Title Insurance and Foreclosed Properties
Real Estate | Tips | Title Insurance |
Issuing title insurance in most transactions is a fairly straightforward process. The closing attorney looks at the title history of the property to determine if there are any claims of ownership that could cloud title to the property. If a problem is found, it is handled prior to the sale. The company then issues a policy that guarantees that it will address any title issues that arise after the transaction has closed.
However, when the property is a foreclosure or a short sale, complications can arise. At the peak of the Great Recession, insurers were cautious to issue any kind of title insurance for foreclosed properties. Even today, it can be challenging to secure title insurance in the purchase of a foreclosure.
If I Buy a Foreclosed Property, Will I Be Able to get Title Insurance?
When you buy a property in foreclosure, title companies may be hesitant to sell you a policy. You may be able to purchase title insurance in some circumstances, but you can also be denied. The title insurance company will more carefully scrutinize the transaction when the property is a foreclosure. Other factors may also play a role: Who actually foreclosed on the property? Are you purchasing the home on the courthouse steps or through the lender? If you are buying through a lender or what is known as a real estate owned (REO) foreclosure, it may be much easier to obtain title insurance. REO foreclosures are similar to traditional sales and are seen as far less risky for title insurers than courthouse foreclosures—that said, REO closings are rarer and take much longer to get to the closing table.
What About an Owner’s Policy?
The answer is yes—you should absolutely purchase an owner’s title insurance policy in a foreclosure sale. A title insurance policy will cover defective procedures during foreclosure in addition to any other clouds on title. Title insurance policies are intended to uncover issues in the chain of title that have not been detected previously. Buyers in a foreclosure should take note of what the policy excludes from its coverage. If you are buying a foreclosed property through a bidding process, it can be more difficult to obtain insurance before you make an offer. This is a tricky situation because a company may decline to provide insurance after the sale if an issue is detected. Generally, if you are looking to own a foreclosed property, purchasing an REO foreclosure with title insurance is a less risky proposition.
To learn more about the benefits of title insurance, the cost and real-life scenarios, click HERE.
Written by Dal Burton, Attorney