The real estate financial crisis is seemingly over, but there are still loads of foreclosed properties coming onto the market (and still bunches of properties that have been foreclosed upon, but are sitting vacant, waiting for a buyer).
You can often obtain these foreclosed properties for less than what they are worth. However, if you are looking to delve into the world of buying foreclosed properties, there are some title issues that you may want to consider.
When property is foreclosed on, but there is no buyer at the foreclosure sale, the bank will often purchase the property, and take care of maintaining and selling it. That means that if you buy one of these properties, the seller is not a person, but the bank.
In some cases, banks (or their title companies) will not offer you marketable title. They will only offer you insurable title.
Marketable title is the gold standard of real estate. It means that the seller actually owns the property free and clear of any liens or encumbrances (or else, subject to liens that will be taken care of at or by closing). It also means that there is a clear chain of ownership of the property and no breaks in the chain of title. According to the public records the property has plainly and legally passed from owner A to B to C to D, etc., all the way to the current seller.
Because of the foreclosure crisis, imperfect foreclosure actions, or defects in the chain of title that cannot be corrected, many banks cannot offer marketable title. However, they will offer what is known as insurable title. This means that there is or may be some defects in the chain of title, but the insurance company is promising to take care of the problem if it ever becomes an issue for you.
The insurance company does this because the bank does not want to hold onto the property forever, which it would have to do because nobody would buy property without a promise of marketable title. By saying “there may be a problem but do not worry, we will insure it,” the bank and its title insurer assumes that the costs of taking care of a title problem if there is one is less than the cost of never being able to sell foreclosed property to a willing buyer.
Be Wary of Insurable Title
In a perfect world, you would always have marketable title, which is a stronger guarantee than insurable title. However, marketable title just is not possible in some situations. This does not mean you should not consider insurable title. It does mean that you should make sure a good real estate attorney gives you advice on the possibility of a title problem, and that you are being insured should the title issue ever create a problem for you.
Get help and advice if you are considering purchasing any type of real estate Contact a real estate attorney at The Law Office of Agnes Rybar LLC to help you from the very start of the process of buying or selling a home.