Title Company vs. Escrow Company. What’s the Difference?
One important distinction all parties buying and selling property should understand is the difference between a title company and an escrow company. Though often confused and used interchangeably, they are not the same; they are two completely different entities who both act as neutral third parties to protect buyers and sellers during a real estate transaction. So what’s the difference between them?
What Does an Escrow Company Do?
To understand what an escrow company does, you first have to understand escrow. Escrow is the legal process in which both sides agree to hold monies such as deposits and earnest money temporarily with a neutral third party until the transaction is complete. The company that holds the money is the escrow company.
That company is responsible for overseeing the financial aspect of the transaction, including obtaining and organizing monies and documents for closing, as well as disbursing the funds at the appropriate times to the right parties. Escrow companies cannot, however, direct or administer closings.
In short, escrow companies protect the money, and by extension the buyers and sellers, throughout the transaction process.
What Does a Title Company Do?
Many title companies offer escrow services in addition to a much wider variety of services, such as conducting title searches, issuing titles, providing title insurance, and administering real estate closings.
Title Companies Ensure Title is Clean
One of the most critical services performed by a title company is a title search to make sure the seller legally owns the property and that the chain of title is clean. Title agents search for title defects in public records, deeds, mortgages, and other public documents to ensure the current owner is the legal owner and there are no debts against the property.
Title Companies Offer Title Insurance
Another key service offered by title companies is title insurance policies. Such policies protect the buyer from overlooked title defects and any future claims against ownership. Both lenders and buyers can buy title insurance to protect their financial investment in a property.
Title Companies Provide Closing Services
Whereas escrow companies cannot provide closing services, most title companies lead a real estate closing. They gather and complete all necessary forms and schedule and oversee the closing. The title agent ensures all forms are completed correctly and will direct the proper distribution of funds.
Which you choose to use depends on a variety of factors, including your specific needs and the legal requirements in your state. Do your research and consult with your real estate agent to see which would better serve you and protect your interests.