Transcript:
Hey there, it’s Casey Denman here with TaxSaleAcademy.com and welcome to our weekly question segment. Now, before we get to this week’s question I want to remind you to hit that subscribe button that way you are subscribed to our channel so you don’t miss out on future tax sale training videos.
Our weekly question revolves around something that is routinely asked. And while I have a number of videos on this topic, I wanted to shoot today’s video to provide a summary.
So, the question is: I’ve purchased a piece of tax defaulted real estate, how do I get title insurance?
Now, there are four answers to this question that we’ll get to momentarily. But before we get there, we have to make sure the property is ready for title insurance in the first place. If it’s a tax lien, the redemption period needs to expire and you need to foreclose that lien. If it’s a redeemable deed, then the same thing applies – you need to make sure that the redemption period has expired. So, once we have established that the property is ready to be sold and you’re the legal owner, let’s get back to that title insurance issue.
If it’s your first time hearing about this, here’s a very quick summary. Title insurance is an insurance policy typically issued at closing, which insures the buyer against any issues or claims in the chain of title. In other words, it’s insurance that the property is being sold free and clear and that the buyer will no troubles with it. This is typical in most real estate transactions and is required to get market value. Now, when a property goes through tax foreclosure, this creates a cloud on the title and the title insurance companies don’t like this and won’t issue insurance against it. That’s the short version.
So, how do we get title insurance?
Option One: We do what’s called a suit to quiet title. This is an actual lawsuit that goes before a judge. In this lawsuit you will be the plaintiff and anyone that has had or could have had an interest in the property will be listed as the defendants. So former owners, heirs, possibly lien holders, that kind of thing. Basically it provides notice to all of these people and says, “hey, if you think you have an interest in this property you have to respond right now. Then come to court and prove it to the judge and we’ll argue against it.” In reality, it’s very rare they ever respond. In the end, you’ll get a judgement signed by a judge that provides you with clear, uncontestable title. Title companies accept this and will issue title insurance against the property.
Option Two: You go through something called a Tax Foreclosure Certification. With the tax foreclosure process, there are very strict guidelines that must be followed precisely to make sure everything was done correctly during the foreclosure proceedings. Much of these are done by county employees and are often done secondary to their primary jobs with the county. Therefore, mistakes can happen which is why title companies don’t often insure them. But, with a tax foreclsorue certification you will hire a company who specializes in this. They will review the foreclosre filing with a fine tooth comb and if everything was done properly they will then certify the property. This allows you to get title insurance through one of their partner title insurance companies.
Alright, Option three: And there is a lot of confusion around this one, but the option is to get a deed from the former owner AND anyone that held an interest in the property at the point of foreclosure. And listen closely here, please. How this works is the title company is hesitant to issue insurance because a former owner could come back and challenge the tax foreclosure and ultimately they’d have an insurance claim on their hands. In very simple chain of titles, some title companies will allow you to simply get a deed from the former owner as a way to show that the former owner can’t and won’t challenge anything. Basically you’ll track down the former owner, offer to pay them a nominal amount and they’ll sign the deed to you. Now, every single person that had an interest in the property at the point of foreclosure would be required to release that interest – owners, heirs, lien holders, mortgage holders, everyone. Unless everyone release their interest, this tactic is absolutely useless. Here’s the most important thing: The title insurance is issued by a private third party company – First Ameican, ALTA, those companies. They only issue insurance if they choose to do so based on the risk profile of the property. You need to have them run a title search and you MUST get their approval and recommendation on exactly what you need to do in order to utilize this tactic PRIOR to doing anything else. Do what they say, that’s it.
And finally Option Four: This one actually doesn’t involve title insurance, but I wanted to throw it in here anyway. And that’s to sell the property as-is without title insurance. You do NOT have to have title insurance to sell a property. You can sell it without title insurance, albeit for much less money, but it is possible. So keep that in mind for the lower valued properties.
So, I hope that has helped. When it comes to title insurance you can do a suit to quiet title, a tax foreclosure certification, possibly a deed from a former owner, or simply sell it without title insurance.
And I have much more detailed videos on each one of these here on YouTube and of course we go into great depth inside The Tax Sale academy.
Hope this helps. Take care and we’ll see you next time. See ya!