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Why Do You Need Title Insurance?

You probably have ever purchased a house by a realtor and with a mortgage, then you’ve got seen a title commitment. This is a „bill of health“ from a title insurance firm, alerting you to who owns the property you’re 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 give 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 within the title commitment, and that the liens, encumbrances, and mortgages could have been discharged at 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 may have to get a court order to acquire the authority to sign a deed on behalf of the estate. If the property is owned by a corporation, then a seriousity 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 legal description, the authorized owner, and the absence of encumbrances on the time of closing, the customer often gets a mere „quit claim“ deed. This means „purchaser beware“-in spades. The client might later have a declare for fraud in opposition to the seller, but meaning a lawsuit and potential problems with gathering on a judgment. If, on the other hand, you’ve got title insurance and discover that the legal description was fallacious, the seller did not have the right to sell the property, and/or liens or other encumbrances weren’t 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 might be buying it as a „quick sale,“ you should definitely get a title insurance commitment. The commitment provides direction for what needs to be accomplished to remove liens, encumbrances, and mortgages from the general public record. The commitment, however, can „expire.“ There is a date, usually at the high, that signifies the final date that title to the property was checked. You may request that the title commitment be „updated“ to the date of the sale. If it shouldn’t be and you accept a commitment with a stale date, then you definitely is probably not able to complain if the IRS filed a lien towards the property the day earlier than the sale, and the title company did not discover it. Because title insurance companies are related today to the Register of Deeds office, it shouldn’t be burdensome for them to do a final minute check.

As a last difficulty, when property has been foreclosed, there is a „redemption interval“ (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 amount paid on the sheriff’s sale plus the curiosity that has accrued for the reason that sale. If the owner manages to sell the property during this redemption period, 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 have been recorded after the foreclosed mortgage was recorded are reinstated and remain hooked up to the property.

For instance, assume the next:

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 $a hundredK.

If (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 trade for the property); and (c) the owner didn’t redeem the property-then the next Quicken Loans‘ loan and the IRS lien can 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 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 subsequent Quicken Loans‘ loan and the IRS lien stay an encumbrance in opposition to the property. If somebody purchased the property in the course of 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 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 comply with release their curiosity within the property. If you’re still dealing with the owner of foreclosed property, the property is undoubtedly still in the redemption interval-and subsequently you MUST BEWARE!!

It’s imperative that purchasers of real estate receive title insurance and the wisdom of a great 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 prevent a buyer from obtaining title insurance himself. At the minimal, a buyer should receive a title search of the property (present to the date of sale) earlier than any purchase.

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