Title behind the scenes: Indemnifications

The caption for this commentary deals with a little known activity behind the scenes of a real estate transaction, which is sometimes entirely unnoticed by all involved. It deals with what is called inter-agency indemnifications between title insurance underwriters.

Say, for example, a search is performed on a property 10 years ago, and at the time of the search, there was inheritance tax due on a deceased owner who died 18 years ago. Today we are involved in a resale of the property to a new buyer. The present title company agent finds the “sleeping”* inheritance tax lien and calls for it to be paid at the upcoming closing. Sometimes, however, due to the imminent nature of the pending closing, the tax cannot be addressed properly or, because the lien may be nearing its 20 year life cycle under the statute of limitations, the current title company requests from the prior title underwriter an “indemnification” to address the lien.

What happens next is that the original title underwriter will draft a legal document essentially stating that if the lien of the tax rears its head at some future time, they will “step up to the plate” and have it paid and/or otherwise cleared of record.

This process allows these matters to be handled behind the scenes as to address the closing at hand with the intent of little or no delay of the subsequent closing. Indemnifications are not always given or received, and each case is fact-specific so as to dictate the rules and risks assumed by a title underwriter with such a process. In any indemnification process, exchange of information is key between the new and prior title insurance underwriter.

By utilizing this resource when applicable, we can continue our mutual goal with our lending partners to effectuate timely and seamless real estate transactions.

* A sleeping lien is one that does not necessarily have to be filed of record to maintain a lien status upon real estate

Posted by United One Team Member on 10/14/2014

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