If you’re in the process of shopping for a home, one of the options you may have considered is to buy a foreclosure. These properties are often less expensive than their standard on-market counterparts, which can be appealing to buyers on a budget. However, foreclosed homes are also much more likely to have some issues that need to be addressed, and there is a reason why these types of properties go hand in hand with title insurance policies. When purchasing a foreclosure property, it is more important than ever to obtain title insurance and this article will explain why.
What Is A Foreclosure?
Foreclosure is a process by which a mortgage lender attempts to recoup the costs they incurred by lending for a certain property. The most common scenario is this: A bank provides a mortgage for your home. Then, for any number of reasons, you become unable to pay your mortgage payments anymore. The mortgage that you signed is secured by your home as collateral, and the bank does not want to lose all of the money that it allowed you to borrow.
To recover some or all of its investment, the bank will reclaim the house from you and sell it. The money from the sale will be used to cover as much as possible of the mortgage that you did not pay. If your home is foreclosed, you will not be allowed to live there, and other purchasers will be allowed to buy it from the lender.
Why Are Title Insurance And Foreclosures Related?
Foreclosures are rarely what the homeowner anticipated, so some disputes and less than amicable processes are often involved. This is part of the reason that title insurance claims are often so closely related to foreclosures. For example:
1. Money Challenges
If ownership is called into question, and you do not have secure title insurance, you may find yourself spending a significant amount of money to defend your property. If you find yourself in court to fight a claim from a previously unknown heir who is trying to claim the home, you may impede your ability to pay your mortgage and end up in foreclosure yourself. Title insurance shields you from these financial liabilities helping you remain financially solvent.
2. Difficulties With Previous Owners
Most homeowners never intend for their homes to be foreclosed upon, and they may make the buying process more difficult for a new purchaser. Title insurance is often used to help keep the purchase more secure and protected, and that includes protection from previous owners. For example, you may buy a foreclosed property only to find that the previous owners are still living there. If you need to evict, title insurance that is more focused on foreclosures may help.
3.Foreclosed Properties Are Riskier
Why did a home foreclose in the first place? If you do not protect yourself with a robust title insurance policy, you could be responsible for the same problems the previous owners were unable to avoid. If they did not pay their property taxes for the home, you would still be responsible for those back taxes. If they failed to pay a contractor for work on the home, the contractor may have filed a mechanic’s lien; even if you had nothing to do with the origination of that debt, you would be financially responsible for paying it in full. Title insurance shields you from financial liability in these scenarios which tend to be associated with foreclosed properties more often.
Do You Need Title Insurance At All?
Foreclosed properties pose a much higher risk than average when it comes to financial pitfalls, and title insurance is a critical element of purchasing this type of property. However, even if you are considering a home in good standing, title insurance still protects you from shouldering the burdens of previous owners and heirs. It also keeps you in possession of the home in case previous deed documents were forged or fraudulently created.
Securing title insurance for a foreclosure can be much more difficult than for a standard home. The simplest process is buying a real estate owned (REO) foreclosure, which has already been vetted. Buying the home at the courthouse is even riskier, and you should speak to a professional to learn more about how to secure the right title insurance coverage for your type of property purchase.
Trust The Experts To Help You Secure The Right Coverage For Your Property
If you are considering foreclosure, be sure that your title insurance is very comprehensive. The experts at Mathis Title Company can help you to secure the right type of policy, even for foreclosed homes. Contact our experienced team of professionals to learn more or to schedule an appointment to get started.
