Please Help !!! trying to understand Title Insurance

24 Replies

Hi All,

I singed a contract last week on buying a lot of land. When I was talking about it the guy who flipped it to me told me that previous buyer backed out because previous buyer could not get title insurance from the title company.

what I was told:

Property has two heirs one of whom is dead and second one they tried to track down but could not find it him.

Property is coming with warranty deed. 

We agreed to close via lawyer who would do all the paper work and filing. 

I was told that I would not be able to get title insurance because exact same thing would happen to me as to the previous buyer. He also showed me the paper work on title search and sure enough there was 2 hits.

I tried reading online as to if this is still ok or not but thought maybe I should ask someone as well, I would appreciate any feedback.


Thank you

I would not buy because title issues mean that someone else owns title to the property. Title insurance basically says that the title is free and clear from anyone else claiming  ownership of the property. 

Even if they will give me warranty deed?

@Alex Gitman  

There is a legal process in each state for notifying heirs. I had a family member just finish one for 100 acres in east Texas and it took several years to find the 11+ heirs (several were found to be deceased and others were never located but all public notices required by the court were given), but it eventually got done and the property was sold with title insurance. 

I would not purchase without title insurance unless it's such a smoking deal that you don't care if you lost the money down the line. However, you won't likely be re-selling anytime soon if you do purchase and fail to get the heirship issues addressed prior to purchase.

I suspect, there may be more than 2 heirs (marriages, children, etc. all come into play for each heir) but you'll need to speak to legal counsel to determine if the risk is worth the reward.

@Alex Gitman

Title insurance is an insurance policy indemnifying the insured against certain risks. Title insurance doesn't mean someone else own's the property, it means that if someone other than the party to whom title is vested makes a claim against the property and the claim is allowed under the policy, the title company make the titled owner(s) whole again.

Thank you Guy,

I gave 2K non refundable deposit. What would you recommend, to still ask for title insurance during closing that seller would pay? I have title search paperwork in hand which shows the two heirs who they could not locate one of whom is dead. Or just walk away? Or try to do it on my own after I close (meaning try to get title insurance via title company)?

@Alex Gitman  

I gave 2K non refundable deposit. 

Sounds like you lost this money either way.  Did you use a TREC or TAR unimproved property contract form or an attorney drafted contract form? 

What would you recommend, to still ask for title insurance during closing that seller would pay? 

If you have a contract, the contract will stipulate the rights and obligations of each party. If the contract does not require the seller to deliver marketable title, then you will have to count this as an expensive lesson in understanding what you're signing. You can always ask but the seller is not obligated to accommodate your request unless he/she is contractually bound to by contract.

I have title search paperwork in hand which shows the two heirs who they could not locate one of whom is dead. 

Understood, but the deceased heir likely has heirs too...the heir's interest passes down

Or just walk away? 

You're likely already losing $2K....how much more loss can you stomach?  It's up to each individual. If you buy and an heir makes a claim now or 10 years from now, you get to pay an attorney to fix the problem that the current owner should be responsible for fixing.  

Or try to do it on my own after I close (meaning try to get title insurance via title company)?

Understand you will not get title insurance before, during or after a sale until this issue is resolved.  In order to resolve it, the expenses will fall solely on your shoulder after a purchase.

Thank you very much Guy, I did use TRAC form. I have to go home right now and see what it say about title insurance, I suppose its in section 6 of the form.

What does Warranty deed tell me about title and how clear it is?

Thank you

@Alex Gitman  

The guy selling you the property does NOT own it.  The heirs, and their heirs, do.  The Warranty Deed is useless, since the actual owners are not the ones selling it to you.  The TREC surely requires clear and marketable title, which would be Eligible for title insurance.  What is the "seller's" relationship to the heirs?

@Alex Gitman

Para. 6 requires Seller to furnish you a title policy. Obviously, seller is unable to do so since there are Sch. C (title commitment) issues that cannot be resolved. 

The contract calls for a general warranty deed to be delivered. Title can be vested in the seller but obviously, there may very well be others who have a claim to the property being sold.

1.  So, you signed an Assignment of Contract and not the actual contract, correct? 

2.  Have you received the title commitment and Sch. B documents? 

3.  Language in the Assignment made the deposit nonrefundable?

My rule: once a principal lies or tries to mislead me, all bets all off.

Go around him/her, contact the heirs directly and do what is necessary to acquire directly from them...with the benefit of title insurance. 

If title says you need to to go thru orobate, decide if you want to put up the money and YOU chose the attorney and all the vendors.

Rick - The person who assigned the contract to me tried to locate the heirs and told me that he even hired private investigator. What he found is that one of the persons was dead and the second one they could not locate. What would you do in this situation?

Hi Guy,

Thank you very much for all your feedback. 

1. I signed an "assignment of real estate purchase and sale agreement" 

2. I have not closed yet and do not have schedule B 

3. it does say non-refundable in the "assignment of real estate purchase and sale agreement"

They guy who is selling it to me acquired the property in 2010 from the actual owner of the property. 

Can you recommend anything I should do in this situation?

Thank you all again!

@Alex Gitman

Alex...the scenario makes no sense.  If you signed a purchase agreement, why did you also sign an assignment agreement?  

My recommendation is to cut your losses and walk away if allowed to under whatever agreement you have.  Then, I highly recommend you partner with a savvy investor and seek a lot more education on the basics of investing to help keep you out of messes like this.

Did he buy with seller financing and all the heirs need to sign off that the note is paid?  If so, my parents had a similar situation with 20 acres they bought from my great aunts who died without a will.  They paid the property off over 25 years ago, but never got all the signatures needed from the 70 something people that had an interest from being somehow related and inheriting partial interests.  They ended up getting over 50 of them but some could not be reached for different reason including one that had moved to Cuba for some reason.  The title is clouded, but probably could be insured after this long but there are no plans to ever sell it. 

@Alex Gitman  You are either confused, or not stating the situation correctly.

If you signed an "assignment of purchase contract" your "seller" didn't acquire the property in 2010, he simply has a purchase agreement.  Apparently that purchase contract is Not signed by all the owners, so it is useless. Are you saying the TREC purchase agreement, is the one He signed with the Owners, or at least some of them?

Either way, without All the owners/heirs signing, it is a useless contract, and you can't get clear title unless you track down all the interested parties (and may to open up some probates for additional heirs) and pay them to sign.

If you paid $2k for the assignment of a useless contract, then you got a $2k lesson.

What happened is:

The property was purchased by Mr. "X" in 2010 from original owner. 

Later in December 2014 Mr. "X" decided to sell the property and Mr. "Y" decided find a buyer (flip), Mr. "X" signs TREC Unimproved property contract with Mr. "Y". Mr. "Y" goes out and lists the property.

  1. Thats when I come along, signing "Assignment of real estate purchase and sale agreement". 

Mr. "Y" tells me that he already had the property under contract with Mr. "Z" but later Mr. Z backout because he could not get title insurance.

Mr "Y" also tells me that he tried to un-cloud title by trying to find who else may have interest and after doing investigation he said that 1 person was dead and second one could not be found. 

Mr. 'Y" also tells me that Mr. "X" when purchased from original owner received a free and clear warranty deed. 

I am due to sign with the lawyer the transfer of the property to my name.

@Alex Gitman

Whoever is on title can certainly transfer (sell) their interest in the property to you...but you're only buying that one person's interest, whatever that interest may be.  That is why the property cannot have title insured at this point.  

You can try to make sense out this Alex, but I think that you and the seller(s) are in deep and not sure how to get out. This is what I call the "Bigger Fool" theory.  The alleged seller screwed up and is not looking for the next bigger fool to come along an do the same.  Don't be that fool Alex.  

The deed will only transfer the interest that the one party has in the property. Other parties with a potential interest will retain with their interests until those too are transferred. 

I will stick by my earlier assertion that you're buying into a problem.

@Alex Gitman  Your decision should be based on the value of the property now and in 2016. If you can't get title insurance, you can do a "QUIET TITLE ACTION" so that you can get title insurance. You will need it if you plan to sell to someone in the future who has to obtain conventional loan. If you want more information on how to do a quiet title action you can contact me.[email protected] I was forced to do one myself when I bought some tax defaulted properties and the title companies refused to insure them.

@Toyin Dawodu Thanks a lot for that info, I will email you right now.

Alex

How do you guys put @ with someones name on it in the post?

@Toyin Dawodu @Alex Gitman  

A Quiet Title is NOT the answer here.  It is appropriate in a tax deed situation, because it Verifies a legal process.  A QT can't be used to remove a legitimate owner.

Alex, you still have not fully explained the issue.

Are you saying to MR. "X" did not get the deed by all relevant heirs at that time?

Or, are you saying Mr "X" bought from all owners, then died and Mr "Y" has a contract without all the proper heirs of Mr "X".?

Originally posted by @Alex Gitman :

How do you guys put @ with someones name on it in the post?

First scroll the reply box to the top of the screen so you can see the bottom of it.  Then Type the @ sign followed immediately by the ? and wait a second or two.  A list of people that have posted in the thread appears at the bottom.  Hopefully the person you want is towards the top since I can never scroll down the list without it going away.

Originally posted by @Paul Ewing :
Originally posted by @Alex Gitman:

How do you guys put @ with someones name on it in the post?

First scroll the reply box to the top of the screen so you can see the bottom of it.  Then Type the @ sign followed immediately by the ? and wait a second or two.  A list of people that have posted in the thread appears at the bottom.  Hopefully the person you want is towards the top since I can never scroll down the list without it going away.

Paul's got it. You can also type @ followed by the first three letters of their name and then only names matching those three letters will come up. This avoids the issue with having to scroll through the list.

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