Why Do You Need Title Insurance?

You probably have ever purchased a house via a realtor and with a mortgage, then you may have 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 purchasing and to any liens, mortgages, or encumbrances on the property. It’s essential that you simply get a title commitment and title insurance.

A typical sales agreement requires the seller to offer the client a “warranty” deed. The word “warranty” implies that the seller is guaranteeing to the client that he/she owns the property, that it consists of the legal description set forth in 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 person but the title commitment signifies that there are two owners of the property, each 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 representative could must get a court order to obtain the creatority 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 by means of a corporate resolution for the sale to be effective.

When there is no title insurance guaranteeing the authorized description, the authorized owner, and the absence of encumbrances on the time of closing, the client usually gets a mere “quit claim” deed. This means “buyer beware”-in spades. The buyer could later have a declare for fraud towards the seller, but which means a lawsuit and potential problems with collecting on a judgment. If, alternatively, you’ve title insurance and discover that the legal description was improper, the seller didn’t have the appropriate to sell the property, and/or liens or different encumbrances were not disclosed or not discharged, you possibly can file an insurance claim and hopefully be paid almost immediately.

When you buy property, especially if it has been foreclosed or you’re shopping for it as a “brief sale,” make sure to get a title insurance commitment. The commitment provides direction for what must be done to remove liens, encumbrances, and mortgages from the general public record. The commitment, however, can “expire.” There is a date, normally at the prime, that signifies the final date that title to the property was checked. You’ll be able to request that the title commitment be “up to date” to the date of the sale. If it shouldn’t be and also you accept a commitment with a stale date, you then will not be able to complain if the IRS filed a lien against the property the day before the sale, and the title company did not discover it. Because title insurance firms are related these days 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 is a “redemption interval” (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 on the sheriff’s sale plus the interest that has accrued because the sale. If the owner manages to sell the property during this redemption period, which will produce enough cash to redeem the property. The problem is that if the property is redeemed, then all the mortgages or liens that have been recorded after the foreclosed mortgage was recorded are reinstated and remain attached to the property.

For example, assume the following:

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

If (a) Bank of America foreclosed on the $100K mortgage loan; (b) Bank of America “bid” $a hundredK at the sheriff’s sale (after which offered to cancel the mortgage in exchange for the property); and (c) the owner did not redeem the property-then the following Quicken Loans’ loan and the IRS lien will probably 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” $one hundredK on the sheriff’s sale (and then offered to cancel the mortgage in change for the property); and (c) the owner did redeem the property -then the following Quicken Loans’ loan and the IRS lien stay an encumbrance in opposition to the property. If somebody purchased the property during the redemption interval, even in a short sale, that individual would have paid something to the owner to buy the property but would have actually bought property still subject to the $50K secured equity line and the $a hundredK IRS lien. Only the whole running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless these subsequent lenders or lien holders conform to launch their interest in the property. In case you are still dealing with the owner of foreclosed property, the property is undoubtedly still within the redemption interval-and due to this fact you MUST BEWARE!!

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

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