What is the difference between a title company and an escrow company?

The distinction between a title company and an escrow company highlights their respective roles in real estate transactions. A title company is primarily responsible for ensuring that the property title is clear and free of any liens or encumbrances. This involves a thorough title search and the issuance of a title insurance policy, which protects the buyer and lender against any potential claims against the title after the sale.

On the other hand, an escrow company functions as a neutral third party that manages the exchange of funds and documents throughout the transaction process. It holds the buyer's deposit and ensures that all conditions of the sale are met before the funds are disbursed and the title is officially transferred to the buyer. This includes collecting and managing the necessary documents from all parties involved.

This differentiation clarifies that while both companies play vital roles in property transfers, their focus and services are distinct. The correct answer effectively captures the essential functions they're designed to perform within the real estate process.