Title company can't insure due to 2 year right of redemption

12 Replies

Hi all. I'm about to close on a city-owned property and now the title company is saying because the property came through in rem tax foreclosure, there is a 2 year right of redemption from the date the deed is recorded. So they can't insure until April 2019. The redemption amount is the amount of tax lien plus penalties and that amount would be paid to the tax collector. Anyone experience this before? This property was foreclosed by the bank and the city. 

That's the risk with tax sales.  Person who lost it often has a right to redeem, so no title company will issue insurance in the meantime.

You can rent it month to month in the meantime.

You can leave it vacant.

You can live in it.

You can sell it to some other investor without title insurance and a clause to warn them about the redemption rights.

@Sunny Pyun you did not say what state this is in or whether is this a tax lien foreclosure or a tax deed.  The rules vary tremendously by state. 

Often a tax deed has a redemption period and usually needs a quite title action to get title insurance.  If it is a tax lien foreclosure  I find it extremely odd that there would be 2 year redemption period after the foreclosure. A foreclosure action my area is called "Foreclose the right of redemption".  So why would there be a redemption period after you went through the process to stop (foreclose) the right of redemption. 

Many title companies are not familiar with tax sale properties and they may have given you bad information. Many national insurance companies that back up the local title company do not insure tax sales. It is possible that your solution is to simply go to a different title company. 

I had a closing where I told the title company in advance this was a tax foreclosure property and could they insure it. They said it wouldn't be a problem. Then a hour before the closing the title company told me that the underwriter would not insure it because it was a tax sale property. They then told the buyer they could not insure because I had "Bad Title".  What they told the buyer was both incorrect and irresponsible. We simply took it to a title company that I regularly worked with and it went through no problems.

@Bruce Lynn thank you for the reply. This is investing crash course 101 on tax foreclosure for me. This property doesn’t need a lot of work but it does need work. I will have to put in money for reno and can’t just rent it out. My lawyer tells me the purchase price and Reno cost can be lost. So I’m holding off on the ideas that cost money. 

@Ned Carey it’s in Newburgh NY. I didn’t know anything about all these issues. I couldn’t even see the property until after I made an offer. What I know now after getting the title report back is this was a bank foreclosure and tax foreclosure by the City. It’s a city owned property and shouldn’t they have let me know upfront? I saw “right of redemption” in the tax foreclosure court paper. I’ve asked 2 title companies in Manhattan and they both can’t insure. I will look for another title company as you suggested. Thank you. I asked another title company upstate and I’m waiting to hear back. It’s crazy you went through madness with a title company during your own closing. 

Can you find the orig owner ?  In my area, some folks buy and sell the right of redemption.  If you could own the right of redemption the title co may be okay.  I'd try and get an extension with the seller.  Nobody wants to walk away from earnest money.  But this might be a time ....  You could find a lot of other deals between now and April 2019.

@Christie Gahan I looked up the owners, but several people came up under the same name. Do real estate investors hire investigators? ... I may need an extension. Good thing is I didn't put down earnest money because instead of a contract, the city gave me "resolution", approval on my offer although I have expenses such as attorney and title report fees. My sister said this was a great opportunity to learn.. 

@Sunny Pyun  You could try to hunt down the old owner and ask to purchase the right of redemption from them. You’d likely need a lawyer to draw that up. 

You could also ask the title company that you’ve already work with to ensure the title with this single right of redemption exception in place. That still puts you in a precarious spot, but this can work out. 

@Casey Mericle Thank you for your feedback. Do you have a method you use to find people? All this is new to me and I use pipl.com but that's about all I know about how to find people.. I will ask the title company about "single right of redemption exception." 

findtheseller.com is a skip tracing service that could help you if you have a name to go off of. Other services exist but they provide a pretty comprehensive skip trace. 

@Casey Mericle Amazing! Thank you for being so kind and giving me the info. Will keep you posted. It's been a roller coaster .. 

I buy tax forclosures here in Texas.y experience with these is you buy just like that from the county. You get no title insurance or any of that mess. You get it via Sheriffs Deed. "As is, where is, however it is. On a non homestead property , right of redemption is 6 months. Homestead properties get 2 years. Even after the right of reedemption is over, some title companies won't insure because of heirs that supposedly can have a claim. It'll take about two to three years of you owning it for a title company to insure. The last property I sold I bought from tax sale , had a six month reedemption, I sold it on month 9 and title company wouldn't give full title insurance to my buyer. They gave her title insurance but with an exemption on "heirs"
Buyer still took it because they were paying cash. They didn't care.

If this is a tax sale then yes, the owner has a two year redemption period. However, if it is a tax “resale” then you are actually buying a free and clear property. You may want to clarify what you have actually purchased.

@Maugno M. Now I almost feel foolish that I didn't anticipate this was a tax foreclosure and didn't plan for it. I should've guessed because it was city-owned. The problem with this property is the city required I close in January at the latest and get certificate of occupancy after renovation within 18 months. This extra hurdle doesn't seem to be worth it at this point now that I know the risks involved. 

@Rocky Griffin thank you for the tip. I didn't purchase the property yet - I was planning to close this week. What a surprise this was...

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