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.
