Title insurance is your defense against mortgage lenders and their haphazard approach to the foreclosure process. Even though title insurance is required by mortgage lenders, various title insurance companies are reevaluating their practices to cover foreclosed homes.
Title insurance is complex especially regarding the rules and regulations as a foreclosure owner or consumer. Here are six helpful questions to ask about title insurance.
1. What is title insurance?
Title insurance is an indemnity policy to protect home owners and mortgage lenders against loss due to title damages or legal claims on property.
There are two types of title insurance. As a property owner, title insurance is referred to as an Owner’s policy. As a mortgage lender, title insurance is referenced as a Loan Policy.
2. How does title insurance protect me?
Owner’s Policy protects the property owner and is issued in the amount of the real estate purchase.
Lenders Policy defends the mortgage lender and is based on the dollar amount of the mortgage loan. As the loan is paid off, the lender policy amount decreases.
Title insurance for a home owner protects against any discrepancies such as:
• Mistakes or oversights in any legalities
• Errors in investigative records
• Undisclosed successors
3. What are the foreclosure protections?
An owner with title insurance has a defense against defective foreclosures. Title Insurance companies have the duty and obligation to defend you in court. If the records detailing the title are inaccurate, the title company must defend the title in court regardless of mistakes made by previous mortgage service providers.
As a foreclosure consumer, it is important to ask the title insurer for a specified endorsement stating that the insurer will pay the insured’s defense costs for any legality of the foreclosure should a lawsuit occur.
4. Will I be able to get title insurance?
There is discrepancy whether homebuyers who purchase a foreclosure can obtain title insurance. It depends if you’re buying from a bank or through a courthouse. Title insurance companies are relying on banks to provide indemnification to the title insurance company.
5. What are the risks when buying a foreclosure?
There are two ways to purchase a foreclosure. One is through the judicial system and the other is from the foreclosing lender, also known as Real Estate Owned (REO).
An REO sale is similar to the traditional buying process, except the home has gone through foreclosure. A courthouse foreclosure sale is riskier than an REO sale when it comes to securing title insurance.
It is harder to have title insurance already in place before buying the property because it goes through the auctioning process. Coverage may not be available if there is a problem with the title search.
It is much better to purchase title insurance as REO than through the judicial process. The risk is taken out and title insurance is easily obtainable.
6. Are there concerns having purchased a foreclosure?
It is not necessary to worry if you purchased a foreclosure. Experts agree that courts will not start handing homes back to former owners as a result of flawed foreclosure issues. There could, however, be claims.
An owner’s policy is useful when former owners claim they have some unrecorded equity remaining in the house. A good faith purchase will most likely be honored in the court system. As the new owner, the judge will make sure you keep your money and remain in your home. The only incident that would justify returning the home to the previous owner is fraud. Even in such extreme cases, a legitimate purchase should be restored to their site before the deal.
Having title insurance is a must especially when purchasing a foreclosure. In the home buying process, make sure you have a copy of your title insurance policy and carefully read through the document. Pay special attention to Schedule B which explains what is not covered by the title company.