Will I need Title Insurance on a Foreclosed House?
Before discussing whether you need title insurance on a foreclosure or not, I would like to address one of the most common misconceptions about repossessed properties; mainly, that getting a clear title on a foreclosed home is not possible. What’s more, the biggest concern among the people interested in buying a repossessed home is that former owners could get their homes back in the future.
While a previous owner may be able to get his house back in a state with a right of redemption, it rarely happens. In Florida, for instance, a foreclosed owner can get his house back until the date of the sale, but only if he pays the total amount owed to the lender. If the borrower is unable to cover the entire amount and someone else buys the property, a certificate of sale is handed over to the new owner within 10 days of the sale. Once the certificate of sale is issued, the borrower no longer has “redemption rights.” Redemption laws can vary greatly from one state to another.
In addition, creditors can start the foreclosure process only after a requisite number of consecutive missed mortgage payments. This means there is virtually zero risk of errors that could lead to wrongful repossessions followed by claims previous owners may file to recover their properties.
Another essential aspect is that buyers of foreclosed homes are protected by the bona fide purchaser rule. According to this rule, a foreclosure sale cannot be reversed. Also, culpable creditors have an obligation to reimburse wrongfully foreclosed-on owners for the financial loss incurred.
Now that we’ve clarified this issue, it’s time to discuss if title insurance on a foreclosed home is really necessary.
Just as with any other real estate transaction, ensuring that a foreclosed home has a clear title is critical before investing your money in it. Though the vast majority of foreclosures are free of liens, judgments and encumbrances, buying certain types of properties, such as REO homes, can’t guarantee there are no title defects. The truth, in my opinion, is that investing in a REO home can be just as risky as buying any other piece of property.
Even the most diligent title search may fail to reveal all the problems associated with a piece of property. Additionally, title-related problems may remain hidden for many years.
For instance, a previously unknown child could show up three years after the new owner bought the property, claiming he had never agreed to the sale of the house. If the homeowner has an owner’s title policy, he can rest assured knowing that the insurance company will take care of the problem and reimburse him for any financial losses that may arise from the claim.
Why Hire a Professional?
Anyone can examine the public records for information regarding the title to a foreclosed home, including the estimated market value, the amount owed on the home and any liens filed against it. However, you should hire a title insurance company to perform this task for you. Besides being specially organized for this purpose, a title company has expert title examiners who know how to perform a thorough title search and how to solve title faults. And although title insurers cannot guarantee clear titles, they do warrant the validity of the title policies they issue.
If you’re interested in buying a foreclosed home, we invite you to contact us at Guardian Title and Trust, Inc. Not only will our experienced title insurance agents try to eliminate all the title-related risks by meticulously searching through public records; they’ll also work together with you to make the home buying process as streamlined as possible.