This post is the first of a three-part series on how to start and run a title company. It was originally published in 2017 and has been updated to include the latest insights. Click here for Part II, which covers expert tips to make your company successful.
It is an exciting time for the real estate title industry. Modern technology has made the once-dreaded phase of every real estate transaction—the closing—highly efficient and remarkably less stressful than ever before.
Thinking about starting your own title company? To be successful, industry knowledge, attention to detail, top-notch customer relations, and organization is critical. However, none of these attributes matter if you can’t get your title company up and running based on a business model that is within your budget.
While the legal requirements to open a title or escrow company will vary from state to state, this blog will outline the basic steps to get you started.
1. Understand your state insurance requirements
Each state requires its own set of insurance requirements. The good news is that they make it relatively painless to see what they are. Just go to your state’s department of insurance website. For a state-by-state overview, NAIC has compiled a survey of state insurance laws regarding title data and title matters using responses from each state’s regulators.
There may be requirements for licensure, education, insurance, and financial stability to be met. Typically you just have to provide proof of legal business registration (discussed below), insurance and bond documents (also discussed below), as well as a background check.
Some states require that a title or settlement or escrow agent act under an “attorney approved system” where a licensed attorney must oversee closings handled by paralegals.
Additional notes: In ME attorneys must close; can be title company or attorney in PA, can be escrow company or title company in TX
2. Nail your licensing exam
You may be required, depending on the state, to take a pre-licensing course and exam. The licensing exam will cover insurance regulation, general insurance concepts, title insurance principles, title exceptions procedures for clearing a title, and real estate transactions.
Your state’s department of financial services can provide a list of approved educational entities for your prescribed classes. For example, here is Florida’s portal for finding courses and providers. If you are an attorney, and you are already licensed in your state, you may be able to waive this requirement.
3. Get bonded
Title companies are generally required to carry a fidelity bond and/or a surety bond, generally no less than $50,000. Surety bonds protect both the consumer and the companies and range in coverage from 10% to 20% of the title agency’s net worth, and can range from $200 up to $1,000.
Surety Bonds ensure that your company can fulfill its obligations to its customers, and that the customers will have the opportunity to get their funds back if something should happen to your company.
Most states require Errors and Omission insurance (professional liability insurance) in the amount not less than $250,000.00. E & O insurance will cover you if there is a claim of negligence against your company.
4. Form a company
Check with an attorney for advice on what type of company entity you should form. Whether it be a corporation or limited liability company, you’ll need one for most state requirements and they provide you with different legal and tax benefits. Nowadays, this is relatively easy to accomplish online.
As part of forming your entity you’ll also apply for your Employer Identification Number or “EIN” from the IRS. There is no cost for this service and the turnaround time is usually quite quick. The EIN is like your business’s Social Security Number. It’ll help you get your bank accounts set up and be used for taxes.
Name your company and perhaps even spring for a trademark to protect your brand. Be mindful, state laws vary on naming requirements. When you’re done, don’t forget to register your title agency’s name with the Secretary of State or the County Clerk.
5. Select an underwriter
Before you can start, you will need to choose a qualified underwriter. A title underwriter is responsible for checking the title and ensuring that ownership rights to the property can be guaranteed. Their expertise will affect the quality of the resultant title insurance policy.
Selecting the right underwriting partner is critical to the long-term success of your business. You’ll also want to ensure that your underwriter is able to integrate with your title production software (TPS). This will help ensure alignment with your underwriter’s specific requirements and efficiency in your title operations. Qualia is integrated with all major underwriters, so you can easily complete all of your title work in one place.
If you’d like to begin a title company evaluation and discuss underwriter selection, email us at irteam@qualia.com.
6. Last but not least, get your license
Once you have completed your state’s licensing requirements, it is time to apply for a license. Refer back to your state’s website to access their registration paperwork and/or portal.
Next: The fun stuff of building your business
Once your company is set up, you’re ready to start crushing your business goals. In our next post we provide pro-tips on how to build your business including customer service, marketing, and reporting. Click here to read it now.
About the Author
Known as “the closing expert,” Sandy has over 25 years of experience as an escrow and closing officer and has closed thousands of transactions across the country. She has been involved in real estate from every possible perspective—consumer, landlord, mortgage broker, land appraiser, real estate investor, and consultant. She published The Complete Guide To Your Real Estate Closing, the first book dedicated to explaining the subject of closing and escrow itself. The book has sold over 750,000 copies and is in its updated 6th edition.
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