Why Do You Need Title Insurance?


When you have ever purchased a house by a realtor and with a mortgage, then you might have 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 is essential that you get a title commitment and title insurance.

A typical sales agreement requires the seller to offer the client a „warranty“ deed. The word „warranty“ means that the seller is guaranteeing to the client 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 may have been discharged on the time of closing in order that the property is transferred without any baggage. As an aside, if the sales agreement was signed by one person however the title commitment indicates 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 must 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 should consent to the sale by a corporate decision for the sale to be effective.

When there is no such thing as a title insurance guaranteeing the legal 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 buyer might later have a declare for fraud against the seller, however that means a lawsuit and potential problems with accumulating on a judgment. If, on the other hand, you’ve title insurance and discover that the authorized description was improper, the seller did not have the best 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 virtually immediately.

While you purchase property, particularly if it has been foreclosed or you’re shopping for it as a „quick sale,“ be sure to get a title insurance commitment. The commitment provides direction for what needs to be carried out to remove liens, encumbrances, and mortgages from the public record. The commitment, nevertheless, can „expire.“ There is a date, normally on the high, that signifies the final date that title to the property was checked. You’ll be able to request that the title commitment be „updated“ to the date of the sale. If it shouldn’t 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 against the property the day before the sale, and the title company didn’t discover it. Because title insurance companies are connected lately to the Register of Deeds office, it isn’t burdensome for them to do a final minute check.

As a final subject, when property has been foreclosed, there is a „redemption interval“ (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 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 cash to redeem the property. The problem is that if the property is redeemed, then all of the mortgages or liens that had been recorded after the foreclosed mortgage was recorded are reinstated and stay hooked up to the property.

For example, 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 $100K.

If (a) Bank of America foreclosed on the $a hundredK mortgage loan; (b) Bank of America „bid“ $one hundredK at the sheriff’s sale (and then offered to cancel the mortgage in exchange for the property); and (c) the owner didn’t redeem the property-then the following Quicken Loans‘ loan and the IRS lien can 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“ $one hundredK at the sheriff’s sale (and then offered to cancel the mortgage in trade for the property); and (c) the owner did redeem the property -then the following Quicken Loans‘ loan and the IRS lien stay an encumbrance towards the property. If someone purchased the property throughout 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 truly purchased property nonetheless subject to the $50K secured equity line and the $100K IRS lien. Only the entire running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless those subsequent lenders or lien holders conform to launch their interest within the property. In case you are still 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 wisdom of a great title insurance company. As they say, „If it’s too good to be true, then it probably shouldn’t be true.“ While in most real estate offers the seller pays for the title insurance, there is nothing to prevent a buyer from obtaining title insurance himself. At the minimum, a purchaser should receive a title search of the property (current to the date of sale) earlier than any purchase.

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