Here in San Antonio (and Texas in general), we use title companies to close our transactions when selling and purchasing homes. The purpose of the title company is two-fold; firstly, to manage all the incoming funds and make sure all the appropriate parties receive the correct funds (and there’s a lot of parties – lenders, sellers, agents, insurance companies, surveyors, the tax man…the list can be quite overwhelming), secondly, the title company issues title insurance. Title insurance insures the property is being passed from one party to another without any encumberance. By issuing title insurance on the property, the title company is ensuring that if someone indeed does have a claim to the ownership of the property, they will cover the owners’ loss.
Buyers and sellers can negotiate who will pay for title insurance and also who will be chosen as the title company. There are actually two components to title insurance; the owners’ policy and the lender policy (each one protecting that party from possible claims of ownership of the home). If the seller pays for both portions of title insurance, they may pick the title company without fear of violating RESPA (the Real Estate Settlement and Procedures Act). However, if the seller is not willing to pay for title insurance, the buyer may negotiate to choose a title company and pay for the title policy.
There have been courts that have argued that when the policy is split into its two components (lender and owner) and the seller pays for the owner policy and the buyer pays for the lender policy, that the seller may still choose the title company. However, RESPA does not officially cover this position and the waters remain murky. It is best if the seller avoids any conflicts and a) chooses and pays for the title policy (both owner and lender sides) or b) let’s the buyer choose the title company and pay for their title policy. Often in the MLS a title company is written in as a preferred title company, but although the seller’s and their agent might prefer it, as a buyer, you do not have to use their title company if you are paying for your title insurance (no matter what some agents might try and tell you).
In Texas, the cost of title insurance is regulated, so all title companies charge the same fees for the policy. Because of this, it really comes down to service and ability to perform the required tasks with efficiency and flexibility. Most agents work with several different title companies and closers and know who can best fit your personal situation and transaction, so ask your agent when buying or selling your next home who they know can get the job done and make your decision with that in mind.
image courtesy of kozumel