BiggerPockets

When a property becomes a REO, the title becomes clean. If you're bidding on a REO, you're going to get the property clear of any liens.

Was the agent that you talked to experienced? It is scary that agents are licensed, yet can't get the information correct. :shock:

Remember!! There are different types of deeds that different banks, financial companies, etc give you when buying a Pre-Post-REo property. Quick claim, Bargin and Sale, etc deeds are just some types, so follow up with your local RE attorney for sure!

I am going to be the forebearer of bad news here... but "NO". Just because there was a foreclosure does not mean that title is clear. I deal with this day in and day out and even moreso today. The foreclosure attorneys are also capable of mistakes and many times items that must be addressed (brought into) the foreclosure are not. Do not let anyone tell you that just because there was a foreclosure that the title was cleared as a result of...

Also, some bank sellers take title as a result of a "deed in lieu". This means the foreclosed party deeded the property to the bank (seller). In this case, there is no "foreclosure" process and therefore nothing gets cleared.

I am very thankful you asked this question! Got my vote...

Good points Jamie! There are hundreds of potential scenarios, in different jurisdictions, with hundreds of institutions.

NEVER assume you're getting an unencumbered warranty deed!

In some cases, you're ONLY purchasing the banks position and equity.

I have rarely seen and REO title that was without some sort of lien or flaw, that needs to be addressed.

Talk to a RE Attorney who does these transactions for a living, in your specific sate.

The only way is to be sure that the title report comes back clear with no exceptions; then, YES title insurance will protect your interest.

Jamie,

Sounds like you sort of agree with what I wrote. You run a title company that clears all the exceptions, and YES that title insurance will protect the buyer's interest. On the other hand, there are title companies where exceptions are accepted, and the buyer needs to know that.

If every title company held to that higher standard, there would certainly be far fewer title troubles IMO.

Early this year I rehabbed and sold out-of-state REO. Two weeks before my sale was due to close, I got a frantic voicemail from my agent hoping and praying I had gotten title insurance with my purchase. It turns out this property was purchased in 1986, sold in 1992, and was bought and sold several times since. I never understood the whole story, but it appears reconveyance at the time of the 1992 sale was faulty in some manner which clouded my title. Apparently, nobody ever caught this. It didn't matter to me though.

I wouldn't buy a property from my mother without an ALTA policy so fortunately, and to the relief of my agent, I was covered and my sale went through with only this little hiccup. The moral is, in spite of assurances from agents that REO's are automatically clean; don't buy anything without adequate title insurance. I understand some policies are now excepting transactions involving MERS.

Bottom line: buy and read your policies.