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.

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