The U.S. title insurance industry was worth about $16 billion in 2018, with an anticipated 3% annual growth rate. Starting a title company requires a relatively low investment, and it can turn into a successful venture. The key is to know the legal regulations inside and out and have a clear understanding of the home-buying process. Before starting a title company in Texas, you need to obtain a title agent license and an escrow officer's license and have an abstract plant. Title companies are also legally required to pay a bond, which guarantees they will comply with the industry's regulations.
Understand Your Role and Responsibilities
First of all, make sure you know what a title company does and what its responsibilities are. These agencies check and review the title to a piece of real estate to make sure it's valid and free of liens. If it meets these criteria, then the company issues title insurance, which protects against financial loss from any liens and defects in the title to a property. There are two types of policies — one that protects the mortgage lender and one that protects the buyer, with the former being the more common.
Title companies in Texas are responsible for researching the title, closing transactions and issuing title insurance. They are legally required to maintain a database of real estate resources and have access to public records in this niche. Their role is to ensure there are no outstanding issues with the property, including but not limited to:
- Legal problems
- Open second mortgages
- Liens for unpaid taxes
- Defective deeds
- Undisclosed heirs
Some companies also maintain escrow accounts, which contain the funds required for closing and settlement costs. Furthermore, they ensure that sellers are legitimate and have the right to sell their properties. After the title's validity is established, these professionals issue title insurance to the mortgage lender or the buyer. The title company also acts as a closing agent for both parties.
Starting a Title Company
Each state has different requirements for starting a title company. If you're planning to launch this kind of business in Texas, make sure you know the local laws. This industry is regulated by the Texas Department of Insurance, which you can contact at 512-676-6729 for general questions or 512-676-6500 for licensing information.
Although no formal education is required to become a title agent in Texas, working for an insurance or real estate company is a good way to gain experience. When you're ready to work on your own, you need a title agent license, which must be sponsored by a title insurance company or agent. If you've worked for a company in this niche, it should be easy to find a sponsor. Depending on the services you plan to offer, you may also need an escrow officer's license — again, it's legally required to have your application sponsored.
The State of Texas also requires aspiring title agents to have an abstract plant, or a database of records indicating defects, liens, abstracts of judgments, and other issues that may affect the property's title. The abstract plant must contain information related to the county where you operate. After you complete these steps, you post a bond with the Texas Department of Insurance to guarantee that you'll comply with the industry's regulations; title agents are required to post a $10,000 bond, while escrow officers need to post a $5,000 bond.
Plan Your Business
Once you are licensed, make a business plan for your title company. Decide on a location, determine who will be responsible for what, and conduct market research. Check your competitors and try to come up with better rates or a different marketing strategy to set your business apart. Currently, Texas has the highest rate of increase in lenders' title insurance, so offering slightly lower than those of other title agents may give you a competitive advantage.
Your business plan should also cover the financial aspects of starting and running a title company. Review your capital requirements and make financial projections for the next three to five years. Depending on your particular situation, you may apply for government business loans, small business loans for minorities in Texas, lines of credit and other types of funding. Reach out to the U.S. Small Business Administration (SBA) to discuss your financing options.
Include additional documents, such as non-disclosure agreements and legal contracts for your clients and employees, in the business plan. Ideally, contact an attorney to help you out with these. Mishandling confidential client information can result in hefty fines, so don't take unnecessary risks.
- Ibis World: Title Insurance Industry in the US - Market Research Report
- Texas Land Title Association: Texas Department of Insurance (TDI)
- Office of the Attorney General of Texas: Insurance
- Courthouse Direct: Becoming a Title Agent in Texas - The Process
- Courthouse Direct: What Is a Title Plant?
- Texas Public Policy Foundation: Texas Title Insurance Needs Competition
- SBA.gov: Loans
- Investopedia: Title Insurance
- USLegal: Title Company Law and Legal Definition
- real estate image by Andrei Merkulov from Fotolia.com