Title Insurance for foreclosures

5 Replies

Hey, y'all. So we are planning to buy a foreclosure within the next week from auction.com, and I have been extremely confused regarding title insurance. We plan to purchase title insurance and use our own title company--as has been recommended on bp. 

Here's where I'm confused: I've seen people saying they perform a title search and even pay a title company PRIOR to bidding. I don't get why this helps--if you get title insurance AFTER bidding, won't the title insurance still cover all the leans/unpaid taxes? So why would you want to get insurance beforehand?

Thanks so much! We are nervous right now--first foreclosure 

Whether you can pick your own title company depends on the specific auction/bank/property/state you're in - make sure that you read the fine print and have the option to select your own instead of being stuck with the bank's choice.

Title insurance covers you if the title company says "no problems with the title" and then it turns out something was missed down the line (e.g. an outstanding lien or something). It's not a blank check to pay off any existing problems with the title. So some people will pay a title company to research the title and figure out if there are likely to be any problems prior to bidding, so there are no surprises. Especially because with REO's, the form of title/deed the bank actually gives you may vary. I would guess nobody is paying for the actual insurance on the title prior to owning the property though.

Originally posted by @Al Costner :

Hey, y'all. So we are planning to buy a foreclosure within the next week from auction.com, and I have been extremely confused regarding title insurance. We plan to purchase title insurance and use our own title company--as has been recommended on bp. 

Here's where I'm confused: I've seen people saying they perform a title search and even pay a title company PRIOR to bidding. I don't get why this helps--if you get title insurance AFTER bidding, won't the title insurance still cover all the leans/unpaid taxes? So why would you want to get insurance beforehand?

Thanks so much! We are nervous right now--first foreclosure 

It depends on what kind of sale it is on Auction.com, as there are 2 types. Is it an REO sale (already been foreclosed and being sold by the lender); or a courthouse/sheriff foreclosure auction? If the former then you needn't worry about title as the foreclosure would have wiped any junior liens and the lender SHOULD have disbursed any remaining clouds on title. However if it is the latter, many people get a title co to run a check before the auction to ensure 1) it's a 1st lien being bid on 2) whether any superior liens will remain after foreclosure.

You should read the instructions on Auction.com listing to see which type of sale it is, and if an REO sale be sure it is specified that it will be conveyed with a Warranty Deed. If it's a Quit Claim Deed then you better run a title check to see what you will be inheriting.

It says this

  • Buyer may receive a Special Warranty Deed or equivalent if buyer is able to purchase title insurance without delaying the closing (title fees typically cost between $500 and $1,500 and are based on the purchase price of the property). If buyer does not purchase title insurance, buyer will receive a Quitclaim Deed or equivalent, with no express or implied warranties of title 

So I assume as long as we get title insurance, we're good? It is REO, bank owned

Thank you

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