Why Do You Need Title Insurance?

Why Do You Need Title Insurance?

If you have ever purchased a house by way of a realtor and with a mortgage, then you've got seen a title commitment. This is a "invoice of health" from a title insurance firm, alerting you to who owns the property you're buying and to any liens, mortgages, or encumbrances on the property. It is essential that you simply get a title commitment and title insurance.

A typical sales agreement requires the seller to give the customer 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 within the title commitment, and that the liens, encumbrances, and mortgages may have been discharged at the time of closing so that the property is transferred without any baggage. As an aside, if the sales agreement was signed by one particular person however the title commitment signifies that there are two owners of the property, both of the owners must sign the closing documents for the sale to be consummated. If the property is owned by an estate (because the owner died), the personal representative could have to get a court order to acquire the writerity 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 through a corporate decision for the sale to be effective.

When there is no title insurance guaranteeing the legal description, the legal owner, and the absence of encumbrances on the time of closing, the buyer often gets a mere "quit claim" deed. This means "purchaser beware"-in spades. The customer could later have a claim for fraud towards the seller, but that means a lawsuit and potential problems with collecting on a judgment. If, alternatively, you will have title insurance and discover that the legal description was incorrect, the seller did not have the precise to sell the property, and/or liens or other encumbrances were not disclosed or not discharged, you possibly can file an insurance declare and hopefully be paid almost immediately.

When you buy property, especially if it has been foreclosed or you might be shopping for it as a "quick sale," be sure you get a title insurance commitment. The commitment provides direction for what must be achieved to remove liens, encumbrances, and mortgages from the public record. The commitment, nevertheless, can "expire." There is a date, usually on the prime, that indicates the last date that title to the property was checked. You can request that the title commitment be "updated" to the date of the sale. If it isn't and you accept a commitment with a stale date, you then may not be able to complain if the IRS filed a lien against the property the day before the sale, and the title firm didn't discover it. Because title insurance firms are connected today to the Register of Deeds office, it isn't burdensome for them to do a final minute check.

As a final problem, when property has been foreclosed, there's a "redemption interval" (generally six months) after the sheriff's sale throughout 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 at the sheriff's sale plus the curiosity that has accrued since the sale. If the owner manages to sell the property during this redemption period, that may produce sufficient money to redeem the property. The problem is that if the property is redeemed, then all of 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 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 on the sheriff's sale (and then offered to cancel the mortgage in exchange for the property); and (c) the owner did not redeem the property-then the subsequent 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 $one hundredK mortgage loan; (b) Bank of America "bid" $a hundredK 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 against the property. If somebody bought the property through the redemption period, even in a brief sale, that person would have paid something to the owner to purchase the property but would have really purchased property still topic to the $50K secured equity line and the $a hundredK IRS lien. Only the whole running of the redemption period extinguishes subsequent liens, mortgages, and encumbrances unless these subsequent lenders or lien holders agree to launch their curiosity in the property. If you are nonetheless dealing with the owner of foreclosed property, the property is undoubtedly still within the redemption interval-and subsequently you MUST BEWARE!!

It's imperative that purchasers of real estate get hold of title insurance and the knowledge of a great title insurance company. As they say, "If it's too good to be true, then it probably just isn't true." While in most real estate offers the seller pays for the title insurance, there is nothing to stop a purchaser from acquiring title insurance himself. On the minimum, a purchaser should receive a title search of the property (current to the date of sale) before any purchase.

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