Title insurance, HOA policy...omg lol

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Title insurance, HOA policy...omg lol

Aram Schwartz
Member since 2020 · 46 posts · 2 votes

As we are progressing with the studio condo bought on auction.com, we are also progressing on making an offer for a multi-family with 3 units. The cadence... it's a bit tense. I have a few questions.

1) The title insurance is important. From auction.com, so far it seems the title goes through the seller's escrow, I have had mixed information from auction.comrepresentatives. Initially an auction.com contract mentioned there being a preliminary title insurance in the contract (fyi, I still have a couple of days to sign the initial contract because of the labor day weekend delay), but I don't think there is a preliminary title insurance in the contract. No problem. I reached out to auction.com again a different representative said I will never receive a preliminary title insurance in the contract so it was misinformation from earlier. She also said that the title insurance will go through the seller's escrow, but that one does not include HOA liens and mechanics liens (or IRS liens). I've contacted a title company myself and will be getting the quote for a prelim and a full title report. There is a lot of info here I am not sure who is correct. a) does the full title report really not include HOA liens and mechanics liens??? b) are the title reports ordered by different title companies different??? c) I contacted the listing agent and we have a great relationship he told me there are no HOA liens because he's been paying and he gave me a direct contact to the HOA company d) for the IRS liens my partner found propertyshark that gave us a report of our building, and we found the previous owner prior to the bank who sold it to us, we looked her up on publicly available IRS liens website and couldn't find anything. Too long drawn out sorry haha! I guess it's something about title insurance and exactly what this title policy will cover...my loan agent for the multi-family said that it is best I do title insurance myself with my own title company...curious your experience

2) With the condo from auction, I just assumed that once I own it I can rent it out. An agent friend says it all depends on your particular HOA's policy. I will get a confirmation about this later today.

3) Also, do you know anything about this primary residence designation. We are in the process of moving forward with the condo from auction.com and another multifamily; if the multifamily goes through we'll most likely make that our primary residence, is this primary residence information something that can easily be changed later for the 2 years residing capital gains tax purposes. I know the mail has to correspond to that residence, you would have to live there. Originally we though we'd live in the condo 2 years and then the multifamily 2 years, but it'd be nice if the primary residence designation is easily changeable....if the multifamily does not close, then we would have the condo as our primary residence. not sure if that important of an issue...

4) The contract that has disclosures about lead and radon...we live in New Jersey, so for renting we sign disclosures about lead, since all the houses here are old and anything prior to 70's will have lead, so in the contract when they have radon....lead....naturally occurring substances in New Jersey, is this standard in the contract?

No response needed, just curious from your experience. I think I'll probably get the answers to most of these by the end of the day.

Thanks so much & Regards,

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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
6y

@Peter Walther Many tax sales in the mid-Atlantic region are lien sales... the high bidder ends up with a tax sale certificate representing a lien that must be foreclosed if a deed to the property is the ultimate goal.

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  • Aram Schwartz
    OP
    Member since 2020 · 46 posts · 2 votes
    6y
    • -Any lien recorded on title prior in time to the foreclosing mortgage.
    • -First Mortgage (if the foreclosing mortgage is a second or third mortgage)
    • -HOA or COA assessment liens (in certain states)
    • -Mechanic’s Liens (in some states)
    • -Government liens such as state and federal tax liens, city or county liens, US Government liens.
    • -IRS liens (IRS may buy the property within 120 days after sale at the price paid at foreclosure sale)
    • -Code Enforcement Liens, Environmental Liens, and Utility Liens
    • -Child Support Liens

    These are the ones not included when the seller goes to buy their title insurance...so if I find my own title company, I just have to ask them to include a full title report that includes these right?

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  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    6y

    Hi @Aram Schwartz

    Commonly people think they are buying a piece of property at auction. The way I like to think of it is: You are buying a "lien" on a piece of property. That gives you the rights they have. It could be a:

    • -Any lien recorded on title prior in time to the foreclosing mortgage.
    • -First Mortgage (if the foreclosing mortgage is a second or third mortgage)
    • -HOA or COA assessment liens (in certain states)
    • -Mechanic’s Liens (in some states)
    • -Government liens such as state and federal tax liens, city or county liens, US Government liens.
    • -IRS liens (IRS may buy the property within 120 days after sale at the price paid at foreclosure sale)
    • -Code Enforcement Liens, Environmental Liens, and Utility Liens
    • -Child Support Liens

    Make sure you know what you are buying. I could have a mechanics lien on a property over cutting the grass twice and not getting paid. Grand total $65. I could then sell that lien to whoever I want for $100,000 at auction (The buyer now is entitled to $65 if it changes hands). It doesn't do anything to their mortgage, the HOA, especially not taxes or the IRS. Essentially I would have just bought a "right" to now go fight those other people for my piece of that pie. Basically with their wording above, they are saying "You have a lien position and best of luck to you".

    Hope it helps and good luck!

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  • Aram Schwartz
    OP
    Member since 2020 · 46 posts · 2 votes
    6y

    Mike, when you say make sure you know what you are buying. If I find a title company, and I give them this list, and I have them do their thing, is that sufficient? Is this not the function of title companies? How does one go about "making sure I know what I am buying"? Who would have this information? I have a good relationship with the contact agent on auction.com, he says he's been paying the HOA himself so he knows there are no HOA liens, we went on propertyshark found the person who owned it before the bank, and researched preliminarily ourselves on irs liens public website, her name was not found.

    From your experience, this is the case for the majority of properties on auction.com is that I am buying a lien on a property, this is a lien position and best of luck to me. That is the unwritten rule for auction.com? Is this all auctions or just auction.com? I was on a different forum with a gentleman who himself bought two condos at live in-person auctions, he was giving me advice about whether a real estate lawyer is needed, he himself did not feel one was needed. 

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  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    6y

    @Aram Schwartz

    It will be area specific, not really a "One size fits all". For instance if I bid on a tax auction in my area, it wipes out all other liens (Well except IRS and that's another story). 

    So If you held the first position Lien on a property because you bought it Tuesday at another auction, or the bank sold it to you, The property was free and clear and you gave the owner $100.00 great. But if on Wednesday there is a tax auction if you aren't the high bidder there, you are wiped out. Who ever bought the tax lien at foreclosure gets the house (and everyone else with any lien gets nothing (Well unless there is an overage, then it starts paying off lesser liens... in order). 

    I can't speak to the auction site you are using, but people will sell off second position liens (and there is nothing wrong with that). But if you buy a second position one, know what is owed on first. If the first position goes to foreclose, the second position better get in there and either make a deal or buy out the first position, because they will be wiped out in the foreclosure. I can't tell you where to look in your area. In mine we have a searchable court records system that we can search. It's not as easy as an address though. The owner may have a judgement against them for 10K. Make sure you look for John Smith, Jonathan Smith, Jo Smith etc. The judgement could be in another county. A title company would most likely be your best bet, but they are going to charge per search (I am guessing we are an attorney state). 

    I know it's confusing but hope it helps some. 

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  • Aram Schwartz
    OP
    Member since 2020 · 46 posts · 2 votes
    6y

    yeah it is lol. It is bank-owned.

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  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y

    I've never heard of buying a lien at auction, either at a private auction like Auction.com or a public auction on the courthouse steps through a foreclosure sale or sale related to levying on a judgment.  Even a tax sale related to unpaid real property taxes results in the issuance of a tax deed.  My understanding is that you're buying title to the property not the lien itself.  Your title may be subject to other liens which were not extinguished by the sale but you own the property.

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  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    6y

    @Peter Walther

    I said "I like to think of it like buying a lien". Being as he is new I didn't want to complicate it any more than it already is. Yes he is buying a deed, not title. Each deed has a number of "rights to the property". It may have them all. It may have "The right to look at from afar". I could give you a quitclaim deed to the house you own. Basically saying "I am giving you all of the rights I have to your house"...... Which of course is none.  

    I just see people all the time who have never done it think they are "Purchasing the house at auction". They bid a crazy amount 80K on a 120K house, think they got a deal and then when they buy it, they find out that the taxes, first lien position, 2 mechanics liens are not rolling over and are making their fight. Plus they have to kick out owners and there is a right of redemption period. When buying at auction you are not necessarily buying a "Marketable title free of all encumbrances". I have seen properties with 500K in judgments that are worth 80K. Watched people bid 80K and smile. All they lost was the 10% down because they pretty soon realized they would only get a shot at that pie. Those 500K worth of judgements/Liens don't just go away because they got a killer deal. In order to get it clear they have to come to terms with the other holders. They are buying the right to fight to clear the title. Sometimes because the other party has no interest in doing it themselves.

    With tax sales in my area you get a "Referees Deed" generally. You may get a "Bargain and sale Deed". It may all be semantics and I accept that. Of course I could be throwing a big muddy stick onto the puddle of his clear transaction and just complicating things on him myself for no reason (And it isn't my intention by any means). 

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    6y

    @Peter Walther Many tax sales in the mid-Atlantic region are lien sales... the high bidder ends up with a tax sale certificate representing a lien that must be foreclosed if a deed to the property is the ultimate goal.

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  • Aram Schwartz
    OP
    Member since 2020 · 46 posts · 2 votes
    6y

    1) it is bank owned (it is a special warranty deed); they kicked out the previous occupant

    2) it seems all that i can do is get my own title company to run through the list of liens (the exceptions listed on auction.com) that the auction.com platform does not cover...or are you saying in the previous posts that it is not possible for a title company to cover the possibilities you mentioned, in my case could the title company not do a sufficient job that I can still end up with a "right to fight" position? 

    3) for the Bigger Pocket Auction.com posts, there are many threads, those who have purchased would have encountered the same lien exceptions (the same list from auction.com) I would presume and would have needed to navigate through it. though each case may be slightly different, with the same liens exceptions list from auction.com

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  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    6y

    @Aram Schwartz

    We are speaking different languages and I apologize if I have thrown a bunch of stuff out that there that caused confusion. Yes a title company is the way to go, they can guide you in the right direction for your situation.

    Best of luck, you got this!

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  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    6y
    Originally posted by @Tom Gimer:

    @Peter Walther Many tax sales in the mid-Atlantic region are lien sales... the high bidder ends up with a tax sale certificate representing a lien that must be foreclosed if a deed to the property is the ultimate goal.

    You're right Tom, when you buy a tax certificate you're paying off the taxes in return for the ability to call for a tax sale so I guess you could look at it as buying a lien at auction.

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  • Aram Schwartz
    OP
    Member since 2020 · 46 posts · 2 votes
    6y

    Thank you Mike, Peter, and Tom so much for the information. Thank you for the wishes as well! Our studio condo is in jersey city, just the short amount of time since last week we have heard from countless lawyers (because they originally thought I said the property was in NY) say that I need a lawyer for properties especially in NY. 

    Of course to be taken with a grain of salt, our good relations with the seller's lawyer and title company, they have preliminarily let me know that there is absolutely nothing, there are no liens of any kind, they have already performed a title report. So making sure that I keep the line of communication open, especially with this very reputable title company, to make sure the entire list of liens exceptions on auction.com is accounted for, and adequately covered. I guess I have 1-2 weeks to do that due diligence before a 5% deposit is expected. I guess there could still be unaccounted-for liens...I don't know enough about exactly how it works behind the scenes at title companies and what they have access to, 

    The tax sales discussion is extremely informative, not that I understand it lol. Many many thanks again and sincerest appreciations! Sincerely!

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  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    You have a broker?  You want a Prelim Title REPORT.  It'll report all the CURRENT liens.

    However, you'll probably get a "special" warr deed, which limits any insurance to what happened while the seller owned it.  So if the lien pre-dates them, you may not get coverage if NOT reported.

    If reported, usually you should get any liens settled at closing for a relatively clean title.

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  • Aram Schwartz
    OP
    Member since 2020 · 46 posts · 2 votes
    6y

    Hi Steve, did you mean to say a special warranty deed (which is what we will get) limits any insurance to what happened PRIOR to the seller - in this case, the bank - owning it. Not WHILE. So if the lien pre-dates the bank owning it, and it was NOT reported, then I might not get coverage for it. But if it WAS reported, then those liens would be settled at closed for a relatively clean title because the bank cleared it when they bought it?

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    6y
    Originally posted by @Aram Schwartz:

    Hi Steve, did you mean to say a special warranty deed (which is what we will get) limits any insurance to what happened PRIOR to the seller - in this case, the bank - owning it. Not WHILE. So if the lien pre-dates the bank owning it, and it was NOT reported, then I might not get coverage for it. But if it WAS reported, then those liens would be settled at closed for a relatively clean title because the bank cleared it when they bought it?

    Special Warranty Deed covers anything that happened while the current owner owned it.

    General Warranty Deed covers anything that happened any time since the beginning of time.

    [email protected]Podcast Guest on Show #261
    BiggerPockets
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  • Aram Schwartz
    OP
    Member since 2020 · 46 posts · 2 votes
    6y

    @Mindy Jensen Ok thanks Mindy, thanks for the correction. I understand what @Steve Morris is saying now, special warranty deed limits insurance to what happened while the seller owned it. So anything that predates to the bank (the current owner) owning would have been cleared by the bank when they took back the property AS LONG AS any liens predating the bank having it was reported. So the question is, if a lien was added or reported after the bank took it back and during the period the bank owned it before selling it to me, would I be responsible for any newly added or reported liens or would it be covered by a special warranty deed? 

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