Tax sales and title insurance fails

[Rashard Alomari]

I've come across a few deals that were purchased at tax sales in Shelby county, Memphis, Tn and wanted to know if anyone has experience in methods of obtaining title insurance for these properties. Or if it's even possible for that matter. I've sent 3 deals to escrow in the past month with wonderful spreads and then received word that these properties can not be insured, therefore my buyers have backed outs of the deal. Any advice or suggestions from someone who has experience with these issues?! I mean, if it's impossible for a tax sale property to be insured, what's the purpose of even purchasing it? There seems to be no security involved....

[Rick H.]

@Rich Baer Nailed it.

If you take the elevated view, asking a title company to insure something that happened outside of their control (a property tax auction, typically with some form of redemption). 

If you understand how title insurance companies really work, each policy underwrites the risk from a "starter" which is the starting point of the last insured policy by a company with a reciprocity agreement. 

Since title has no control over the tax sale that took place, the cost of defending title for a new buyer/lender against a plaintiff who claims that they were not properly noticed, and the profit/exposure upside and downside are not commercially attractive, it's a no-go.

Problems are opportunities, though. For the would-be real estate investor its important to know the problems and have the knowledge and resources, hence the confidence, to solve them effectively.