Auction with Lis Pendens, and an "Insurable" but not "Marketable" Title. What to do?

Question

Good evening!  There's a house near where I have my current rental that has gone up for auction on Homesearch.com   The start price is low, it's already auctioned twice and finished with a hell of a deal but no reserve met, and perhaps it will this time as well.  If I could get it for a reasonable price, it would fit right into what I'm looking for.

According to the LA, the auction will give you a SWD and an insurable but not marketable title.  When you look at Zillow, it mentions there was a Notice of Lis Pendens given.  So let's say you were interested in this property, but not terribly interested in grabbing a tiger by the tail, what would you do?  I've never dealt with this before, but I'm guessing the safest route is to get a title co. to run a title search and see what clouds there might be on the title and then that will hopefully tell me all of what could go wrong from a lien standpoint.  From there I should be able to tell if the property is worth the hassle, correct?  I like the idea of getting a house for 20-30k off, but I don't like the idea of buying a headache.  Any advice or guidance would be greatly appreciated.

David Krulac · Answer

@William Murrell

A one owner search is cheaper and less work, but does not give the full picture.  A full title search as done for title insurance would give that full picture.

If the title company will not issue title insurance on the property, that would be an indication that there is a flaw or cloud on the title.  some times these can be resolved easily, other times not so easy.

Here in PA, the rates for title insurance are established by the PA State Insurance Commission and everybody charges the same rate.  Also almost all title companies are owned or partially owned by attorneys, so you're paying an attorney either way.

Some attorneys will issue their own personal guarantee as to title in lieu of title insurance.  This is fine until the attorney passes away, they the guarantee goes away also.  But we also had a case where we had title insurance from a company and later there was a potential claim, and the company had gone out of business so the title insurance was no longer valid.

David Sicherman · Answer

@William Murrell Yes, however many investors pay for just a lien search not a full title search before signing a contract as companies that do initial lien searches are much cheaper than running a full title search and finding out there's an issue when you are already at or near closing date.

William Murrell · Answer

Thanks to both of you.  My other question then is: if I understand this correctly, a Lis Pendens can be from the foreclosure of the primary mortgage, but it could also be from something else, perhaps some other debt or lien.  If they are saying upfront that they will only give insurable title, but not marketable, wouldn't that sort of imply that there must be something other than just the mortgage because that will be settled once I purchase it?

It seems to me that it would be worthwhile to pay the 200-300 to check it and see what it has against it, and then see if it's worth pursuing but I'm really concerned with how easy (or hard) it will be for me to get the title cleaned up and marketable.  What would you do if you were in my shoes?

David Sicherman · Answer

Usually the attorneys order it from a company (like ours) then double check everything and run down red flags and can give you legal advice on anything on the search.  Companies are cheaper because depending on what you order they cannot give legal advice.

William Murrell · Answer

Ah, makes sense.  I appreciate the advice, @David Sicherman .  I'm not sure if I will move on this property or not, but if I decide to I will make sure to run the full title search beforehand.  Is there any advantage to using a title company over a real estate attorney who also offered to do the title search?  Seems like the title company would be cheaper.

William Murrell · Answer

Is the lien search performed by the title company?

Account Closed · Answer

Always pay a title company to run a search before you make an offer or bid.

Joe Gore

Auction with Lis Pendens, and an "Insurable" but not "Marketable" Title. What to do?

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