| DO YOU REALLY NEED TITLE INSURANCE?
The sales contract most commonly used in Hawaii is the Deposit Receipt
Offer and Acceptance (DROA). A standard provision in this contract provides
that the seller shall convey marketable title to the property at closing.
This means that the property that the seller is transferring must be free
and clear of all liens, judgments, encumbrances (such as mortgages), and
other adverse claims except those the buyer specifically agrees to accept.
This same sales contract provides for the purchase of title insurance.
We are often asked, AWhat is title insurance and do we need to buy it?"
As part of the closing, escrow would normally order a title search. From
the search, a report is prepared. This title report is an examination
of the public records and will disclose the previous owners of record,
prior deeds, prior mortgages, judgments, probate proceedings, divorce
proceedings, foreclosures, tax, liens, and other matters which have been
recorded and which can affect title to the property.
The report may reveal title defects which could jeopardize the buyer=s
ability to purchase clear title to the property. If such defects are revealed,
the seller may be required to clear the defects or the buyer is given
the opportunity per the contract to cancel the transaction.
So why do you need title insurance? Title insurance is cheap protection
for that expensive
real property you are purchasing. It is relatively inexpensive and you
pay for it only once at closing. The purpose of title insurance is to
protect the buyer for as long as the buyer owns the
property from any loss caused by reason of a defect in the title. When
you purchase title insurance, the title company agrees to certify to the
buyer that the seller, who owns the property, has full authority to sell
it, and no one else has claimed any interest in it. Problems can arise
years later. Although the seller has made warranties in the title documents,
there is no certainty that the seller has the financial means or the ability
to correct the problem.
We always recommend that clients purchase title insurance when they purchase
real property, because title insurance also insures against defects that
cannot be determined by looking at the public record. These defects are
called Aoff record risks@ and include such things such as forgery, incompetence,
and insanity. For example, if you bought from a seller who didn=t really
have the mental capacity to sign the title documents, you are protected.
One of the most important features of title insurance is that it pays
the legal costs of defending the title. This can be and is often very
expensive. If you ever have a claim against the title, which is covered
by title insurance, I am almost certain that you will be extremely thankful
that you didn=t have to pay the substantial legal fees and costs to defend
the title.
Like all insurance policies, title insurance policies contain exclusions.
It is important to read the policy and ask questions to understand what
claims are or not covered by title insurance. You can sometimes get additional
coverage if you are willing to pay for it.
In our over 26 plus years of practice, we cannot think of a single instance
where we would not have recommended to the buyer to purchase title insurance.
Buy title insurance. It=s a no brainier decision.
HUMOR
A wealthy man decided to go on a safari in Africa. He took his faithful
pet dog along for company. One day the dog starts chasing butterflies
and before long he discovers that he is lost. So, wandering about he notices
a leopard heading rapidly in his direction with the obvious intention
of having lunch. The dog thinks, "Boy, I'm in deep doo doo now."
Then he noticed some bones on the ground close by, and immediately settles
down to chew on the bones with his back to the approaching cat. Just as
the leopard is about to leap, the dog exclaims loudly, "Man, that
was one delicious leopard. I wonder if there are any more around here?"
Hearing this the leopard halts his attack in mid stride, as a look of
terror comes over him, and slinks away into the trees. "Whew",
says the leopard. "That was close. That dog nearly had me."
Meanwhile, a monkey who had been watching the whole scene from a nearby
tree, figures he can put this knowledge to good use and trade it for protection
from the leopard. The monkey rushes off to catch up with the leopard.
But the dog saw him heading after the leopard with great speed, and figured
that something must be up. The monkey soon catches up with the leopard,
spills the beans and strikes a deal for himself with the leopard. The
cat is furious at being made a fool of and says, "Here monkey, hop
on my back and see what's going to happen to that conniving canine."
Now the dog sees the leopard coming with the monkey on his back, and thinks,
"What am I going to do now?" But instead of running, the dog
sits down with his back to his attackers pretending he hasn't seen them
yet. And just when they get close enough to hear, the dog says, "Where's
that monkey. I just can never trust him. I sent him off half an hour ago
to bring me another leopard, and he's still not back!!"
DEATH OF A JOINT OWNER
One of the joint owners of the real property has died. What, if anything,
needs to be done with respect to the title?
If the property is owned jointly, either as joint tenants or as tenants
by the entirety, title to the property automatically passes to the survivor
or survivors upon the death of the joint owner. This is the law. Note
- this is for property owned as joint tenants or as tenants by the entirety.
This does not apply to property owned as tenants in common or tenant in
severalty.
In Hawaii, the document by which you acquire title is generally recorded.
The purpose of recording is to give notice to the world who owns the property.
Although legally nothing needs to be done to transfer title to the survivor,
you should still have notice of the death recorded to make it easier for
those who survive.
If the subject property is recorded in Hawaii=s Land Court system, a Petition
to Note the Death should be filed. If such a petition is not filed, you
will not be able to transfer the title, mortgage the property, or otherwise
effectively deal with the property until the Petition is filed. The lenders
and related parties would be requesting the signature of the deceased
party. Thus, while the Petition to Note Death can be filed later, it is
generally more convenient, less expensive, and faster to file the Petition
shortly after the death, than to wait years and then scramble to get things
done to satisfy the requirements for any subsequent transaction.
It is not necessary to record notice of the death for properties recorded
in Hawaii=s regular recording system. There is still, however, the possibility
of confusion and delay if there is no clear indication that one of the
owners has died. Thus, it is recommended that a similar document also
be prepared and recorded for properties recorded in Hawaii=s regular system.
We routinely file documents noting the death of any joint owner. It is
relatively inexpensive and fairly straightforward. This provides notice
and assurances to subsequent buyers and to title companies of the status
of title and that all the necessary parties have signed.
FROM THE DESK OF HAROLD CHU...
When you buy real property, you are often presented with the choice
of purchasing title insurance. We are often asked, "Do I really need
to buy title insurance?" We explain in straightforward language the
purpose of title insurance and why we almost always recommend the purchase
of title insurance.
Modern science is wonderful and each day there are marvelous new advances.
People, however, still pass away and many times they are joint owners
of real property. What, if anything, should you do when this occurs? We
have provided our thoughts and suggestions.
We are reminding you of some of the new laws that have already passed.
In our next two issues, we will discuss some of the more pertinent new
laws which arise out of the 2001 legislative session.
People have asked why we always include jokes in our newsletter. It=s
simple. People like them. Legal concerns are serious matters and we treat
them accordingly. We like to include a little humor to add a bit of perspective.
We hope you enjoy our newsletters. We welcome any comments or suggestions
that you may have.
May the tax man be kind to you!
FROM THE DESK OF HAROLD CHU
YOU SHOULD KNOW...
The year 2001 brought several new laws. Many of the new laws were well-publicized,
but just as a reminder, you should be aware that the following are now
law:
Bicycle riders younger than sixteen years of age must wear safety helmets.
The adult caretaker should insist on the child doing so, because the law
provides that the parent or guardian of the child caught violating the
bicycle helmet law will pay a $25 fine.
There are a number of laws involving your driver=s license.
You may now list your health care directives on your license and/or civil
identification cards. The license may include instructions on living wills
or listing of attorneys for health care decisions.
Drivers younger than 18 must show proof that they have completed driver=s
education courses. The minimum age for obtaining a learner=s permit has
been raised to 15 2 and the minimum age for securing a driver=s license
has been raised to 16.
You will now be assigned random 8 digits numbers on your driver=s license
instead of your Social Security number. Theft of identity and theft of
Social Security numbers have been increasing. This new law provides a
measure of safeguarding against such occurrences. If you are a victim
of improper use of your Social Security number, you may call 1-800-772-1213
for assistance in correcting your record.
ORGANIZING TIPS FOR YOUR TAXES
The following are some organizational tips, if not for this tax season,
then for future tax seasons.
In organizing your tax records, it is essential to have a filing system
and to follow it. One suggestion is to use an accordion file for business
expenses and another accordion file for expenses which you can claim as
itemized deductions. The files should be labeled by type of expenses.
Business expenses not backed by receipts can often be documented. An example
of this is a log for travel and meal deductions. It is always better,
however, to keep the actual receipts.
Itemized deductions such as medical expenses, investment expenses, charitable
contributions, employee business expense, and property tax bills can be
filed in separate files. Child care can be substantiated by cancelled
checks or statements provided by the care giver.
If you make small charitable contributions throughout the year or have
other modest company deductions or expenses, it pays to keep track of
them. These amounts do add up over the course of a year, so you should
be diligent in filing those receipts in appropriate files.
How long should you keep your records? The IRS has three (3) years to
audit most returns, but there is no limit on fraud. These records are
generally not voluminous. We advise keeping them for longer than the three
years statute of limitations.
Preparing your taxes is rarely fun. It can, however, be made less tedious
by keeping good records, receipts, and organizing the receipts as they
are received.
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