When a real estate transaction moves from contract to closing, one of the most important steps is opening escrow. At this stage, the title company plays a critical role in protecting both the buyer and the seller while ensuring the transaction progresses smoothly and legally. Understanding what a title company does when escrow opens helps buyers and sellers appreciate the structure and security behind every successful closing.
The first responsibility of a title company when opening escrow is to act as a neutral third party. The title company does not represent the buyer or the seller; instead, it ensures that all terms of the purchase contract are followed and that funds and documents are handled securely. Once escrow is opened, the title company creates an escrow file and begins coordinating communication between agents, lenders, buyers, sellers, and other parties involved in the transaction. The escrow isn’t officially “OPENED” until the buyer’s Earnest money deposit is received.
One of the most important early tasks is conducting a title search. This process involves examining public records to verify the legal ownership of the property and to identify any liens, judgments, unpaid taxes, easements, or other encumbrances that could affect ownership rights. They also identify any other key components of the property that must also transfer such as an un-affixed manufactured/mobile home, a well, septic system or solar. The goal is to confirm that the seller has the legal right to transfer the property to the buyer clear of any liens, encumbrances or clouds to title, as the Title company is insuring the clear title and possession of the property. If issues are discovered, the title company works to resolve them before closing so that ownership can transfer without complications.
After completing the title search, the title company prepares and issues a preliminary title report (sometimes called a commitment for title insurance). This report outlines the current ownership, legal description of the property, and any conditions that must be addressed before the transaction can close, as well as any exceptions that the Title company will not be able to insure. Both buyers and lenders rely on this report to understand any existing claims or restrictions associated with the property.
Another key responsibility when opening escrow is managing the secure handling of funds. The title company maintains a Trust account where earnest money deposits and later closing funds are held separately for each transaction until all contractual conditions are met. This ensures that neither party receives funds prematurely and that disbursement occurs only once all requirements have been satisfied.
The title company also coordinates with the buyer’s lender, if financing is involved. They assist by providing necessary title information, reviewing lender instructions, and preparing for the final closing documents. As the transaction progresses, the escrow officer tracks deadlines, collects required documents, and confirms that contingencies such as inspections, loan approval, and insurance requirements are completed.
In addition, the title company prepares the settlement statement, which details all financial aspects of the transaction, including closing costs, prorations, commissions, payoffs, and any credit given by any of the parties. This document provides transparency to both parties so they understand exactly where funds are being allocated at closing.
Finally, the title company issues title insurance policies once escrow closes. There is an Owner’s Title insurance policy that protects the buyer against future claims or undiscovered issues related to ownership that may arise after the transaction is complete. There is a Loan Title Policy that protects the lender insuring that they are in first lien position after any government taxes and/or HOA or Community Associations. This protection is a key reason title companies play such an essential role in real estate transactions. Let’s connect!
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