Why Do You Need Title Insurance
When you've got ever purchased a house via a realtor and with a mortgage, then you have seen a title commitment. This is a "invoice of health" from a title insurance firm, alerting you to who owns the property you might be purchasing and to any liens, mortgages, or encumbrances on the property. It is essential that you 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 customer 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 will have been discharged at the time of closing so 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 signifies that there are owners of the property, each of the owners should sign the closing paperwork for the sale to be consummated. If the property is owned by an estate (because the owner died), the personal representative might 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 corporation, then a significantity of the shareholders must consent to the sale via 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 usually gets a mere "quit declare" deed. This means "purchaser beware"-in spades. The client may later have a claim for fraud against the seller, however which means a lawsuit and potential problems with accumulating on a judgment. If, alternatively, you've gotten title insurance and discover that the authorized description was mistaken, the seller did not have the suitable 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.
If you purchase property, especially if it has been foreclosed or you're buying it as a "brief sale," you'll want to get a wholesale friendly title company insurance commitment. The commitment provides direction for what must be executed to remove liens, encumbrances, and mortgages from the public record. The commitment, nevertheless, can "expire." There is a date, normally at the top, that signifies the final date that title to the property was checked. You'll be able to request that the title commitment be "updated" to the date of the sale. If it isn't and you settle for a commitment with a stale date, then you definately is probably not able to complain if the IRS filed a lien towards the property the day earlier than the sale, and the title firm did not discover it. Because title insurance companies are related these days to the Register of Deeds office, it is not burdensome for them to do a final minute check.
As a last challenge, 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 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 interval, that may produce enough cash to redeem the property. The problem is that if the property is redeemed, then all of the mortgages or liens that were recorded after the foreclosed mortgage was recorded are reinstated and stay connected to the property.
For example, assume the next:
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 $100K 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 didn't redeem the property-then the following Quicken Loans' loan and the IRS lien will be extinguished. Bank of America will own the property outright.
If, on the other hand, a) Bank of America foreclosed on the $100K 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 subsequent Quicken Loans' loan and the IRS lien stay an encumbrance against the property. If somebody purchased the property through the redemption interval, even in a brief sale, that particular person would have paid something to the owner to purchase the property but would have really purchased property nonetheless subject to the $50K secured equity line and the $one hundredK IRS lien. Only the whole running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless these subsequent lenders or lien holders comply with release their interest in the property. If you are nonetheless dealing with the owner of foreclosed property, the property is undoubtedly still in the redemption interval-and due to this fact you MUST BEWARE!!
It's crucial that purchasers of real estate acquire title insurance and the knowledge of a superb title insurance company. As they say, "If it's too good to be true, then it probably isn't true." While in most real estate offers the seller pays for the title insurance, there is nothing to forestall 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.
