Friday, February 28, 2014

What happens when an old mortgage is insured over?

Hi Ms. Cipa,

We came across your web site about title insurance and it very helpful. We have an urgent situation that we'd appreciate your help with. We are purchasing a property and the title search found a $45,000 mortgage on the property. They are not able to get a letter of indemnity because the mortgage is very old. The title search is handled by a real estate attorney who is an agent for Stewart Title. Should we be concerned and hold off the settlement?

Below is from attorney's office -
There is nowhere to go for a Letter of Indemnity. I spoke with our Underwriter when the title came in. He said that considering this is a 52 year old mortgage which was due and payable 32 years ago, Stewart would insure over it.
I am attaching a copy of the first page of the mortgage where you can see that this mortgage had a 20 year term ending in September of 1982."

Hi, T: When there are old unsatisfied mortgages the title insurer assesses the risk and then decides whether or not to insure. Stewart is willing to insure over it so you don't need indemnification. I offer this advice as a title insurance agent and not an attorney. The way title insurance works is that Stewart insures that if someone comes to you and asks for the money or attempts to foreclose, you'll be covered.

You should know, however, that this question may come up again should you decide to refinance or sell the property. The mortgage will be discovered once again and another decision to insure or not will take place. I personally wouldn't worry about that because the owner coverage purchased from Stewart will provide a basis moving forward for indemnification if your buyer is getting title insurance. If for some reason you get a buyer who is unrealistic about risk and wants a perfect title, they may not buy the property. Those types of folks are rare but we do come across them.

So, I would say, bottom line, if you are getting an owner policy with no exception for this old mortgage, as a title agent, I'd say that's a low risk scenario. Make sure you get a copy of the title insurance commitment to review prior to closing to make certain this item is not shown as an exception. Hope this helps. ;)


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