When you’ve got ever bought a house by a realtor and with a mortgage, then you may have seen a title commitment. This is a “bill of health” from a title insurance company, 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 just get a title commitment and title insurance.
A typical sales agreement requires the seller to provide the client a “warranty” deed. The word “warranty” means that the seller is guaranteeing to the buyer 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 can have been discharged on the time of closing so that the property is transferred without any baggage. As an aside, if the sales agreement was signed by one individual 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 may must get a court order to obtain the creatority 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 a corporate decision for the sale to be effective.
When there isn’t a 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 claim” deed. This means “purchaser beware”-in spades. The buyer may later have a declare for fraud in opposition to the seller, however which means a lawsuit and potential problems with amassing on a judgment. If, however, you’ve title insurance and discover that the legal description was fallacious, the seller did not have the right to sell the property, and/or liens or other encumbrances weren’t disclosed or not discharged, you possibly can file an insurance declare and hopefully be paid nearly immediately.
Once you buy property, especially if it has been foreclosed or you are shopping for it as a “quick sale,” make sure 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, nonetheless, can “expire.” There is a date, usually on the high, that signifies the final date that title to the property was checked. You possibly can request that the title commitment be “updated” to the date of the sale. If it just isn’t and also you accept a commitment with a stale date, then you definately is probably not able to complain if the IRS filed a lien against the property the day before the sale, and the title firm didn’t discover it. Because title insurance companies are linked today to the Register of Deeds office, it is not burdensome for them to do a last minute check.
As a last concern, when property has been foreclosed, 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 should go to the Register of Deeds office with a cashier’s check for the amount paid on the sheriff’s sale plus the curiosity that has accrued since the sale. If the owner manages to sell the property throughout this redemption period, 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 have been 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 $100K mortgage loan; (b) Bank of America “bid” $a hundredK on the sheriff’s sale (after which 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 shall be extinguished. Bank of America will own the property outright.
If, however, a) Bank of America foreclosed on the $a hundredK mortgage loan; (b) Bank of America “bid” $100K at the sheriff’s sale (after which offered to cancel the mortgage in alternate for the property); and (c) the owner did redeem the property -then the following Quicken Loans’ loan and the IRS lien stay an encumbrance towards the property. If someone purchased the property through the redemption period, even in a brief sale, that individual would have paid something to the owner to purchase the property but would have really bought property nonetheless subject to the $50K secured equity line and the $a hundredK IRS lien. Only the complete running of the redemption interval extinguishes subsequent liens, mortgages, and encumbrances unless those subsequent lenders or lien holders comply with release 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 due to this fact you MUST BEWARE!!
It’s crucial that purchasers of real estate receive title insurance and the knowledge of a good title insurance company. As they are saying, “If it’s too good to be true, then it probably shouldn’t be true.” While in most real estate deals the seller pays for the title insurance, there is nothing to stop a purchaser from obtaining title insurance himself. On the minimal, a purchaser should acquire a title search of the property (current to the date of sale) earlier than any purchase.