Title Insurance: do you need title insurance on a BRRR

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Title Insurance: do you need title insurance on a BRRR

Mark DavisPro Member
Phoenixville, PA · Member since 2016 · 36 posts · 5 votes

My brother and i just purchased a house at a tax lien judicial sale

the judicial sale in chester county is such that is supposed to be free and clear of all liens.

currently, there are some municipal liens against the house for water and trash collection.

from what i understand, the excess of the monies paid over the county taxes goes to pay the other creditors.  (being the municipal payments)

i am guessing a title search would reveal all these liens.

my question is .. once all these liens are resolved (by the county with proceeds from the sale).  when do we need title insurance.

do we even need it?   

part of what the county sale stipulates is that the property is free and clear of any liens

from the chester county web page

  • Unlike an upset tax sale, properties sold at judicial sale are sold freed and cleared of all liens, mortgages and other judgments on the property.
  • A title search of the property is completed and all lienholders and other interested parties are served a copy of the Petition for Judicial Sale by a deputy sheriff. This is a very tedious and time-consuming process controlled by many variables.

it looks like there is a title search done by the county and if the county says that all the liens are clear... do i need title insurance?....   from what i understand title insurance covers me for something that happened in the past that a title search didnt find...

we WILL want to get a mortgage on the property, to get our money out (BRRR) at that point.. do we need title insurance?

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Tyler Sterns
SW Florida/Maryland · Member since 2016 · 89 posts · 36 votes
9y

When you get a mortgage the lender will probably require that you get a lenders title insurance policy. Tax sales are considered very risky by title insurers. In my state it is hard to get title insurance on a tax sale property for 2 years. 

Title insurance covers more than liens, there could be a missing owner in the chain of title, the tax sale may have not been done properly, all junior lienholders may have not been notified etc. 

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  • Tyler Sterns
    SW Florida/Maryland · Member since 2016 · 89 posts · 36 votes
    9y

    When you get a mortgage the lender will probably require that you get a lenders title insurance policy. Tax sales are considered very risky by title insurers. In my state it is hard to get title insurance on a tax sale property for 2 years. 

    Title insurance covers more than liens, there could be a missing owner in the chain of title, the tax sale may have not been done properly, all junior lienholders may have not been notified etc. 

    2Reply
  • Rich O'Neill
    Contractor · Chadds Ford, PA · Member since 2015 · 567 posts · 460 votes
    9y
    Hi Mark, I just learned this the hard way. I closed on a house and paid cash and neglected to tell my title company that I was going to refinance. When I went to refinance I had to get a whole new title policy for the lender. The title company said I should have left the policy open which essentially allows me to get a policy insuring the difference between purchase and refinance value rather than a new policy. Could save you a few hundred dollars. To my understanding, if you use this method you will essentially be paying the same amount in title insurance as if you didn't get a policy at purchase but you will be covered during the time before you refinance. Should be worth doing getting. This is about the extent of my knowledge here. I learned all this from Janene at Aaron Abstract in Blue Bell. They are great to work with and really know their stuff. PM me if you want their contact info! Good luck!
    2Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    9y

    Title insurance is required for commercial lenders like banks and mortgage companies as well as most every transaction that involving a licensed real estate brokerage. 

    However, it's not the law. It's a rule and typical policy.

    I've purchased many properties without benefit of title insurance over the years.

    In a general way, title insurance may keep you out of trouble on the acquisition side. But errors do occur, even by busy title companies. 

    Since you own the property now, your job is to defend your title at your own expense. Title company will not insure your mistakes or defend your title on a transfer that they had nothing to do with. 

    If you plan to keep the property for X years, clean up any threats or exposures now so you'll be ready if or when you want to borrow or sell. Life events occur and that's not the time to have to start.

    2Reply
  • Arthur L Dusenbury
    Investor · Schaumburg, IL · Member since 2016 · 34 posts · 14 votes
    9y

    I always buy title insurance no compromise.

    2Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    Yes you should absolutely get it since you already know there has been title issues with this property.

    The title insurance isn't there to protect you against the easily identifiable problems, it's there to protect you against the ones you can not easily find....such as a license gains tax the property where two numbers or letters are transposed so that lien doesn't come up in a any search easily. Those liens are just as valid as the easy ones to find.

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    2Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    9y

    Yes, title insurance will be required for a traditional loan.  Even though you may "no liens", this does not mean you have insurable title.  Our procedures are the same here, notifying all lien holders, but title is not insurable for a period of 4 years, unless you do a quiet title action.  Tax sale laws are complicated and understanding them is not a DIY task.  You need to talk to a real estate attorney or title co. to know your nest steps.

    1Reply
  • Justin Elkins
    San Angelo, TX · Member since 2014 · 16 posts · 6 votes
    9y

    In my opinion it is just another cost of business don't skimp on this.  It is easy to want to cut out the high cost of any insurance, but as soon as you do Murphey's Law will come into play.

    0Reply
  • Bob Norris
    Investor · Kennett Square, PA · Member since 2012 · 45 posts · 25 votes
    9y

    Mark, the common wisdom seems to be title insurance is highly recommended, but not legally mandatory.  But, as others have already written, if you want o mortgage or sell the property, it is the smart thing to do.  Perhaps you already know this, but in PA prices are set and have not been negotiable, at least I have not been able to.

    0Reply
  • Kara Haney
    Investor · new york, NJ · Member since 2014 · 137 posts · 13 votes
    9y

    NY had torrens title _ dont know about PA - but it is weakened - but you might look into it.

    0Reply
  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Mark Davis

    1. Availability of Title Insurance. As others have mentioned, many PA title companies will not offer coverage for properties you buy at a "free and clear" sale until few years have passed. Some may require you to bring a quiet-title action in some cases. Moving forward, it's an issue you want to check with your title company to know exactly what you have to do.

    2. Purpose of Title Insurance. Others have eluded to this point, but it's worth mentioning again that title insurance has several purposes. One purpose is to protect you when there is actually a defective title issue. The other purpose is to tell future buyers (and lenders) that your property has "marketable title." This is important --- without a marketable title, you will struggle to get financing and may have to deal with lower property value. 

    3. Reliance on Free and Clear Sale. Please be careful about relying too much on the "free and clear" part of a "free and clear" sale. Yes, it is true that the sale --- in theory --- should remove many of the property lien. In reality, it's not so easy. In the future, you want to make sure to check the title before you buy the property and flag any major risks. 

    1Reply
  • Account Closed
    Property Management · Marietta, GA · Member since 2015 · 45 posts · 25 votes
    9y
    Yes, Definitely purchase one. Just because it's clear now, it doesn't mean there is pending lien against the property.
    1Reply
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