Foreclosure represents a legal procedure by which lenders can take ownership of properties when borrowers default on their mortgages. Lenders can then put repossessed properties up for sale to recoup their losses.
But just because a lender takes possession of a piece of property, it doesn’t mean the property has a clear title. Since purchasing a repossessed home from a lender is as risky as buying any other property, my advice to anyone thinking about buying a foreclosure is to get title insurance.
Why Is Title Insurance Important?
Typically, title insurance is required by lenders when a home buyer applies for a mortgage. However, many people are unaware of the fact that the title policy required by a lender, also referred to as lender’s policy, only guards the lender’s interests in the property should a claim arise from a previous title defect covered by the policy. Borrowers and people who buy properties without a mortgage need to get an owner’s policy in order to protect themselves against potential problems with the title.
Title clouds range from omissions, defective recording, fraud, forgery and long-lost heirs to liens or judgments filed against former property owners. After many years of experience in the field of title insurance, there’s one thing I would like to insist on: though the titles to repossessed properties are generally free of encumbrances, such as liens, easements, restrictions, etc., title-related problems do occur.
Most lenders have the titles to repossessed homes searched thoroughly and clear all the defects they find before selling these properties. However, there are situations where lenders don’t catch all the problems. This is what makes obtaining title insurance so important. If you have an owner’s policy, the insurer has a duty to defend you in court, if required, against any claims covered by the policy, including defective foreclosures, and cover your actual loss if a claim is found valid.
How a “Simple” Title Search Can Help You Get a Clear Title
Though the purpose of this type of insurance is to protect homeowners from potential title faults, it can also help ensure a clear title to a repossessed piece of property. Since the first thing title companies do is perform a thorough examination of public records, including past deeds, trusts, wills, divorce decrees, tax records, bankruptcy filings and court judgments, they can easily uncover irregularities in a title.
When title problems are found, it’s the responsibility of the insurer to inform you, issue a comprehensive title report and contact the seller to have the problems corrected before the closing. If a problem cannot be solved, the report gives you a legal basis for renegotiating the purchase price or backing out of the deal, even if the seller has already accepted your offer.
In conclusion, my advice to you is to never settle for a repossessed home without title insurance just to buy it quickly. Since purchasing a foreclosure is a little bit more complicated than buying a regular home, getting title insurance from a reliable company that is compliance driven is one of the few proven keys to successful homeownership.
As a title insurance company certified in ALTA Best Practices, Guardian Title and Trust, Inc. is able to handle professionally a variety of title-related matters. A simple call at (904)-992-1162 will put you in touch with our highly experienced, dedicated professionals, who are ready to work hard to minimize the risks associated with this type of insurance so that you can fully enjoy the benefits of buying a bargain home out of foreclosure.