Why Do You Want Title Insurance?

Why Do You Want Title Insurance?

When you have ever bought a house through a realtor and with a mortgage, then you have got seen a title commitment. This is a "bill 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 offer the buyer 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 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 person but the title commitment indicates that there are 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 acquire the authority to sign a deed on behalf of the estate. If the property is owned by a corporation, then a seriousity of the shareholders must 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 customer usually gets a mere "quit claim" deed. This means "buyer beware"-in spades. The client could later have a declare for fraud against the seller, however that means a lawsuit and potential problems with accumulating on a judgment. If, alternatively, you've title insurance and discover that the legal description was wrong, the seller didn't have the precise 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 virtually immediately.

When you buy property, particularly if it has been foreclosed or you are buying it as a "brief sale," make sure you get a title insurance commitment. The commitment provides direction for what needs to be executed to remove liens, encumbrances, and mortgages from the general public record. The commitment, nonetheless, can "expire." There's a date, usually at the prime, that indicates the final 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 is not and you accept a commitment with a stale date, then you definately might not be able to complain if the IRS filed a lien against the property the day before the sale, and the title firm did not discover it. Because title insurance firms are related nowadays to the Register of Deeds office, it will not be burdensome for them to do a last minute check.

As a last difficulty, when property has been foreclosed, there's 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 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 throughout this redemption interval, which will produce enough cash 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 remain attached 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 $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 (after which offered to cancel the mortgage in alternate for the property); and (c) the owner did not 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, however, 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 change 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 through the redemption period, even in a brief sale, that person would have paid something to the owner to buy the property but would have actually purchased property still topic to the $50K secured equity line and the $one hundredK IRS lien. Only the entire running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless these subsequent lenders or lien holders conform to release their curiosity within the property. In case you are still dealing with the owner of foreclosed property, the property is undoubtedly still 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 very good 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 forestall a buyer from obtaining title insurance himself. On the minimal, a purchaser should receive a title search of the property (current to the date of sale) before any purchase.

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