Why do you need title insurance?
If you’ve ever bought a home through a real estate agent and with a mortgage, then you’ve seen a title compromise. This is a “health certificate” from a title insurance company, alerting you to who owns the property you are buying and to any bonds, mortgages, or lien on the property. It is essential that you obtain a title pledge and title insurance.
A typical sales agreement requires the seller to provide the buyer with a “guarantee” deed. The word “collateral” means that the seller is guaranteeing to the buyer that he owns the property, that it consists of the legal description set forth in the title pledge, and that the bonds, liens and mortgages will have been canceled at closing time so the property is transferred without any luggage. On the other hand, if the sales contract was signed by one person but the title commitment indicates that there are two owners of the property, both must sign the closing documents for the sale to be consummated. If the property is owned by an estate (because the owner is deceased), the personal representative may need to obtain a court order to obtain the authority to sign a deed on behalf of the estate. If the property is owned by a corporation, then a majority of the shareholders must consent to the sale through a corporate resolution for the sale to be effective.
When there is no title insurance to guarantee legal description, legal owner, and absence of liens at closing, the buyer usually gets a mere “claim of surrender” deed. This means “buyer beware,” by far. The buyer may later have a fraud claim against the seller, but that means a lawsuit and potential trouble collecting a judgment. If, on the other hand, you have title insurance and find that the legal description was incorrect, the seller had no right to sell the property and / or the links or other liens were not disclosed or not downloaded, you can file a claim from the sure and hopefully it will pay off almost immediately.
When buying a property, especially if it has been foreclosed or you are buying as a “short sale,” be sure to get a title insurance commitment. The compromise provides guidance on what to do to remove bonds, liens, and mortgages from the public record. However, the commitment may “expire.” There is a date, usually at the top, that indicates the last date the property title was verified. You can request that the title commitment be “updated” to the date of the sale. If not, and you agree to a commitment with an expiration date, you may not be able to complain if the IRS filed a bond against the property the day before the sale and the title company did not discover it. Because title insurance companies are connected to the Registrar of Deeds office these days, it is not a burden for them to do a last minute verification.
As a final issue, when the property has been repossessed, there is a “redemption period” (usually six months) after the sheriff’s sale during which the owner can “redeem” the property. To redeem, the owner must go to the Registrar of Deeds office with a cashier’s check for the amount paid at the sheriff’s sale plus the interest that has increased since the sale. If the owner manages to sell the property during this redemption period, that can produce enough money to redeem the property. The problem is that if the property is redeemed, all mortgages or ties that were recorded after the foreclosed mortgage was recorded are reinstated and remain tied to the property.
For example, suppose the following:
On January 5, 2008, Bank of America recorded a $ 100,000 home loan to the owner.
On September 9, 2009, Quicken Loans registered a guaranteed equity line of $ 50K.
On March 2, 2010, the IRS submitted a bond for $ 100K.
If (a) Bank of America foreclosed on the $ 100K home loan; (b) Bank of America “offered” $ 100K in 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 will expire. Bank of America will be the absolute owner of the property.
If, on the other hand, a) Bank of America foreclosed the $ 100K home loan; (b) Bank of America “offered” $ 100K in the sheriff’s sale (and then 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 remain a lien against the property. If someone bought the property during the redemption period, even in a short sale, that person would have paid the owner something to buy the property, but would have actually bought the property still subject to the $ 50K guarantee line and bond from the IRS of $ 100K. . Only the full foreclosure of the redemption period extinguishes subsequent bonds, mortgages, and liens, unless those subsequent lenders or lien holders agree to release their interest in the property. If you are still dealing with the owner of a foreclosed property, the property is certainly still in the redemption period and therefore YOU MUST BE CAREFUL!
It is imperative that real estate buyers obtain title insurance and the wisdom of a good title insurance company. As they say, “If it’s too good to be true, it probably isn’t true.” While in most real estate deals the seller pays for the title insurance, there is nothing to stop the buyer from obtaining title insurance on their own. At a minimum, a buyer should obtain a title search for the property (current as of the sale date) prior to any purchase.