Why Do You Need Title Insurance?

You probably have ever bought a house through a realtor and with a mortgage, then you’ve seen a title commitment. This is a «bill of health» from a title insurance firm, 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» signifies 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 may 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 however the title commitment signifies that there are owners of the property, each 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 might need to get a court order to acquire the writerity 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 by way of a corporate resolution for the sale to be effective.

When there isn’t a title insurance guaranteeing the authorized description, the legal owner, and the absence of encumbrances on the time of closing, the client usually gets a mere «quit claim» deed. This means «purchaser beware»-in spades. The buyer might later have a claim for fraud against the seller, but that means a lawsuit and potential problems with accumulating on a judgment. If, on the other hand, you will have title insurance and discover that the legal description was unsuitable, the seller did not have the proper to sell the property, and/or liens or different encumbrances were not disclosed or not discharged, you possibly can file an insurance declare and hopefully be paid virtually immediately.

If you buy property, particularly if it has been foreclosed or you might be buying it as a «quick sale,» be sure you get a title insurance commitment. The commitment provides direction for what must be carried out to remove liens, encumbrances, and mortgages from the public record. The commitment, nevertheless, can «expire.» There’s a date, often on the high, that signifies the final date that title to the property was checked. You can request that the title commitment be «updated» to the date of the sale. If it just isn’t and you settle for a commitment with a stale date, then you definitely may 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 these days to the Register of Deeds office, it will not be burdensome for them to do a final minute check.

As a final issue, when property has been foreclosed, there is a «redemption interval» (usually six months) after the sheriff’s sale during 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 amount 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 interval, that will produce sufficient money to redeem the property. The problem is that if the property is redeemed, then the entire mortgages or liens that had been recorded after the foreclosed mortgage was recorded are reinstated and remain hooked up 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 $a hundredK mortgage loan; (b) Bank of America «bid» $100K on the sheriff’s sale (and then offered to cancel the mortgage in alternate for the property); and (c) the owner didn’t redeem the property-then the subsequent Quicken Loans’ loan and the IRS lien shall be extinguished. Bank of America will own the property outright.

If, on the other hand, a) Bank of America foreclosed on the $a hundredK mortgage loan; (b) Bank of America «bid» $100K at 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 in opposition to the property. If someone bought the property throughout the redemption period, even in a short sale, that individual would have paid something to the owner to buy the property however would have actually bought property still topic to the $50K secured equity line and the $one hundredK IRS lien. Only the complete running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless these subsequent lenders or lien holders conform to launch their curiosity 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 subsequently you MUST BEWARE!!

It is imperative that purchasers of real estate obtain title insurance and the wisdom of an excellent 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 may be nothing to stop a buyer from obtaining 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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