Why Do You Need Title Insurance?

If in case you have ever purchased a house by a realtor and with a mortgage, then you have seen a title commitment. This is a „invoice of health“ from a title insurance company, alerting you to who owns the property you might be buying 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 offer the customer 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 in the title commitment, and that the liens, encumbrances, and mortgages could 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 individual but the title commitment indicates that there are owners of the property, each of the owners should sign the closing documents for the sale to be consummated. If the property is owned by an estate (because the owner died), the personal consultant could must get a court order to obtain the writerity to sign a deed on behalf of the estate. If the property is owned by a corporation, then a significantity of the shareholders should consent to the sale by means of a corporate resolution for the sale to be effective.

When there is no title insurance guaranteeing the authorized description, the legal owner, and the absence of encumbrances at the time of closing, the customer usually gets a mere „quit declare“ deed. This means „purchaser beware“-in spades. The client may later have a declare for fraud against the seller, however that means a lawsuit and potential problems with amassing on a judgment. If, however, you have title insurance and discover that the legal description was mistaken, the seller didn’t have the proper to sell the property, and/or liens or different encumbrances weren’t disclosed or not discharged, you can file an insurance declare and hopefully be paid almost immediately.

Whenever you purchase property, especially if it has been foreclosed or you are shopping for it as a „short sale,“ you’ll want to get a title insurance commitment. The commitment provides direction for what needs to be performed to remove liens, encumbrances, and mortgages from the public record. The commitment, however, can „expire.“ There’s a date, normally at the prime, that indicates the final date that title to the property was checked. You possibly can request that the title commitment be „updated“ to the date of the sale. If it will not be and also you accept a commitment with a stale date, then you is probably not able to complain if the IRS filed a lien towards the property the day before the sale, and the title company didn’t discover it. Because title insurance firms are related lately to the Register of Deeds office, it is not burdensome for them to do a last minute check.

As a last problem, when property has been foreclosed, there’s a „redemption interval“ (usually 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 since the sale. If the owner manages to sell the property throughout this redemption interval, that may produce enough cash to redeem the property. The problem is that if the property is redeemed, then the entire mortgages or liens that were recorded after the foreclosed mortgage was recorded are reinstated and stay hooked up to the property.

For instance, assume the next:

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 $a 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 subsequent Quicken Loans‘ loan and the IRS lien might be extinguished. Bank of America will own the property outright.

If, alternatively, a) Bank of America foreclosed on the $a hundredK mortgage loan; (b) Bank of America „bid“ $a hundredK on the sheriff’s sale (and then offered to cancel the mortgage in alternate for the property); and (c) the owner did redeem the property -then the subsequent Quicken Loans‘ loan and the IRS lien remain an encumbrance towards the property. If someone purchased the property during the redemption interval, even in a short sale, that particular person would have paid something to the owner to buy the property however would have really purchased property still subject to the $50K secured equity line and the $one hundredK IRS lien. Only the whole running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless these subsequent lenders or lien holders conform to launch their interest in the property. If you’re still dealing with the owner of foreclosed property, the property is undoubtedly still within the redemption interval-and therefore you MUST BEWARE!!

It is crucial 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 is just not true.“ While in most real estate deals the seller pays for the title insurance, there’s nothing to prevent a buyer from acquiring title insurance himself. On the minimal, a purchaser ought to get hold of a title search of the property (present to the date of sale) before any purchase.

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