Why Do You Need Title Insurance?

Why Do You Need Title Insurance?

If you have ever purchased 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 might be 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 present the client a "warranty" deed. The word "warranty" means that the seller is guaranteeing to the customer 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 switchred without any baggage. As an aside, if the sales agreement was signed by one particular person but the title commitment indicates that there are two owners of the property, both 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 representative may have to get a court order to obtain the authority to sign a deed on behalf of the estate. If the property is owned by a company, then a majority of the shareholders must consent to the sale by means of a corporate resolution for the sale to be effective.

When there is no title insurance guaranteeing the legal description, the authorized owner, and the absence of encumbrances at the time of closing, the client usually gets a mere "quit claim" deed. This means "purchaser beware"-in spades. The customer might later have a claim for fraud towards the seller, however that means a lawsuit and potential problems with amassing on a judgment. If, on the other hand, you will have title insurance and discover that the authorized description was flawed, the seller did not have the proper to sell the property, and/or liens or different encumbrances weren't disclosed or not discharged, you may file an insurance declare and hopefully be paid virtually immediately.

When you purchase property, particularly if it has been foreclosed or you are shopping for it as a "quick sale," you'll want to get a title insurance commitment. The commitment provides direction for what needs to be completed to remove liens, encumbrances, and mortgages from the public record. The commitment, however, can "expire." There's a date, often at the high, that signifies 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 is not and also you settle for a commitment with a stale date, then you definitely will not be able to complain if the IRS filed a lien in opposition to the property the day before the sale, and the title firm did not discover it. Because title insurance corporations are connected lately to the Register of Deeds office, it shouldn't be burdensome for them to do a last minute check.

As a last issue, when property has been foreclosed, there's a "redemption interval" (usually 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 on the sheriff's sale plus the interest that has accrued because 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 the entire mortgages or liens that had been recorded after the foreclosed mortgage was recorded are reinstated and remain hooked up to the property.

For instance, assume the following:

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 on the sheriff's sale (and then offered to cancel the mortgage in change for the property); and (c) the owner did not redeem the property-then the next Quicken Loans' loan and the IRS lien will probably be extinguished. Bank of America will own the property outright.

If, alternatively, 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 alternate for the property); and (c) the owner did redeem the property -then the next Quicken Loans' loan and the IRS lien stay an encumbrance towards the property. If somebody purchased the property throughout the redemption interval, even in a short sale, that individual would have paid something to the owner to purchase the property but would have truly bought property still subject to the $50K secured equity line and the $100K IRS lien. Only the entire running of the redemption period extinguishes subsequent liens, mortgages, and encumbrances unless these subsequent lenders or lien holders conform to launch their interest within the property. In case you are nonetheless dealing with the owner of foreclosed property, the property is undoubtedly nonetheless within the redemption interval-and subsequently you MUST BEWARE!!

It's crucial that purchasers of real estate get hold of title insurance and the knowledge of an excellent title insurance company. As they are saying, "If it's too good to be true, then it probably is just not true." While in most real estate offers the seller pays for the title insurance, there's nothing to prevent a buyer from acquiring title insurance himself. On the minimum, a buyer should obtain a title search of the property (current to the date of sale) before any purchase.

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