Why Do You Need Title Insurance?

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If you have ever bought a house by means of a realtor and with a mortgage, then you could have seen a title commitment. This is a “bill of health” from a title insurance firm, alerting you to who owns the property you are purchasing and to any liens, mortgages, or encumbrances on the property. It is essential that you just get a title commitment and title insurance.

A typical sales agreement requires the seller to present the buyer 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 legal 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 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, 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 might 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 company, then a seriousity of the shareholders must consent to the sale by way of a corporate decision for the sale to be effective.

When there is no such thing as a title insurance guaranteeing the legal description, the authorized owner, and the absence of encumbrances at the time of closing, the buyer usually gets a mere “quit claim” deed. This means “purchaser beware”-in spades. The client may later have a claim for fraud in opposition to the seller, however that means a lawsuit and potential problems with accumulating on a judgment. If, then again, you’ve got title insurance and discover that the authorized description was incorrect, the seller didn’t have the proper to sell the property, and/or liens or different encumbrances weren’t disclosed or not discharged, you may file an insurance claim and hopefully be paid nearly immediately.

When you buy property, especially if it has been foreclosed or you might be shopping for it as a “brief sale,” be sure you 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’s a date, normally at the high, that indicates the final date that title to the property was checked. You may request that the title commitment be “up to date” to the date of the sale. If it will not be and you settle for a commitment with a stale date, then you may not be 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 firms are connected lately to the Register of Deeds office, it is just not burdensome for them to do a last minute check.

As a last issue, when property has been foreclosed, there is a “redemption period” (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 quantity paid at the sheriff’s sale plus the curiosity that has accrued since the sale. If the owner manages to sell the property throughout this redemption period, which will produce enough money 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 stay hooked up to the property.

For instance, assume the following:

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 $a hundredK.

If (a) Bank of America foreclosed on the $one hundredK mortgage loan; (b) Bank of America “bid” $one hundredK on 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 next Quicken Loans’ loan and the IRS lien will likely be extinguished. Bank of America will own the property outright.

If, alternatively, 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 exchange for the property); and (c) the owner did redeem the property -then the next Quicken Loans’ loan and the IRS lien remain an encumbrance towards the property. If somebody bought 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 however would have really purchased property still topic 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 these subsequent lenders or lien holders agree to release their interest within the property. If you are nonetheless 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 obtain title insurance and the knowledge of a very good title insurance company. As they are saying, “If it’s too good to be true, then it probably isn’t true.” While in most real estate deals the seller pays for the title insurance, there may be nothing to stop a buyer from acquiring title insurance himself. At the minimum, a purchaser ought to acquire a title search of the property (current to the date of sale) earlier than any purchase.

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