Why Do You Need Title Insurance?

You probably have ever bought a house by means of a realtor and with a mortgage, then you have got seen a title commitment. This is a “invoice of health” from a title insurance company, alerting you to who owns the property you might be buying and to any liens, mortgages, or encumbrances on the property. It’s essential that you get a title commitment and title insurance.

A typical sales agreement requires the seller to offer the customer 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 can have been discharged at the time of closing in order 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 must 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 must 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 seriousity of the shareholders should consent to the sale by means of a corporate decision for the sale to be effective.

When there is no title insurance guaranteeing the legal description, the legal owner, and the absence of encumbrances on the time of closing, the buyer normally gets a mere “quit claim” deed. This means “buyer beware”-in spades. The customer might later have a declare for fraud against the seller, however meaning a lawsuit and potential problems with amassing on a judgment. If, alternatively, you’ve got title insurance and discover that the legal description was improper, the seller did not have the appropriate to sell the property, and/or liens or other encumbrances weren’t disclosed or not discharged, you’ll be able to file an insurance declare and hopefully be paid virtually immediately.

While you buy property, particularly if it has been foreclosed or you are buying it as a “brief sale,” you’ll want 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, nonetheless, can “expire.” There is a date, often at the top, that signifies the last date that title to the property was checked. You may request that the title commitment be “updated” to the date of the sale. If it shouldn’t be and you accept a commitment with a stale date, you then might not be able to complain if the IRS filed a lien against the property the day before the sale, and the title company didn’t discover it. Because title insurance corporations are connected lately to the Register of Deeds office, it isn’t burdensome for them to do a last minute check.

As a last problem, when property has been foreclosed, there’s a “redemption period” (typically six months) after the sheriff’s sale during 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 amount paid at the sheriff’s sale plus the interest that has accrued because the sale. If the owner manages to sell the property during this redemption interval, that will produce sufficient money to redeem the property. The problem is that if the property is redeemed, then all of the mortgages or liens that were recorded after the foreclosed mortgage was recorded are reinstated and remain attached to the property.

For example, assume the next:

On January 5, 2008, Bank of America recorded a $one hundredK 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 $100K.

If (a) Bank of America foreclosed on the $100K mortgage loan; (b) Bank of America “bid” $100K on the sheriff’s sale (after which offered to cancel the mortgage in alternate for the property); and (c) the owner didn’t redeem the property-then the following Quicken Loans’ loan and the IRS lien will be extinguished. Bank of America will own the property outright.

If, however, a) Bank of America foreclosed on the $one hundredK mortgage loan; (b) Bank of America “bid” $one hundredK on the sheriff’s sale (after which offered to cancel the mortgage in alternate for the property); and (c) the owner did redeem the property -then the following Quicken Loans’ loan and the IRS lien remain an encumbrance against the property. If somebody bought the property throughout the redemption period, even in a brief sale, that individual would have paid something to the owner to purchase the property however would have truly bought property still topic to the $50K secured equity line and the $a hundredK IRS lien. Only the entire running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless these subsequent lenders or lien holders agree to launch their interest within the property. If you are still dealing with the owner of foreclosed property, the property is undoubtedly still in the redemption period-and due to this fact you MUST BEWARE!!

It’s crucial that purchasers of real estate acquire title insurance and the knowledge of a very good title insurance company. As they are saying, “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 prevent a purchaser from obtaining title insurance himself. At the minimal, a purchaser ought to receive a title search of the property (current to the date of sale) earlier than any purchase.

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