YOU ASK:

Do you really need title insurance on a foreclosed house?

WE ANSWER:

Yes, in fact you need it all the more when you are buying a foreclosed house.

A foreclosure is faced with a lot of potential problems with the title.

Reasons to Purchase Title Insurance on a Foreclosed House

For one, the title warranties that usually come into play when you buy a home will not work with a foreclosed house. Even when you carefully do a title search and study the title thoroughly, there may be problems that will crop up. This may include other outstanding debts (like old tax liens or real property taxes).

Creditors (who are lienholders) may also not be included in the foreclosure process.

The property is also sold on an "as is basis" and you may find that the property is still occupied by the previous owners or tenants. You will have to initiate an evict process for you to occupy the property.

When and How to Buy the Title Insurance Coverage

There are specific requirements you have to meet before you are issued a title insurance on a foreclosed house. For one, you first have to take ownership of the house. This happens when:

  • The redemption or grade periods provided for the house have run out
  • You have obtained the Sheriff's Deed to the property

Once you have ownership of the home, you should immediately buy the title insurance coverage. A title insurance will help you minimize the risks.

To facilitate the process of having the title policy issued, you can request for a title commitment before you bid at auction for the foreclosed house. This will help check any clouds or other legal responsibilities that you may have to face once you become the owner of the foreclosed property.

A word of warning, though. Buying foreclosed properties is for gutsy investors, as there are a lot of risks involved. Of course, the huge profits may be attractive enough for you to want to venture into this. There are also some instances when title insurance can't be issued to you.

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