Here's a nightmare nobody wants to consider: You buy a house and find out sometime after the money has been transferred to the seller and the seller is long gone to some unknown location that he or she owed some big debts that he or she never paid.
Being smart, the creditors holding those debts did the only thing they could do in some situations -- they slapped a lien on the property. If those liens didn't get paid off when the house was sold, you get the liens when you get the keys.
A title company's job is to make certain that those sorts of scenarios don't happen. They also look for other issues that can create what is known as a defect in the title to a piece of property. Any defect in the title can cause your ownership of the property to be in question -- not to mention the fact that when you go to sell the property someday or leave it to your heirs, you may be unable to do so because of the unresolved issue.
There are a number of common defects that title companies may find (and hopefully help you resolve) before the real estate transaction is final:
-- The person selling the house isn't the owner of record or doesn't have full ownership (perhaps because a deed wasn't properly transferred in the past)
-- There is an old mortgage that was paid off but never properly recorded as paid
-- The boundaries of the property are in dispute or some structure (like a shed or a fence) has been built that isn't on the right side of the property line
-- There is a hidden easement that wasn't disclosed during the sale allowing your neighbor or some other person limited use of your property for something
The title company also offers insurances that will cover you and the lender if a future problem develops. If it turns out that you don't have clear title to the home, it may pay you the full value of the property and pay the bank for the loan you were given.
An attorney can provide more information about how a title company can help you during your real estate purchase and how he or she can help should problem arise.
Source: Zillow, "What Does a Title Company Do?," accessed June 08, 2017