Author Topic: Title Insurance for Purchase at a Forelcosure Auction  (Read 6150 times)

Baron235

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Title Insurance for Purchase at a Forelcosure Auction
« on: February 12, 2015, 08:03:25 AM »
Does title insurance serve any purpose for home that you buy at Sheriff's auction?  It seems like it would be useless, since at the auction there is no representations made regarding the validity of the title.  However, this is not my expertise so may be some one hear has experience with this.

Thanks

babysteps

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Re: Title Insurance for Purchase at a Forelcosure Auction
« Reply #1 on: February 12, 2015, 08:41:50 AM »
Slightly different, but we have purchased properties at our county's tax sale auction and have gotten title insurance subsequent to our closings.  In a way it's especially *not* useless, since you aren't getting any representation from the seller.  Your lawyer (or whoever usually does them, may vary by jurisdiction) will likely first have to create an abstract of title.  You may want the abstract (in our area, you'll need it when you sell) even if you decide not to get title insurance.

Since the process (whether foreclosure or tax sale) varies so much from area to area, you may wish to check with your lawyer and/or local County Treasurer, etc. before making a decision.

In our area, there are specific liens that a tax sale extinguishes, and others that it does not (IRS and at least in New York, the NYS franchise tax if owed by a corporation during the time it formerly owned the property).  In our county, past water bills (which can be liened) are not wiped out; any past water bills are due at time of purchase (meaning we always check the water bill amounts due before deciding to bid on a property - they vary from current to thousands of $).

I am NOT a lawyer, so this is not legal advice, just our experience :)

ShoulderThingThatGoesUp

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Re: Title Insurance for Purchase at a Forelcosure Auction
« Reply #2 on: February 12, 2015, 09:04:20 AM »
I have wondered about this too, and it seems like a case where you would especially need it if it was a meaningful policy. Mostly the value would be running the title search, right?

babysteps

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Re: Title Insurance for Purchase at a Forelcosure Auction
« Reply #3 on: February 13, 2015, 08:21:24 AM »
Costs will depend in part on what paperwork (if any) the selling entity can provide.  A lender may have whatever was prepared when the loan was issued, but if the loan has been sold that may have gotten lost. Our county's tax sale title paperwork is limited to copies of their notification of any current lien holders and owners at time of tax foreclosure.  If you get lucky and find a lawyer involved in the property's last 'regular' sale they may be able to update an existing abstract of title which saves time and $$.

Our last few examples, from tax sale auctions.  In all cases we didn't get a title policy until we got financing, which was generally 3 to 6 months after purchase (once we had substantially completed renovations, in most cases):
prop A, abstract $289.44, title insurance $374.00 (single family).
prop B, abstract $461.16, title insurance $374.00 (single family).
prop C, abstract $326.16, title insurance $374.00 (single family).
prop D, abstract $410.40, title insurance $381.00 (4 unit).
prop E, abstract $513.00, title insurance $460.00 (2-family).
prop F, abstract $396.36, title insurance $434.00 (5 unit).

One other property, not an auction situation (was already bank owned) I have the "owner's" and "lenders" policy amounts listed separately, the amounts were $303 for owner's and $255 for lender's.  Ask your lawyer, I am not sure if there were no lender if we would still pay $558 total or would just pay the $303.

Note that none of these properties cost more than $30,000 - we are in a very low-cost housing area and most were vacant and in need of significant work.  So if you are buying a $100,000 or $200,000 property, costs will likely be higher.  For doing abstracts, our attorney charges us a base rate plus extra for additional time.  Price will vary depending on how many prior owners there have been and whether it had any "interesting" situations-- for example if one Deed is A to B&C, next deed is B (no C) to D - lawyer might have to track down death certificate for C if not already filed with the deed.

Credaholic

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Re: Title Insurance for Purchase at a Forelcosure Auction
« Reply #4 on: February 13, 2015, 11:10:25 PM »
Does title insurance serve any purpose for home that you buy at Sheriff's auction?  It seems like it would be useless, since at the auction there is no representations made regarding the validity of the title.  However, this is not my expertise so may be some one hear has experience with this.

Thanks

Someone can correct me if I'm wrong, but my understanding is that it's the exact opposite of this. Since the auction isn't providing you with any guarantees, it makes sense to purchase a title policy to give you the guarantee that you know everything that is on title. If you purchase the property, and then later someone comes and tries to collect on something that wasn't on your policy, you are insured.

That being said, it would be pricey to buy title insurance ahead of auction when you have no way of knowing if you'll be the winning bidder.

ShoulderThingThatGoesUp

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Re: Title Insurance for Purchase at a Forelcosure Auction
« Reply #5 on: February 14, 2015, 05:03:34 AM »
Does title insurance serve any purpose for home that you buy at Sheriff's auction?  It seems like it would be useless, since at the auction there is no representations made regarding the validity of the title.  However, this is not my expertise so may be some one hear has experience with this.

Thanks

Someone can correct me if I'm wrong, but my understanding is that it's the exact opposite of this. Since the auction isn't providing you with any guarantees, it makes sense to purchase a title policy to give you the guarantee that you know everything that is on title. If you purchase the property, and then later someone comes and tries to collect on something that wasn't on your policy, you are insured.

That being said, it would be pricey to buy title insurance ahead of auction when you have no way of knowing if you'll be the winning bidder.

Quote
Title insurance offers financial protection against title problems that could not be found in the public records, are inadvertently missed in the title search process, or those that may arise from fraud or forgery.

That's from Stewart Title's website. So, I think if you want to buy at foreclosure, you need to go to your county seat, do a title search by hand or pay somebody with online access to do it. Then if you're comfortable with the evident liens, you buy and subsequently purchase title insurance? Has anybody here done this?

I know I've seen examples in Pennsylvania where somebody buys a property, then it gets immediately sold at auction for back taxes. I think that's what you prevent getting into with the title search step.

babysteps

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Re: Title Insurance for Purchase at a Forelcosure Auction
« Reply #6 on: February 14, 2015, 07:38:35 AM »
At least in our area, if the owner of a property somehow "misses" the tax auction, they still have a specified (2 or 3 more weeks?) period to redeem the property.  After that, the owner is out of luck.  Many properties are redeemed after foreclosure & sale notice but before the auction so never go up for sale by the county - mostly the "prettier" properties, usually occupied.  Vacant or neglected properties are more likely not to get redeemed in our experience, but there's always a story.

The county doesn't let the tax auction buyer pay the balance of the money due (if any, sometimes the auction day deposit is the entire purchase price) until after that period is over.  That means you don't get title until *after* the redemption period is over.  But every area handles this differently, so do double check!  A local real estate lawyer can be very helpful for advice.

We haven't ever done a full title search pre-auction purchase.  But a little research goes a long way.  One property we were interested in, when we drove by to check it out the current-foreclosed-on-owner made noises about redeeming the property or fighting the foreclosure after the fact, we did not bid on that property.  Another property, the pictured (and signed) property did not match the tax lot label - the tax lot label was correct, not the picture and sign.  Didn't bid on that one, either.

Happy hunting :)

ShoulderThingThatGoesUp

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Re: Title Insurance for Purchase at a Forelcosure Auction
« Reply #7 on: February 14, 2015, 11:06:55 AM »
Doing some research, it turns out that as a massive convenience, my county performs its own title search on everything put up at tax sale. Maybe other counties in Pennsylvania do this, which would be really helpful in knowing what not to pursue further.

See Exhibit B in the document.

DarinC

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Re: Title Insurance for Purchase at a Forelcosure Auction
« Reply #8 on: February 15, 2015, 10:06:11 PM »
Title insurance will cover issues with taxes, encumbrances (unreleased liens, vesting records, etc...), fraud, easements, and so on, depending on the specifics of coverage.

DKNY

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Re: Title Insurance for Purchase at a Forelcosure Auction
« Reply #9 on: September 11, 2016, 09:11:41 PM »
Hi Babysteps!  I too live in the Southern Tier of NY and I own a tax auction property.  I'd like to purchase title insurance for it.  Any chance you could private message me the lawyer/company you use?  Thanks much!