Follow up- Insurable title vs. Marketable title / REO deal

[Jake Recz]

Hello everybody,

I'm writing this post just to give a little update on my post from yesterday: http://www.biggerpockets.com/forums/16/topics/2287...
I spoke with my attorney today and it looks like we are going ahead with this deal. It took a little figuring out what exactly the problem is but we got it done. 

The property is a REO that needs work. The seller which is a bank is in debt. They owe money to other institutions. Since they foreclosed on this property, those debts now appear in the chain of title. The debts are not on the property. They are on the bank.

I am getting a title insurance policy for the assessed value of the property, which is MUCH higher than the purchase price. All that just to be safe. The seller is giving us insurable title instead of marketable title. Marketable title would require extra work on their part, and as some of you may know, banks do not like doing extra work when they want to get  a non performing property off their books. Insurable title seems to solve the issue, and the risk of anything happening is so low that the title insurance company is willing to provide a policy for the assessed value. 

I still cannot wrap my head around how a debt of a previous owner, be it a bank or a person, can attach somehow to a property to a point where it clouds the title. I guess I still have a lot of learning and understanding to do. Those debts that this bank has will eventually fall off as they get paid off. That is pretty much the story of my first deal. Maybe this post can clarify some things one day for somebody who is searching the forums for a similar issue. 

Even though I feel like I know what I'm doing I still have a few questions. My attorney is telling me that when I go to sell the property, those title issues might not even come up if I provide the buyer with my title policy documents. Is this true? From your experience, do you think selling this property even with an insurable title and not marketable title will cause issues down the road? This property is good as a rental, a flip, or to live in it. Either way I'm making money or saving money... 

Thanks for your input,
Jake