
When a previous owner died, the company verifies that probate wrapped up with a clear transfer. If probate records are incomplete, it may require an affidavit of heirship, a sworn statement identifying all potential heirs, so no one surfaces later with a valid ownership claim.
Some problems are too tangled to fix with paperwork, and the affected party has to file a quiet title action asking a court to decide who actually owns the property. This comes up with gaps in the ownership chain, boundary disputes, unknown heirs, or lienholders who refuse to release voluntarily. A title company cannot file the lawsuit for you (that requires an attorney), but it will identify the need for one and may coordinate with legal counsel to resolve the issue before closing.
Issuing Title Insurance
After the search is complete and known problems are cleared, the title company underwrites insurance policies that protect against defects no one caught. Two separate policies are involved in most transactions.
- The lender’s policy is almost always required by the mortgage company. It protects the lender’s financial interest for as long as the loan exists.
- The owner’s policy is optional but strongly recommended. It protects your equity for as long as you or your heirs hold an interest in the property, even after you sell.
Both policies cover losses from risks that were hidden at the time of purchase, including forged signatures on a previous deed, clerical errors in public records, and undiscovered heirs who later claim an ownership interest. Unlike homeowners insurance, title insurance is paid as a one-time premium at closing. Costs vary by state and purchase price but generally run between roughly 0.5 and 1 percent of the home’s price. By issuing the policy, the title company takes on the burden of defending the title in court if a third party later challenges your ownership.
A standard owner’s policy covers defects that existed before you bought the property. An enhanced owner’s policy adds protection for problems that may arise or be discovered after closing, such as unpermitted work by a previous owner, post-closing deed forgery, boundary encroachments, pre-existing zoning violations, and automatic inflation adjustments to the coverage amount. Enhanced policies cost more, so ask your title company to compare both options.
Holding Escrow and Preparing the Closing Numbers
The title company holds all transaction funds in a neutral escrow account until every condition in the purchase contract is satisfied. That starts with the earnest money deposit, typically 1 to 3 percent of the sale price, which the buyer puts down to show good-faith commitment. Neither party can access the escrow funds unilaterally; the company releases them only when both sides have met their obligations.
In the lead-up to closing, the company assembles the Closing Disclosure, a standardized form that itemizes every cost in the transaction, including loan charges, taxes, insurance premiums, and third-party fees. Staff coordinate with the lender to receive the final loan package, verify that all figures match the purchase agreement, and calculate prorated amounts for property taxes and utility bills so costs are split fairly between buyer and seller.
If the deal collapses and the parties disagree over who gets the earnest money, the escrow company cannot simply hand it to one side. It has to keep holding the funds until the parties reach a written agreement or a court decides. If the dispute drags on, the escrow agent can file an interpleader action, a legal proceeding that asks a court to determine who is entitled to the money. In some cases the funds may eventually be turned over to the state as unclaimed property if neither party pursues the matter.
Handling Tax Reporting at Closing
Title companies handle federal tax obligations that many buyers and sellers do not expect. As the settlement agent, the title company is generally required to file IRS Form 1099-S reporting the sale proceeds to the government. The form includes the closing date, the gross proceeds, the property address, and whether the seller is a foreign person. The company must request the seller’s taxpayer identification number no later than closing and is prohibited from charging a separate fee for this reporting work.1Internal Revenue Service. Instructions for Form 1099-S Proceeds From Real Estate Transactions
When the seller is a foreign person (a nonresident alien, foreign partnership, or foreign trust), the title company must also handle withholding under the Foreign Investment in Real Property Tax Act (FIRPTA). The standard withholding rate is 15 percent of the sale price, and the title company collects that amount at closing and remits it to the IRS.2Internal Revenue Service. FIRPTA Withholding A reduced rate or full exemption may apply if the buyer is an individual purchasing the property as a personal residence and the sale price is $300,000 or less.3Internal Revenue Service. Exceptions From FIRPTA Withholding
Guarding Against Wire Fraud
Real estate closings are a prime target for wire fraud. Criminals hack into email accounts of buyers, sellers, agents, or title company employees and send fake wiring instructions that redirect closing funds to a fraudulent bank account. The FBI’s Internet Crime Complaint Center reported over $173 million in real estate fraud losses in 2024, with business email compromise schemes, the broader category that includes real estate wire fraud, accounting for $2.77 billion in total losses that year.4Internet Crime Complaint Center. 2024 IC3 Annual Report
Reputable title companies use verification procedures to prevent these losses. Before wiring any funds, they confirm instructions through a separate communication channel, typically a phone call to a number already on file, not one pulled from the suspicious email. Treat these as red flags during your transaction:
- Last-minute changes to wiring instructions. A sudden request to send money to a different account is the single most common sign of fraud.
- Pressure to act immediately. Fraudsters create urgency to keep you from verifying.
- Slight differences in email addresses. A single swapped letter or added character in a familiar address is easy to miss.
- Instructions arriving earlier than expected. Some scammers send fake wiring details well before closing, not just at the last minute.
Always confirm wiring instructions directly with your title company by calling the number on their official website or business card. Never use a phone number from an email. Once wired funds reach a fraudulent account, recovering them is extremely difficult.
Closing the Deal and Recording the Deed
On closing day, a representative from the title company oversees the signing of all documents. They verify the identities of the buyer and seller, witness signatures, and make sure every required form is properly executed. Once signing is complete, the company disburses funds from escrow, paying the seller, paying off any existing mortgage so the new lender holds first-lien position, and distributing fees to agents, attorneys, and other service providers.
The final step is recording the new deed and mortgage with the local government recording office. That filing officially puts the world on notice that ownership has changed hands and protects the buyer’s priority against future claims. Recording fees vary by jurisdiction but average around $125 nationally, depending on the number of pages and local fee schedules.
You no longer have to sit across a table from a notary to close. As of 2026, 47 states and Washington, D.C., have enacted permanent laws allowing remote online notarization (RON), which lets you sign and notarize closing documents through a secure audio-video platform. The notary verifies your identity using multi-factor authentication, typically knowledge-based questions combined with government-issued ID verification, while the session is recorded.5Fannie Mae. eClosing Scenarios Ask your title company whether they offer a fully remote closing option.
Your Right to Choose the Title Company
In many markets, the real estate agent or seller will suggest a particular title company. Federal law gives you protections when a mortgage is involved. Under Section 9 of the Real Estate Settlement Procedures Act (RESPA), a seller cannot require you to buy title insurance from any specific company as a condition of the sale. A seller who violates this rule is liable to the buyer for three times the title insurance charges.6Office of the Law Revision Counsel. 12 U.S. Code 2608 – Title Companies; Liability of Seller
RESPA also prohibits kickbacks and referral fees among settlement service providers. No one involved in your transaction may receive a fee or anything of value in exchange for steering you to a particular title company, and fee-splitting arrangements where one party collects payment without performing actual work are likewise illegal.7Office of the Law Revision Counsel. 12 USC 2607 – Prohibition Against Kickbacks and Unearned Fees If you suspect a referral came with a hidden financial incentive, you can report it to the Consumer Financial Protection Bureau.
When comparing title companies, ask about the total cost (including the title search fee, settlement or escrow fee, and insurance premium), whether they offer enhanced owner’s coverage, what wire-fraud safeguards they use, and whether they support remote online closings. Shopping around can save you hundreds of dollars, and RESPA ensures you have the right to do so.