Do You Really Need Title insurance When Buying a Property?

Title insurance is not available in all parts of the world and in those countries title
disputes are settled through court action or a mediation board. Unfortunately,
those court and mediation actions can take a long time and the outcomes are
never guaranteed. In the United States, title insurance is a mainstay of
transferring a property, but is it really necessary?

In the countries where title insurance doesn’t exist, very few properties have
mortgages. The buyers have to buy with cash or collateral far in excess of the
values of the property. In some foreign countries where buyers can get property
loans, they must be cross-collateralized with 2 – 3 additional real properties. In
the United States conventional lenders (banks) will not loan on a property unless
it has what is referred to as marketable title that comes with a title insurance
policy.

Ironically, REO (bank-owned) properties are often sold with an insurable title
which differs from a marketable title in that there can be title defects or
deficiencies that must be assumed by the buyer. These attachments that cloud a
clear title are handled in the title policy as exceptions or exemptions, and they will
still exist after the title transfer and until they have been cured sometime in the
future by the buyer or before the closing by the seller.

What this means to a buyer of an REO is that he may get an insurable title, but
not necessarily a marketable title. A non-marketable title means that somewhere
in the future ownership of that property, a conventional lender will likely not
finance the property. The perspective lender will need to see that the title
deficiency or attachment has been cured before they will close and finance the
property. These deficiencies can be as simple as old code violations or liens,
open permits that weren’t closed, or as major as the seller in previous title
transfers didn’t own the property.

For the average investor it is safe to say that as a buyer he should always require
a marketable title on a purchase. This insures he will have no problem selling
the property to another buyer who is getting conventional financing in the future.
A property owner can get a title policy issued, with deficiencies cured, at any time
after he owns a property so buying a property with an insurable title only is not a
deal killer in most situations. However, the actual cost to cure the deficiency can
be the deal killer.

In our tri-county area there is one REO broker who has his own disclaimer that
the buyer will only be able to get an insurable title, no marketable title under any
condition. The seller’s (REO) addendum doesn’t say this for most properties this
broker lists and sells. It is in his documentation solely to protect himself against
title issues that crop up later and where the buyer goes back to complain or sue
the broker. The net effect of this disclaimer is that the seller (REO Asset

Manager) is likely getting lower prices as many investors are shying away from
these properties. There will always be those investors who are initially paying
more because they don’t understand the ramifications of insurable versus
marketable title, but they don’t have unlimited funds and will find out in the near
future.

There are instances when a marketable title transfer is not possible. The most
common example is at public auctions where foreclosed properties are sold.
These can be sheriff sales, county auctions, Federal agencies’ sales, or any
authorized governmental authority that has legal power to sell confiscated or
foreclosed properties. These properties will always have title “gaps” as the
original owners did not voluntarily transfer their properties. A deed in lieu of
foreclosure is a voluntary transfer by the seller and will not be sold at auction but
immediately taken in as an REO.

Often foreclosure properties are boarded, abandoned or have owners who will
not allow anyone inside. The investor has to assume the condition of the
property but he can do title research to determine possible title defects. There
services are available online and they are used by attorneys to research the
chain of title, the property transfers in the public record, and very importantly,
recorded liens against the property. What they may not show is pending code
violations that could become liens. Because of this lack of recorded public
information, all title policies have exceptions for information not contained in the
public record. Lien letters sent directly to the municipalities where the property is
located is critical in determining the full extent of defects that can potentially
affect the title.

An investor can do the title inspection from the public records and get a general
idea about the problems and issues with his perspective purchase. However, it
is suggested that the property’s value be discounted for title issues as a
bargaining tool with the seller. It is not uncommon for a title to be clouded by the
simple action of improper service by a lender in a foreclosure action, in a worst
case that we have seen, a foreclosure taking place where the plaintiff wasn’t
entitled to foreclose on the property. Any title issue can ultimately be corrected
through the courts by what is known as a Quiet Title Action.

In summary, title insurance is a very inexpensive form of insurance to prevent
having the inability to sell a property after the buyer paid for the property and the
seller moved on. While an investor can do much of the title research himself with
access to online services, it is highly advised to have a competent attorney do
the research and issue a title policy. If there is a problem after the title has been
transferred to the buyer, the buyer-investor may be able to make a claim against
the issuing title company and get his insured amount back. This insured amount
is usually the purchase price or more if the policy was written for an amount in
excess of the purchase price.

To your limitless success,

Dave Dinkel

PS – We will be having another “Foreclosure Defense and Asset Protection”
Seminar on Saturday, August 14th. If you know anyone who is facing
foreclosure, in foreclosure, or contemplating foreclosure, this seminar
could be the answer to their dreams.

Every homeowner has legal rights and is entitled to defend himself against a
foreclosure action and the possible ramifications of deficiency judgments.
Please stand up for your rights by discovering what they are and what actions
you have to take. Our local “Attorney X” has been called an industry crusader for
the rights of homeowners and investors, come and see for yourself.

Besides the sample documents, audio recording and text, our fabled “Attorney X”
will be disclosing how homeowners and investors can possibly stay in their
properties for years while fighting for their rights. His information has been called
by industry sources, “The only self-help material that has any real value” and “An
extraordinary insight into foreclosure defenses and asset protection”.

The feedback we got from the last seminar was extraordinarily positive.
We were sold out within two days of advertising it so we are starting early this
time and increasing the seating capacity because we had standing room only last
time. Don’t miss this opportunity to get all your personal questions answered by
an attorney who practices what he preaches and find out what rights you have to
stay in your home, or possibly even have your mortgage rescinded if there are
legal grounds.

The problems and issues of loan modifications and short sales will be covered for
homeowners. For investors, the fabled Land Trusts will be covered as part of the
asset protection portion of the seminar. Land trusts are the asset protection
vehicle that most attorneys won’t talk about because they don’t understand them.
The time to do asset protection is BEFORE you need to do it – but regardless of
your situation, the right time is ASAP.

The date is Saturday, August 14th from 9:00am to 12:00pm for the first
session. You will be signing up for the first session or for the second session
with the second session going from 2:00pm to 5:00pm. Again, you will be
attending one or the other session for the $97 entrance fee.

All sample forms, text materials and an audio recording are included at the
entrance fee including a ½ hour, no cost no-obligation; personal consultation with
Attorney “X”. For the FIRST 20 paid attendees, you will have the opportunity of
having your ½ hour personal consultation the following day, Sunday, August 15!

There are currently over 200,000 homes in Broward, Miami-Dade and Palm
Beach Counties which are upside down, not in foreclosure and not yet for sale, or
where the lis pendens has already been delivered! These homeowners must
take action to preserve their rights and assets immediately. Please don’t
procrastinate! Call 954-318-6042 ASAP and make your reservation.

If you can’t attend, send a family member or friend to get the
material, ask your questions and get your personal
consultation time scheduled.