Do you need title insurance when buying a foreclosure?

14 Replies

If a title is clean after foreclosure, do you need title insurance when purchasing?

You need title insurance for buying anything you'd an on holding for a while. Title insurance is for the things that are Not apparent now.  As in a defective process during the foreclosure, past heirs that pop up, etc.

If you are buying at courthouse steps you won't get title insurance there ...

Totally agree with @Wayne Brooks , you don't want to get caught off guard down the road. 

@Damien Buchanan  

  As STeve indicated there is no title insurance for the purchase at trustee sale or sherrifs sale. you can and should then buy a policy right after you get your Deed...

Now when I was active In courthouse steps buying ( 100 a year or more) we never bought title insurance as we were flipping everything we bought... West coast is pretty easy to figure out title prior to buying at the court house steps. we had one bad one that we had to negotiate out with lawyers and broke even ... but other than that we were fine.

If your buying to hold then I agree with Wayne its cheap insurance for anything that can pop up down the road.. especially East coast were your sales are far more complicated than ours are out here on the west coast.

Originally posted by @Damien Buchanan:

If a title is clean after foreclosure...

Your question contains an invalid assumption, Damien. There's no way you can know that title is clean after a foreclosure. I unknowingly bought an REO with a clouded title from a sale that occurred nearly two decades earlier. The property had been bought and sold several times prior to my purchase from the bank and there was at least one foreclosure. Strangely, no one saw the issue until, lucky me, I tried to sell. Fortunately, I also had title insurance and my sale went through with barely a hitch.

Here's a related thread: http://www.biggerpockets.com/forums/16/topics/126851-flipping-an-reo---do-i-need-title-insurance

Forged documents are also a big issue lately that title companies have been dealing with. These, obviously, don't get wiped out from a foreclosure.

There's plenty of opportunity to skimp, but considering what you will normally pay for a property, the cost of title insurance is chump change and well worth the protection.

Jeff S Na 

Forgery is the reason that CA went to thumb prints on any document that transfers title. When I was a HML in Oakland back in the day... my predecessor had a big investor that was going down ( he bought Texas apartments that killed him) So he forged all sorts of documents from loan docs to reConveyance deeds.. was ultimately caught and went to prison. But the title co's who have to defend forgery took a huge hit.. it was over 10 million in this case. I also had more than one occasion where a nefarious person new of a closing and new when our title co. recorded ( they get time slots) and ran in an hour before and recorded a Trust Deed. so when I got my title policy I was in 2nd instead of first.. one call to Title and they had to make it right and then sue this person and or file a criminal complaint. Lots of wild forgery type stuff on CA for sure.

Originally posted by @Wayne Brooks :

You need title insurance for buying anything you'd an on holding for a while. Title insurance is for the things that are Not apparent now.  As in a defective process during the foreclosure, past heirs that pop up, etc.

So if you're going to FLIP in less than 3 months, you recommend not buying?

Well, you'll generally need to provide it when it when you sell. I generally haven't bought it if I'm selling within a few months, assuming it's clean when I buy it.   Maybe smart, maybe not.

I've been flipping for 15 years in Va and here's what I do:

IF you plan to flip a foreclosure in a Judicial state (Maryland is one) which requires post-sale review from the courts then NO, you don't need title insurance.  The court review process acts to "Quiet Title" and effectively scrubs the title clean.  Its not 100% but close.

IF you plan to flip (holding < 1 year for possession & renovation) in a non-Judicial state, then it DEPENDS.

It is always much SAFER to buy title insurance, so you won't go wrong doing it, but I am assuming you want to save a few $1000s by not getting it.  So my take is.

If there is lots of activity on the current title before the sale (ie. quit claim deeds, note transfers, name changes, people being added onto or falling off the deed) then YES, get it.

If however, the title search reveals a clean clear cut chain, then NO, it's very IMPROBABLE that someone is going to come knocking on your door during the 3-6-9 months you own it.

My 2 cents...

Rodney

I would definately buy it... For a small price, you have a peace of mind.. I think it's a no brainer for a buy and hold investor especially.

@Damien Buchanan

Title insurance is...well, insurance. Insurance covers certain risks.  I look at it this way. 

I don't know if I'll have a heart attack or a stroke, so I carry health insurance to cover the risk of lengthy hospitalization.  I don't know if one of my properties will get damaged by a drunk driver or burned down by a lightning strike so I have insurance to cover that risk. I don't know if someone will file a forged document or whether an adverse claim might be made on one of my properties...issues that would cost me time and lots of money to cure, so I buy insurance for those risks. It matters not whether I'll own the home for 10 days or 10 years. 

As Clint Eastwood said in one of his movies, "so, do you feel lucky?"...this is the question you must ask yourself.

Unlike other forms of insurance, title insurance is only available for the passing of title that the insurer controls.

This would be and owner's policy or lender's policy. This could occur when title is transferred prior to or after foreclosure auction. 

A foreclosure auction is the forced liquidation of legal right, title and interest. Title company is NOT involved in a foreclosure auction. it's WYSIWYG. Title will not retroactively assume your risk. 

They will insure a subsequent sale, with market-based exceptions. 

So, you can buy before the sale from record owner, or after the auction from REO lender or 3rd party successful bidder who buys intending to resell. However, the sale is not an insurance event (that I've ever seen).

I purchase on all of my buys.  Flip or hold.  The peace of mind is worth it to me.  I look at it as a cost of doing business.  

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