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Why Do You Need Title Insurance?

In case you have ever purchased a house by means of a realtor and with a mortgage, then you could have seen a title commitment. This is a „invoice 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 get a title commitment and title insurance.

A typical sales agreement requires the seller to provide the client a „warranty“ deed. The word „warranty“ means that the seller is guaranteeing to the buyer that he/she owns the property, that it consists of the authorized 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 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 consultant may need to get a court order to obtain the creatority 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 a corporate resolution for the sale to be effective.

When there isn’t any title insurance guaranteeing the authorized description, the authorized owner, and the absence of encumbrances at the time of closing, the customer usually gets a mere „quit claim“ deed. This means „buyer beware“-in spades. The client might later have a claim for fraud against the seller, but which means a lawsuit and potential problems with gathering on a judgment. If, then again, you’ve gotten title insurance and discover that the authorized description was incorrect, the seller didn’t have the correct to sell the property, and/or liens or other encumbrances were not disclosed or not discharged, you can file an insurance claim and hopefully be paid virtually immediately.

Whenever you purchase property, especially if it has been foreclosed or you are buying it as a „quick sale,“ you’ll want to get a title insurance commitment. The commitment provides direction for what must be completed to remove liens, encumbrances, and mortgages from the public record. The commitment, however, can „expire.“ There is a date, often at the high, that indicates the last 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, then you definitely might not be able to complain if the IRS filed a lien in opposition to the property the day earlier than the sale, and the title company didn’t 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 problem, 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 should 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 because the sale. If the owner manages to sell the property during this redemption period, that may produce sufficient cash 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 stay connected to the property.

For instance, assume the next:

On January 5, 2008, Bank of America recorded a $one 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“ $100K at 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 following 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 $100K mortgage loan; (b) Bank of America „bid“ $a hundredK at the sheriff’s sale (after which offered to cancel the mortgage in trade for the property); and (c) the owner did redeem the property -then the subsequent Quicken Loans‘ loan and the IRS lien remain an encumbrance in opposition to the property. If somebody purchased the property in the course of the redemption interval, even in a brief sale, that particular person would have paid something to the owner to purchase the property but would have actually purchased property still subject to the $50K secured equity line and the $a hundredK IRS lien. Only the complete 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 nonetheless dealing with the owner of foreclosed property, the property is undoubtedly nonetheless within the redemption period-and due to this fact you MUST BEWARE!!

It’s crucial that purchasers of real estate receive 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 will not be true.“ While in most real estate offers the seller pays for the title insurance, there’s nothing to forestall a purchaser from obtaining title insurance himself. On the minimal, a buyer should get hold of a title search of the property (present to the date of sale) earlier than any purchase.

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