Title insurance? Pro and Cons?

Question

Hello all. I'm new to BP but has some limited experience with real estate investing.  First time post!

Anyways, I want to get your thoughts on title insurance. I just recently purchased my 2nd property through sheriff auction (with a lot of help w/ investor), and got my deed recorded.

As far as I can tell, the title is clean but I am still new at this. Obviously I am stuck with this property regardless, but my question is, is it worth while for me to still buy a title insurance? My goal is to flip this house. Back up exit strategy is to rent it out / cash out refinance. The property is in Will County in the chicago land area.

Any comments or feedback are greatly appreciated.

Wayne Brooks · Answer

A title Search will tell you if there are any Known issues, a senior lien, previous title transfer irregularities, etc.  this is essential when buying, no matter how you buy.  Whereas title Insurance protects you against unknown, not currently evident problems, that may become known later.  Title insurance will Not cure any problems found in the title Search.

Marcello Di Gerlando · Answer

I bought two houses this year at auction. I did not buy title insurance on either. I did however conduct a title search through my title company to see if there were any liens on the property. The search allowed me to make a decision -BEFORE- I bid on the property.

Not sure of the laws in your area. But how do you know that you bid on the first lien? You may have bought a second or third position. Do you have the title deed in your name already?

This is a common pitfall for folks unfamiliar with the auction process. Folks will think they are bidding on a property’s first position when in fact they are bidding on a junior lien and in fact will not own anything except a non performing note. Dangerous.

I don’t know how much title insurance will protect you at this point. By the time you have signed all the title docs you will probably have indemnified the insurance folks of all liability except for the most obscure and rare clauses i.e. someone has some ancient mineral rights to the land.

The title searches I do only show me if there are any financial encumbrance. It does not show me if there are issues with the property itself i.e. water rights, covenant violations, zoning issues, easements etc.

Just because I have purchased properties without insurance; in no way do I recommend anyone to do the same if they are not willing to lose the property.

Marcello Di Gerlando · Answer

Chris T.

I don’t think I would ever be involved with anyone whom I didn’t feel was forthcoming with all pertinent information. I don’t care how lucrative any deal was. If this guy is not telling you everything; be careful. I hope things work out for you. Keep us posted on your deals. Good luck!

Chris T. · Answer

Thank you @Marcello D. I just got the deed 2 days ago, so I am now waiting for possession of the property. Once I get it, i will create another posting.

Chris T. · Answer

Steve Vaughan,  in your experience, how fast is the turn around time for the lien and encumbrance report? $80 is a small amount for a peace of mind! Can I ask for the company reference in these forums or is it not allowed?

Steve Vaughan · Answer

If a preliminary title search I conduct via a public record search shows anything remotely shady, I order a lien and encumbrance (L& E or O&E) report from my title co to be received by e-mail for $80.  Haven't regretted it yet!)

Chris T. · Answer

Marcello D. Yes, I 100% agree doing due diligence before even bidding on properties in Sheriff Auctions. I was fortunate with my first property through this investor/realtor, and found out a lot more about the process.

After that, I did question him on how he operates his business, but he does not want to give out a lot of information. I think the main reason is he got burnt with some investors/ex-employees in the past, and is very mindful on what he reveals. I did "test" him on a number of issues and he has come through for me so he has earned my trust to keep purchasing properties with him.

Yes, the title deed is in my name already so I thought a title insurance would be a waste of money. But since we are still learning, I wanted to get other investors' feedback on this.

Thank you for your feedback.

Title insurance? Pro and Cons?

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