Buying a foreclosure can occasionally net you a great deal. And if you’re an investor or otherwise paying for the property out of pocket and without a mortgage, you may wonder whether it’s worthwhile to get title insurance. After all, no lender, no problem, no need for title insurance, right?
While it may be tempting to forgo title insurance when there’s no mortgage loan involved, you actually may need it more when you’re buying a foreclosed property. Let’s take a closer look at what you should consider when analyzing the benefits of having title insurance on a foreclosed property.
Many properties have interesting histories. That’s great if you’re a history buff, but not so great if you’re interested in a clean title. Truth is, a foreclosure property could have a long and convoluted past, and that can lead to complications, such as encumbrances. With an extensive history of previous owners, it’s nearly impossible for the average person to tell whether the title is clear without title insurance.
A title insurance company will dive down into that past and locate any issues that might stand in the way of you being the true owner, thereby protecting you from the risk of those details coming to light later. Here are some examples of what a title insurance company might unearth in a property’s history.
- It’s possible a foreclosure could be legally overturned. If a judge overturns a foreclosure, it’s possible someone could win back the ownership rights to their home, even after the bank has sold it. Title insurance would protect you if someone tried to claim they owned the property. If you’re buying a foreclosed home, be sure to inquire about special riders to cover property appreciation (for improvements you make to the property after taking ownership) in case of a total loss of property.
- A previous owner got a second mortgage on the property just before closing. This could reduce the actual value of the property.
- A previous owner owed money for a special assessment. Or perhaps there’s an enormous lien on the property or back taxes. If there is a lien on the property, a creditor could require that the property must be sold to pay off the debt. It’s a common risk few buyers want to take.
- There could be an easement issue you are not aware of. What if you found out too late that part of what you thought was your property actually belongs to someone else, leaving you unable to develop the land or use the property as you wish. Title insurance can eliminate unwanted surprises like this.
Title insurance protects you. It gives you the peace of mind you need to feel confident in purchasing that foreclosed property. It’s a one-time expense that protects your financial interest in the purchase and ensures there won’t be any unforeseen issues with having a clear title and being able to use the property as you intend. When you have title insurance, you can feel confident you are the clear and rightful owner of the property you’ve purchased.