Why Do You Need Title Insurance?

In case you have ever bought a house via a realtor and with a mortgage, then you have got seen a title commitment. This is a “bill of health” from a title insurance firm, alerting you to who owns the property you’re purchasing and to any liens, mortgages, or encumbrances on the property. It is essential that you just get a title commitment and title insurance.

A typical sales agreement requires the seller to provide the customer a “warranty” deed. The word “warranty” means that the seller is guaranteeing to the buyer that he/she owns the property, that it consists of the legal description set forth within the title commitment, and that the liens, encumbrances, and mortgages could have been discharged at the time of closing so that the property is transferred without any baggage. As an aside, if the sales agreement was signed by one particular person however the title commitment indicates that there are owners of the property, both 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 consultant could have to get a court order to obtain the writerity to sign a deed on behalf of the estate. If the property is owned by a corporation, then a seriousity of the shareholders must consent to the sale by means of a corporate resolution for the sale to be effective.

When there is no such thing as a title insurance guaranteeing the legal description, the authorized owner, and the absence of encumbrances at the time of closing, the buyer usually gets a mere “quit declare” deed. This means “purchaser beware”-in spades. The client may later have a declare for fraud against the seller, but which means a lawsuit and potential problems with amassing on a judgment. If, on the other hand, 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 were not disclosed or not discharged, you can file an insurance declare and hopefully be paid virtually immediately.

If you purchase property, especially if it has been foreclosed or you’re buying it as a “short sale,” remember to get a title insurance commitment. The commitment provides direction for what must be performed to remove liens, encumbrances, and mortgages from the general public record. The commitment, however, can “expire.” There is a date, often on the top, that signifies the final date that title to the property was checked. You possibly can request that the title commitment be “up to date” to the date of the sale. If it will not be and also you settle for a commitment with a stale date, then you will not be able to complain if the IRS filed a lien towards the property the day before the sale, and the title company did not discover it. Because title insurance companies are connected nowadays to the Register of Deeds office, it is not burdensome for them to do a final minute check.

As a last difficulty, when property has been foreclosed, there is a “redemption period” (usually six months) after the sheriff’s sale throughout which the owner can “redeem” the property. To redeem, the owner must go to the Register of Deeds office with a cashier’s check for the quantity paid at the sheriff’s sale plus the interest that has accrued because the sale. If the owner manages to sell the property throughout this redemption period, that will produce enough cash to redeem the property. The problem is that if the property is redeemed, then the entire mortgages or liens that have been recorded after the foreclosed mortgage was recorded are reinstated and stay attached 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 $100K mortgage loan; (b) Bank of America “bid” $100K at the sheriff’s sale (after which offered to cancel the mortgage in trade for the property); and (c) the owner did not redeem the property-then the next Quicken Loans’ loan and the IRS lien will likely be extinguished. Bank of America will own the property outright.

If, then again, a) Bank of America foreclosed on the $100K mortgage loan; (b) Bank of America “bid” $a hundredK on 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 stay an encumbrance towards the property. If somebody bought the property throughout the redemption period, even in a brief sale, that particular person would have paid something to the owner to purchase the property however would have really purchased property still topic to the $50K secured equity line and the $one hundredK IRS lien. Only the entire running of the redemption period extinguishes subsequent liens, mortgages, and encumbrances unless those subsequent lenders or lien holders comply with launch their interest in the property. If you are nonetheless dealing with the owner of foreclosed property, the property is undoubtedly still within the redemption interval-and therefore you MUST BEWARE!!

It’s crucial that purchasers of real estate obtain title insurance and the wisdom of a very good title insurance company. As they are saying, “If it’s too good to be true, then it probably is just not true.” While in most real estate deals the seller pays for the title insurance, there is nothing to prevent a buyer from acquiring title insurance himself. On the minimum, a buyer ought to receive a title search of the property (present to the date of sale) earlier than any purchase.

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