Why Do You Need Title Insurance?

If in case you have ever bought a house via a realtor and with a mortgage, then you will have seen a title commitment. This is a “invoice of health” from a title insurance company, alerting you to who owns the property you are 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 give the buyer a “warranty” deed. The word “warranty” implies 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 so that the property is transferred without any baggage. As an aside, if the sales agreement was signed by one person however the title commitment signifies that there are two 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 might have 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 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 authorized description, the legal owner, and the absence of encumbrances at the time of closing, the buyer usually gets a mere “quit declare” deed. This means “purchaser beware”-in spades. The client could later have a declare for fraud in opposition to the seller, however which means a lawsuit and potential problems with collecting on a judgment. If, then again, you could have title insurance and discover that the authorized description was mistaken, the seller didn’t have the appropriate to sell the property, and/or liens or other encumbrances were not disclosed or not discharged, you may file an insurance claim and hopefully be paid almost immediately.

While you purchase property, especially if it has been foreclosed or you’re shopping for it as a “short sale,” you should definitely 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, nevertheless, can “expire.” There is a date, normally at the top, that signifies the final date that title to the property was checked. You possibly can request that the title commitment be “up to date” to the date of the sale. If it shouldn’t be and you accept a commitment with a stale date, then you definately is probably not able to complain if the IRS filed a lien towards the property the day earlier than the sale, and the title firm 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 last minute check.

As a last issue, 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 quantity paid at the sheriff’s sale plus the curiosity that has accrued since the sale. If the owner manages to sell the property during this redemption interval, which will produce sufficient cash 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 attached to the property.

For instance, 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 $one hundredK mortgage loan; (b) Bank of America “bid” $one hundredK at the sheriff’s sale (after which offered to cancel the mortgage in change 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, then again, a) Bank of America foreclosed on the $a hundredK mortgage loan; (b) Bank of America “bid” $a hundredK at 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 subsequent Quicken Loans’ loan and the IRS lien remain an encumbrance against the property. If someone purchased the property during the redemption interval, even in a brief sale, that person would have paid something to the owner to purchase the property but would have actually bought property still topic 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 those subsequent lenders or lien holders agree to release their interest in the property. If you’re nonetheless dealing with the owner of foreclosed property, the property is undoubtedly nonetheless within the redemption period-and subsequently you MUST BEWARE!!

It’s imperative that purchasers of real estate receive 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 is not true.” While in most real estate offers the seller pays for the title insurance, there may be nothing to stop a purchaser from acquiring title insurance himself. At the minimal, a purchaser should receive a title search of the property (present to the date of sale) before any purchase.

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