Why Do You Want Title Insurance?

Why Do You Want Title Insurance?

When you've got ever bought a house via a realtor and with a mortgage, then you have got seen a title commitment. This is a "bill of health" from a title insurance company, alerting you to who owns the property you are purchasing and to any liens, mortgages, or encumbrances on the property. It's essential that you just get a title commitment and title insurance.

A typical sales agreement requires the seller to offer the buyer a "warranty" deed. The word "warranty" implies that the seller is guaranteeing to the buyer 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 so that the property is switchred without any baggage. As an aside, if the sales agreement was signed by one individual however the title commitment indicates 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 could need 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 should consent to the sale by way of a corporate resolution for the sale to be effective.

When there isn't a title insurance guaranteeing the authorized description, the legal owner, and the absence of encumbrances at the time of closing, the buyer often gets a mere "quit claim" deed. This means "buyer beware"-in spades. The customer might later have a declare for fraud in opposition to the seller, but meaning 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 flawed, the seller didn't have the precise to sell the property, and/or liens or different encumbrances weren't disclosed or not discharged, you possibly can file an insurance claim and hopefully be paid virtually immediately.

When you purchase property, especially if it has been foreclosed or you're buying it as a "short sale," be sure to get a title insurance commitment. The commitment provides direction for what must be performed to remove liens, encumbrances, and mortgages from the public record. The commitment, however, can "expire." There's a date, normally on the top, that indicates the final date that title to the property was checked. You can request that the title commitment be "up to date" to the date of the sale. If it shouldn't be and also you accept a commitment with a stale date, you then is probably not able to complain if the IRS filed a lien in opposition to the property the day earlier than the sale, and the title firm didn't discover it. Because title insurance companies are linked today to the Register of Deeds office, it will not be burdensome for them to do a final minute check.

As a final challenge, when property has been foreclosed, there is a "redemption period" (typically 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 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 interval, that may produce sufficient 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 remain connected 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 $a 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 didn't redeem the property-then the next Quicken Loans' loan and the IRS lien shall 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" $100K on the sheriff's sale (after which offered to cancel the mortgage in change for the property); and (c) the owner did redeem the property -then the subsequent Quicken Loans' loan and the IRS lien remain an encumbrance against the property. If somebody bought the property throughout the redemption period, even in a short sale, that person would have paid something to the owner to buy the property however would have actually purchased property nonetheless topic to the $50K secured equity line and the $a hundredK IRS lien. Only the whole running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless those subsequent lenders or lien holders agree to launch their interest within the property. In case you are nonetheless dealing with the owner of foreclosed property, the property is undoubtedly nonetheless in the redemption interval-and subsequently you MUST BEWARE!!

It is crucial that purchasers of real estate get hold of title insurance and the wisdom of a good title insurance company. As they are saying, "If it's too good to be true, then it probably is not true." While in most real estate deals the seller pays for the title insurance, there may be nothing to forestall a purchaser from acquiring title insurance himself. On the minimal, a purchaser should get hold of a title search of the property (current to the date of sale) earlier than any purchase.

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