Why Do You Need Title Insurance?

In case you have ever bought a house via a realtor and with a mortgage, then you might have seen a title commitment. This is a «invoice of health» from a title insurance company, alerting you to who owns the property you’re buying and to any liens, mortgages, or encumbrances on the property. It is essential that you get a title commitment and title insurance.

A typical sales agreement requires the seller to provide the buyer a «warranty» deed. The word «warranty» means that the seller is guaranteeing to the customer that he/she owns the property, that it consists of the authorized description set forth within the title commitment, and that the liens, encumbrances, and mortgages could have been discharged on the time of closing so that the property is switchred without any baggage. As an aside, if the sales agreement was signed by one individual but the title commitment signifies that there are owners of the property, each of the owners should sign the closing paperwork for the sale to be consummated. If the property is owned by an estate (because the owner died), the personal representative could have to get a court order to acquire the authority to sign a deed on behalf of the estate. If the property is owned by a corporation, then a significantity of the shareholders must consent to the sale through a corporate resolution for the sale to be effective.

When there is no such thing as a title insurance guaranteeing the legal description, the legal owner, and the absence of encumbrances at the time of closing, the client usually gets a mere «quit declare» deed. This means «purchaser beware»-in spades. The buyer could later have a claim for fraud in opposition to the seller, but that means a lawsuit and potential problems with amassing on a judgment. If, alternatively, you have got title insurance and discover that the authorized description was mistaken, the seller did not have the best to sell the property, and/or liens or different encumbrances weren’t disclosed or not discharged, you possibly can file an insurance declare and hopefully be paid almost immediately.

Whenever you buy property, particularly if it has been foreclosed or you’re shopping for it as a «quick sale,» make sure to get a title insurance commitment. The commitment provides direction for what must be executed to remove liens, encumbrances, and mortgages from the general public record. The commitment, nevertheless, can «expire.» There’s a date, usually at the prime, that signifies the final date that title to the property was checked. You may request that the title commitment be «up to date» to the date of the sale. If it shouldn’t be and you accept a commitment with a stale date, you then may not be able to complain if the IRS filed a lien towards the property the day before the sale, and the title firm didn’t discover it. Because title insurance firms are linked today to the Register of Deeds office, it will not be burdensome for them to do a final minute check.

As a final situation, when property has been foreclosed, there’s a «redemption period» (generally six months) after the sheriff’s sale throughout which the owner can «redeem» the property. To redeem, the owner should go to the Register of Deeds office with a cashier’s check for the quantity paid at the sheriff’s sale plus the curiosity that has accrued because the sale. If the owner manages to sell the property during this redemption period, which will produce sufficient money to redeem the property. The problem is that if the property is redeemed, then the entire mortgages or liens that were recorded after the foreclosed mortgage was recorded are reinstated and remain hooked up to the property.

For instance, assume the next:

On January 5, 2008, Bank of America recorded a $100K mortgage loan to the owner.

On September 9, 2009, Quicken Loans recorded a $50K secured equity line.

On March 2, 2010, the IRS filed a lien for $a hundredK.

If (a) Bank of America foreclosed on the $a hundredK mortgage loan; (b) Bank of America «bid» $one hundredK at the sheriff’s sale (and then offered to cancel the mortgage in alternate for the property); and (c) the owner did not redeem the property-then the subsequent Quicken Loans’ loan and the IRS lien will likely be extinguished. Bank of America will own the property outright.

If, however, a) Bank of America foreclosed on the $100K mortgage loan; (b) Bank of America «bid» $100K at the sheriff’s sale (and then offered to cancel the mortgage in exchange for the property); and (c) the owner did redeem the property -then the subsequent Quicken Loans’ loan and the IRS lien remain an encumbrance towards the property. If somebody purchased the property in the course of the redemption period, even in a short sale, that person would have paid something to the owner to purchase the property however would have truly purchased property nonetheless subject to the $50K secured equity line and the $a hundredK IRS lien. Only the complete running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless these subsequent lenders or lien holders comply with launch their interest within the property. In case you are nonetheless dealing with the owner of foreclosed property, the property is undoubtedly nonetheless in the redemption interval-and due to this fact you MUST BEWARE!!

It’s crucial that purchasers of real estate receive title insurance and the wisdom of a superb title insurance company. As they say, «If it’s too good to be true, then it probably is not true.» While in most real estate deals the seller pays for the title insurance, there’s nothing to stop a buyer from acquiring title insurance himself. At the minimal, a purchaser ought to acquire a title search of the property (current to the date of sale) before any purchase.

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