Foreclosures and the Importance of the Title
Search
By: Philip Smith
Most every thing we read in our quest for knowledge about foreclosures and
whether investment in this particular market can be made successfully by
novices, stresses that a title search must be made early in our investigations.
No adequate assessment of the level of equity in the target foreclosure home,
and therefore of profit, can be made until the true total of debt registered
against the property is known. Apart from this bald admonition, there is little
available to explain what we, the relatively uninformed, should be looking for.
A search of the Title or legal description of the property is undertaken in most
real estate transactions by your attorney or a title company. It is a way of
assuring the advisor to the buyer that the party offering this property for sale
has the legal right to do so, the correct legal address and description of the
property (for property tax purposes), and that there is nothing preventing the
buyer from owning exactly what he intends to purchase. When a sellers’ name is
very common, the extra precaution of checking identity is taken.
This public record gives the “Chain of Title,” details of who has owned the
property previously and when. It includes a tax search, which reveals if any
real estate taxes are owed and also any charges against the land itself. Any
unpaid property taxes rank above all other liens registered. If you were to
purchase a pre foreclosure not knowing of a tax lien; then you face the loss of
your new investment unless you settle the debt. Title insurance could have
protected you, the buyer.
Just as important in the review is to pick up any unsatisfied judgements against
the owner selling or any of the previous owners. Real estate becomes security
for money owed as stated in the judgement. Mechanics liens, judgement decrees,
unpaid federal income taxes, are examples of liens which all have rights ahead
of lenders rights. It is not unusual for a property in foreclosure to have
junior liens, debts owed on second or even third mortgages. Junior liens rank
after the first mortgage holder when it comes to allocating the proceeds of the
trustee or auction sale.
Any prospective buyer seeking the foreclosing lender’s approval for a short sale
is going to have to negotiate a settlement with each of the junior lenders on
behalf of the seller.
A lender’s title insurance does not protect the buyer. Your attorney will
request that the seller removes any defects in the title so that you, the buyer,
have no risk and can obtain title insurance. Why chance paying market value by
mistake for a foreclosure? It is vital that you have the complete picture before
calculating the maximum offer to be made to the seller of the home in
pre-foreclosure, or commence to bid above the reserve at auction.
About the Author:
Philip Smith is the writer of Foreclosuredeals.com, Your Source of
Foreclosures online.
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