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Title Insurance for Uncertain Times

Posted by 15789465 on

Whenever I tell foreclosure investors about possible problems with defective foreclosures they ask me, "Denise, how can I protect myself?" One way is with adequate title insurance.  Did you know you can buy owners' title insurance for an amount that is more than your purchase price?  Suppose you buy a property from ORE for $100,000.  It's really worth $125,000 on the day you buy it.  In six months, after you make repairs and have a tenant in place, it will be worth $200,000.  You might want to buy $200,000 worth of owners' title insurance at closing, instead of only $100,000.  If you finance only $80,000, you will need only $80,000 worth of lender's insurance, no matter what. Most owners policies in Alabama have premiums based on the following schedule:

1st $100,000 is $3.50 per $1,000 of coverage;

Over $100,000 and up to $5 million is $2.00 per $1,000;

Over $5 million and up to $10 million is $1.75 per $1,000;

Over $10 million and up to $15 million is $1.50 per $1,000; and

Over $15 million is $1.25 per thousand.

Using our example above, $100,000 of owners title insurance will cost you $350.  If you want $200,000 of coverage, then the first $100,000 will cost you $350, and the next $100,000 will cost you $2 per thousand dollars of additional value, or $200.  Your total insurance premium will be $550. For an extra $200, you buy peace of mind that if there is a title defect, you will be protected to the full value of your property, not just the purchase price. Make sure, though, that your title insurance policy does not exclude coverage for problems caused by defective foreclosures.

(A related issue has to do with redemption bonds. That is, how do you protect yourself if the former owner redeems? That is not a title insurance issue, because the title policy will say it does not protect you from redemption.

Yes, there are redemption bonds available. In my experience, they protect ONLY the lender who loans money against property that has an outstanding right of redemption.  Purchasers cannot buy a redemption bond for their own protection. In addition, the redemption bond usually has a maximum amount of 140% of the purchase price.)

Think about buying a little extra title insurance even if you are not concerned about a foreclosure being set aside.  In today's climate, real estate price are dramatically depressed. BUT, a title problem might appear five or ten years from now, when your property is much more valuable than the original purchase price.  Make sure you are completely protected now, and into the foreseeable future.

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2 comments

  • I am a firm believer in Owner’s Title Insurance and I always recommend it to my buyer clients. I had not considered the possibility of getting it for more than the actual sales price before. It is a very interesting idea that may offer them even greater protection if there ended up being a problem with their title in the future.

    Shannon Schwab on
  • if i buy real property at a foreclosure auction or from the auction purchaser (ie. the mortgagee)after a foreclosure sale, am i not protected from voidable sales as a bona fide purchaser for value? (is there a difference between void and voidable sales?)

    howard ross on

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