Why Do You Want Title Insurance?

When you have ever bought a house through a realtor and with a mortgage, then you’ve gotten 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 just get a title commitment and title insurance.

A typical sales agreement requires the seller to offer the client a “warranty” deed. The word “warranty” means that the seller is guaranteeing to the client 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 on the time of closing in order that the property is switchred without any baggage. As an aside, if the sales agreement was signed by one 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 representative could have to get a court order to obtain the authority to sign a deed on behalf of the estate. If the property is owned by a company, then a seriousity of the shareholders must consent to the sale by means of a corporate decision for the sale to be effective.

When there isn’t a title insurance guaranteeing the legal description, the legal owner, and the absence of encumbrances on the time of closing, the client often gets a mere “quit declare” deed. This means “buyer beware”-in spades. The client may later have a declare for fraud towards the seller, but which means a lawsuit and potential problems with collecting on a judgment. If, then again, you have title insurance and discover that the legal description was incorrect, the seller did not have the suitable to sell the property, and/or liens or different encumbrances were not disclosed or not discharged, you’ll be able to file an insurance claim and hopefully be paid almost immediately.

Whenever you purchase property, especially if it has been foreclosed or you are buying it as a “brief sale,” make sure you get a title insurance commitment. The commitment provides direction for what must be completed 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 indicates the last date that title to the property was checked. You’ll be able to request that the title commitment be “updated” to the date of the sale. If it isn’t and also you settle for a commitment with a stale date, then you definitely might 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 related today to the Register of Deeds office, it shouldn’t be burdensome for them to do a final minute check.

As a final issue, 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 on the sheriff’s sale plus the curiosity that has accrued because the sale. If the owner manages to sell the property throughout this redemption interval, that may produce sufficient money to redeem the property. The problem is that if the property is redeemed, then all the mortgages or liens that were recorded after the foreclosed mortgage was recorded are reinstated and stay hooked up to the property.

For instance, assume the following:

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 on the sheriff’s sale (after which offered to cancel the mortgage in alternate for the property); and (c) the owner did not redeem the property-then the following Quicken Loans’ loan and the IRS lien shall 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” $100K at the sheriff’s sale (and then offered to cancel the mortgage in trade for the property); and (c) the owner did redeem the property -then the following Quicken Loans’ loan and the IRS lien remain an encumbrance in opposition to the property. If someone bought the property during the redemption interval, even in a brief sale, that person would have paid something to the owner to buy the property however would have truly bought property nonetheless subject to the $50K secured equity line and the $100K IRS lien. Only the whole running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless those subsequent lenders or lien holders agree to launch their interest within the property. If you’re still dealing with the owner of foreclosed property, the property is undoubtedly nonetheless in the redemption period-and therefore you MUST BEWARE!!

It is crucial that purchasers of real estate obtain title insurance and the wisdom of a good title insurance company. As they are saying, “If it’s too good to be true, then it probably shouldn’t be true.” While in most real estate offers the seller pays for the title insurance, there is nothing to stop a buyer from obtaining title insurance himself. At the minimal, a purchaser should acquire a title search of the property (present to the date of sale) before any purchase.

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