Why real estate investors need owners title insurance
The Massachusetts Supreme Court recently upheld a decision in the controversial Ibanez case. To oversimply, many lending institutions assigned mortgages to other entities without the assignment paperwork having been created and recorded. These new entities initiated foreclosure proceedings. The assignments would then be subsequently created and recorded. This was common practice for many instititutions, and it continued for some time until challenged in court in the Ibanez case in Springfield in March 2009.
The Supreme court decision simply confirms the previous ruling, and is not really new information. Some lenders will now need to initiate foreclosure proceedings all over again, running up costs substantially. And this brings us to the $64,000 question:
What if you bought that house that was foreclosed improperly? And then put a lot of money into it? Do you own it? What if you bought it, rehabbed it, and resold it? Who owns it?
If you as a real estate investor bought owners title insurance at the time, you should be covered, at least financially. The situation may generate additional headaches, but they won’t be insurmountable. The title insurance should take care of most of the problems. Certainly if you used a hard money lender, they bought lenders title insurance.
But if you didn’t? What a mess!!! This ruling doesn’t cover only those properties being foreclosed going forward, there is no clear guideline for how far this could go backwards in time.
So another lesson learned: Real estate investors should alway buy owners title insurance. It may seem expensive, and just one more cost to your deal, but compared to paying for a house that the court says you don’t own, it’s a drop in the proverbial bucket.
Below is a link to the ruling. And for those of you are going to respond and tell me that my explanation up above lacks detail and is not 100% accurate because I left out the minutiae, yes, you’re correct. But it was to illustrate a point. There are lots of sites available tearing apart the details of the Ibanez ruling.
Comments (1)
We have a title issue with a foreclosure purchase from earlier this year. Our title policy saved our bacon! The deed had an error and the policy was in our name so the title company got to contact the unruly seller and go through the hassle of fixing it. If the didn't sign they would have to pay for the loss as a result! Don't skimp on title insurance!
Bryan Hancock, about 14 years ago