Quick Answer
A title company researches, examines, and insures ownership of real estate. An escrow company handles the neutral exchange of documents and funds at closing. In many markets, one company performs both roles depending on the jurisdiction and the type of transaction.
If you are involved in a real estate transaction, you will likely hear about both title companies and escrow companies. Understanding the difference between them helps you know who does what and what services you need.
What Does a Title Company Do?
A title company focuses on researching property ownership and issuing title insurance. Its primary responsibilities include:
- Title search: Examining public records to trace the chain of ownership and identify liens, judgments, easements, and other matters affecting the property. See What Is a Title Search? for more detail.
- Title examination: Analyzing the search results to determine whether the title is clear and insurable
- Title commitment: Preparing a commitment to issue a title insurance policy, listing requirements and exceptions. Learn about what a title commitment is.
- Title insurance: Issuing policies that protect against covered title defects
- Resolution of title issues: Working to clear liens, obtain releases, and resolve other title problems
For a full walkthrough, read What Does a Title Company Actually Do?
What Does an Escrow Company Do?
An escrow company handles the neutral exchange of funds, documents, and instructions during the closing process. Its primary responsibilities include:
- Holding funds: Receiving and holding earnest money deposits and closing funds
- Coordinating payoffs: Requesting and processing payoff statements from lenders and lien holders
- Preparing settlement statements: Drafting the financial summary of the transaction
- Arranging signing: Coordinating the signing of documents
- Disbursing funds: Releasing seller proceeds, paying off liens, and distributing net proceeds after recording
- Recording documents: Sending the deed and mortgage for recording with the county
For more on where escrow fits in the broader picture, see What Is Escrow?
Can One Company Do Both?
Yes, in many markets one company provides both title and escrow services. This is common in states where title companies are authorized to handle escrow and closings. In these cases, the title company has separate departments or personnel for the title function and the escrow function. They work together to ensure a smooth closing from both the title and financial sides.
Why Are They Separate in Some States?
Some states require separate entities for title and escrow services due to state regulations or longstanding industry practices. In attorney-closing states, a real estate attorney may handle the escrow function while a title company handles the title search and insurance. In other states, dedicated escrow companies operate independently from title underwriters. Depending on the jurisdiction, you may deal with multiple companies or a single provider.
Which One Do I Need?
For most residential real estate transactions, you will need both title and escrow services. If you work with a full-service title company that also handles escrow, you get both from one provider. If you are in a market where the functions are separate, you will need to coordinate with both a title company and an escrow company or attorney. Your real estate agent, lender, or attorney can guide you based on local practice and your transaction type.
Key Takeaway
Title companies research and insure ownership. Escrow companies handle the neutral exchange of funds and documents. In many areas, one company does both. Understanding the distinction helps you know what services are needed for your transaction.
FAQs
Does a title company always handle escrow?
No. In some states, title companies focus only on title search and insurance, while escrow is handled by a separate escrow company, attorney, or settlement agent. Check local practice for your specific transaction.
Which service costs more, title or escrow?
Costs vary widely by location and transaction type. Title insurance premiums are typically the larger cost. Escrow fees are generally a smaller percentage of the overall closing costs. Your settlement statement will itemize both.