Real Estate Investor Alert! Why You Need Title Insurance for Foreclosure Properties!
Title insurance protects you from undisclosed liens.
One of the biggest risks that investors run into is finding out the equity they thought they had when buying a property in foreclosure no longer exists due to liens being discovered once the property is purchased.
A title search will reveal if the party foreclosing on the property is a first lien holder or a subordinate lien holder. If the mortgage being foreclosed on is a first mortgage and the property is bought at a foreclosure sale, then most other liens on the title could be wiped out. Exceptions to this action include unpaid municipal taxes, IRS tax liens, and in some instances condominium association fees.
When conducting a title search, your real estate attorney will want to review the title report and check with the municipality prior to you bidding on the property, to see if all taxes are paid to date. If the property is a condominium, your real estate attorney will contact the condo association to determine if fees are due.
In addition to first and second mortgages, other liens include state and federal tax liens, child support liens, liens from credit card companies, unpaid contractors, executions, and a host of other individuals and companies. These types of liens will generally show up in a thorough title search.
Once you purchase the property, you are responsible for any and all liens on the property – known and not known. Hence, a property you bought at a foreclosure sale for $150K that has a fair market value of $175K can have $45K in undisclosed liens – quickly wiping out your profit and your bank account if you don’t own title insurance.
At the Ferraro Law Group, we provide Title Insurance to ensure that the property you are about to purchase is a safe investment, free from any liens. One of the benefits of having us search for title defects is that we can not only find the problems a property may present, but often we can help find solutions to fix them too. If you are an investor looking to purchase real estate, contact us today, to ensure that your investment is a sound one, and that any potential defects can be curred before you take ownership.