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 “certificate of health” from a title insurance company, telling you who owns the property you are buying and any liens, mortgages, or liens on the property. It is essential that you obtain a title pledge and title insurance.
A typical sales agreement requires the seller to give the buyer a “warranty” deed. The word “guarantee” means that the seller is guaranteeing to the buyer that they own the property, which consists of the legal description set forth in the title commitment, and that liens, liens, and mortgages will have been released at closing time for that ownership is transferred without any baggage. Additionally, if the sales agreement was signed by one person but the title commitment indicates that there are two owners of the property, both owners 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 gain 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 ensure legal description, legal owner, and no liens at closing, the buyer typically obtains a “get out of claim” principal deed. This means “buyer beware” in spades. The buyer can later file a fraud lawsuit against the seller, but that means a lawsuit and potential problems with collecting a judgment. If, on the other hand, you have title insurance and discover that the legal description was incorrect, the seller had no right to sell the property, and/or liens or other encumbrances were not disclosed or released, you can file a claim. for sure and hopefully it will pay off almost immediately.
When buying a property, especially if it has been repossessed or if you are buying it as a “short sale,” be sure to obtain a title insurance commitment. The compromise provides guidance on what should be done to remove liens, liens, and mortgages from the public record. The commitment, however, can “time out”. There is a date, usually at the top, indicating the last date title to the property was verified. You may request that the title pledge be “updated” to the date of sale. If you don’t, and you agree to a past-due commitment, you may not be able to file a complaint if the IRS filed a lien against the property the day before the sale and the title company didn’t discover it. Since title insurance companies are connected these days with the Recorder of Deeds office, it is not a burden for them to do a last minute check.
As a last point, when 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 Recorder of Deeds office with a cashier’s check for the amount paid on the sheriff’s sale plus any interest that has accrued since the sale. If the owner is able to sell the property during this redemption period, that may generate enough money to redeem the property. The problem is that if the property is redeemed, any mortgages or liens that were posted after the foreclosed mortgage was posted are reinstated and remain attached to the property.
For example, suppose the following:
On January 5, 2008, Bank of America recorded a $100K home loan for the homeowner.
On September 9, 2009, Quicken Loans registered a guaranteed principal line of $50K.
On March 2, 2010 the IRS filed a lien 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 pay off the mortgage in exchange for the property); and (c) the owner did not redeem the property, then the subsequent Quicken Loans loan and IRS bond will be extinguished. Bank of America will be the sole owner of the property.
If, on the other hand, 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 pay off the mortgage in exchange for the property); and (c) the owner redeemed the property; then the subsequent Quicken Loans loan and the IRS lien are still a lien on 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 guaranteed equity line and lien. from the IRS of $100K. Only the full foreclosure of the redemption period extinguishes subsequent liens, mortgages, and liens unless subsequent lenders or lien holders agree to release their interest in the property. If you are still dealing with the owner of the repossessed property, the property is most certainly still in the redemption period and therefore YOU SHOULD 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, then it probably isn’t true.” While in most real estate deals the seller pays for title insurance, there is nothing to stop the buyer from obtaining title insurance themselves. At a minimum, a buyer must obtain a title search of the property (current on the date of sale) prior to any purchase.