Flipping an REO - Do I need title insurance?

Question

I am closing on a bank owned property this week. The selling bank did a title search and their title company has offered me insurance.  I plan to own the property about 4 months... what it will take to repair it and sell it.

My very experience REO realtor is telling me that the title is obviously clear since they did the search and I can get away without buying title insurance if I don't want to.

Her very experienced title company owning husband advised me to get the title insurance because there is a very large discount on the policy when i sell the house if the time between this sale and the next is short.

Does anyone out there every buy houses without title insurance when the risk has been characterized and determined to be negligable?  I'd love to save $920.

Has anyone ever gotten this discount when the last insured transfer was recent.  Does the same title company have to do both transactions?  If the discount is easy to obtain and really big, then I guess I can agree to cover the insurance on the sale of the house for very little out of my pocket.

Matt Devincenzo · Answer

Get the title insurance. It only seems like title is clear until a 30 year old issue that no one else caught pops up. Is that somewhat of a long shot that it happens; sure, but it does happen and there's no way to know what property that will be on until it happens.

Jean Bolger · Answer

I would never buy without title insurance.  Wrong penny to pinch, IMO

Account Closed · Answer

I have a real life story that I will share.  There was an auction held in Greenville, TX of a bank owned property.  The bank occupied the property and was allowing showings.  The auction was held on site.

There was just one problem.  The bank had occupied two properties side by side when only one had been financed.  They damaged the other property and then gave a deed to both of them.

There was no title insurance policy.

The good news was the buyer went to a bank for a rehab loan within a couple of weeks of closing. They did a title search and the problem was found.

A few calls from a lawyer and the people that listed and auctioned the properties solved it.  They got out their check books and bought it back.

If the buildings on the property had been bull dozed or a huge amount of rehab had been completed it would have been a huge nightmare instead of small nightmare.

It is almost always worth getting a title policy.  So much so, I do not think I will explain when I would not get it.

Lisa Helt · Answer

If you are talking about the "Owner's Title Insurance" above and beyond the already paid for (usually by seller) "Lender's Title Insurance", then I think this is a valid question.  My understanding is that if you put down 20% and intend to flip the house within the next year, your risk is at worst - 20%. The odds of a claim during your possession are very very very low.  Remember there has already been a title search performed. (I tend to agree with the person above who asked why do we have to pay for the search if we are getting the title insurance?)

If a claim occurs, we are not at risk for the entire property, but for the amount that does not have a loan against it - as most lenders require title insurance on their own behalf. What makes me angry is that in my case on a $240,000 home, the title insurance for the Lender is $1,744 and the "owner's title insurance" (that they did not even ask if I wanted, but assumed it) was $1.866.  That is a hell of a lot of money for insuring my $48,000 down payment.  AND I am not willing to pay that.

Way too many people don't understand the "owner's title insurance" vs. "Lender's title Insurance."

But you should know that as the amount of the loan is paid off, the title insurance for the lender also decreases, making your liability larger and larger.  However, for a flip I expect to get done in 7 months, I'm not spending the $1,866. Call me stupid.

Katharine Chartrand · Answer

Well you guys made that easy.

Title insurance obtained.

>KNC<

Jeff S. · Answer

I hate to say it, @Katharine Chartrand, but your "very experienced" REO realtor doesn't know what she's talking about. Fortunately, it sounds like her husband does.

Several years ago, I was rehabbing out-of-state REO's. Two weeks before one of my sales was due to close, I got a frantic voicemail from my agent hoping and praying I bought title insurance with my purchase. It turns out this property was purchased in 1986, sold in 1992, was bought and sold several times since, and ultimately ended up as an REO due to foreclosure.

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, throughout all the sales, and at least one foreclosure, nobody caught this. It didn't matter to me though.

I wouldn't buy a property from my mother without an ALTA Title policy so fortunately, and to the relief of my agent, I was covered and my sale went through on time, with only this little hiccup. The moral is, never believe that the manner in which you buy a property will remove all skeletons in the closet. This is a myth.

You should always buy title insurance.

Jerry W. · Answer

Yes, I have gotten the discount for title insurance numerous times.  I especially get title insurance on REOs because most banks don't do warranty deeds they do some useless quitclaim hybred thing.  Always get title insurance, ALWAYS.

Mark Ferguson · Answer

get title insurance.  You'll have to pay for it for the buyer of the home when you sell it.  It will be less if you get a hold open policy. You may only be saving $500, but a title error could cost 100k.

Account Closed · Answer

@Katharine Chartrand  It has been said already but I will say it as well. ALWAYS get title insurance.

Flipping an REO - Do I need title insurance?

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