Why Do You Need Title Insurance?

You probably have ever bought a house through a realtor and with a mortgage, then you have seen a title commitment. This is a “bill 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’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” signifies 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 can 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 individual but 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 representative could have to get a court order to obtain the creatority to sign a deed on behalf of the estate. If the property is owned by an organization, then a majority of the shareholders should consent to the sale via a corporate decision for the sale to be effective.

When there isn’t a title insurance guaranteeing the authorized description, the authorized owner, and the absence of encumbrances on the time of closing, the buyer often gets a mere “quit claim” deed. This means “purchaser beware”-in spades. The client might later have a declare for fraud towards the seller, but that means a lawsuit and potential problems with accumulating on a judgment. If, alternatively, you may have title insurance and discover that the legal description was mistaken, the seller didn’t have the right to sell the property, and/or liens or other encumbrances were not disclosed or not discharged, you possibly can file an insurance claim and hopefully be paid nearly immediately.

Once you buy property, particularly if it has been foreclosed or you’re buying it as a “quick sale,” you’ll want to get a title insurance commitment. The commitment provides direction for what must be done to remove liens, encumbrances, and mortgages from the public record. The commitment, however, can “expire.” There’s a date, normally on the high, that signifies 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 just isn’t and you accept a commitment with a stale date, then you might not be able to complain if the IRS filed a lien in opposition to the property the day before the sale, and the title company did not discover it. Because title insurance firms are linked 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’s a “redemption period” (generally 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 quantity paid on the sheriff’s sale plus the interest that has accrued for the reason that sale. If the owner manages to sell the property during this redemption period, 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 had been recorded after the foreclosed mortgage was recorded are reinstated and stay attached to the property.

For example, 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 $one hundredK.

If (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 not redeem the property-then the next Quicken Loans’ loan and the IRS lien will be extinguished. Bank of America will own the property outright.

If, then again, a) Bank of America foreclosed on the $one hundredK mortgage loan; (b) Bank of America “bid” $100K on the sheriff’s sale (after which offered to cancel the mortgage in exchange for the property); and (c) the owner did redeem the property -then the following Quicken Loans’ loan and the IRS lien remain an encumbrance towards the property. If somebody purchased the property during the redemption period, even in a short sale, that particular person would have paid something to the owner to buy the property but would have really purchased property still subject to the $50K secured equity line and the $one hundredK IRS lien. Only the entire running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless those subsequent lenders or lien holders agree to launch their curiosity in the property. If you’re 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 is imperative that purchasers of real estate get hold of title insurance and the knowledge of a very good title insurance company. As they say, “If it’s too good to be true, then it probably isn’t true.” While in most real estate offers the seller pays for the title insurance, there is nothing to prevent a buyer from acquiring title insurance himself. On the minimal, a buyer should receive a title search of the property (current to the date of sale) earlier than any purchase.

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