Title Companies and Title Insurance: What They Are and Why You Can't Skip Them

What Is Title and Why Does It Matter

'Title' refers to legal ownership of the property. For a sale to be valid, the seller must have clear, marketable title — meaning the legal right to sell the property free of competing claims. Common title problems include unpaid contractor liens (a contractor who was never paid for work on the property), judgment liens (from lawsuits against a prior owner), unpaid property tax liens, estate disputes from a deceased prior owner, recording errors in public records, and in rare cases fraudulent deeds. These problems can surface years after a transaction if not caught during the title search, which is exactly what title insurance protects against.

The Title Search Process

A title examiner reviews public records going back decades, sometimes 60+ years in NJ — to trace the chain of ownership, identify any recorded liens or encumbrances, and confirm that the seller has clear marketable title. If a problem is found, the seller's attorney or the title company works to resolve it before closing. Most title issues are resolvable: a contractor lien can be paid off at closing from sale proceeds, a recording error can be corrected with a corrective deed, an old estate issue can usually be cleared with documentation. But some transactions do fall through because of title problems that cannot be cleared in time — which is why early title search matters.

Title Insurance — Two Policies, Two Protections

There are two separate title insurance policies, and they protect different parties. Owner's policy: purchased once at closing by the buyer, protects the buyer for as long as they own the property against any ownership claims that arise from events before the purchase. If a long-lost heir of a prior owner shows up five years from now claiming the property, the owner's title insurance defends you and pays out if the claim succeeds. Lender's policy: required by virtually all mortgage lenders, protects the lender's interest in the property up to the loan amount. The buyer typically pays for both, but the policies are separate and protect separate parties. Why buy the owner's policy even when not strictly required? It is a one-time premium (no recurring cost) that protects against a potentially devastating claim. The cost is small relative to the protection it provides for the entire time you own the home. Owner's title insurance typically costs $500–$2,000 depending on the purchase price and state. In New York and New Jersey the premium is regulated by the state and based on a fixed rate schedule. In Florida premiums are also regulated. The cost is a one-time payment at closing — there are no ongoing premiums.

The Title Company's Role at Closing

At closing the title company collects and reviews all closing documents, coordinates signatures, receives the buyer's down payment and the lender's loan proceeds via wire, pays off the seller's existing mortgage, pays accrued real estate taxes and any other liens that need to be cleared, distributes net proceeds to the seller, pays state and local transfer taxes, and records the new deed with the county recorder. The title company is the neutral third party that makes the financial mechanics of the transaction work — taking money in from one side, paying off all obligations, and disbursing what remains to the seller. In New York and New Jersey a real estate attorney typically coordinates closely with the title company and attends closing. In Florida the title company often serves as the primary closing agent without attorney attendance being standard practice — though having your own attorney review documents before closing is always advisable regardless of state.

Earnest Money in Escrow

The title company often holds the buyer's earnest money deposit in an escrow account from the time of contract signing until closing. This neutral holding protects both parties: the seller knows the buyer has skin in the game, and the buyer knows their deposit is not in the seller's pocket. If the deal falls through under a valid contract contingency (failed inspection, denied financing, low appraisal), the buyer recovers the deposit. If the buyer backs out without a permitted reason, the seller may be entitled to keep it. The title company follows the contract — it does not take sides. Wire fraud warning: the closing wire transfer is one of the most targeted moments in any real estate transaction. Criminals monitor email communications and send fake wire instructions designed to look like they came from your title company or attorney. Always verify ALL wire instructions by calling your title company or attorney directly using a phone number you obtained independently — never trust wire instructions sent by email alone. NestMatcher will never send you wire transfer instructions.

What This Means in New York, New Jersey, and Florida