Ask the Broker: Short Sales, Title Insurance

While reviewing your questions this week, a theme emerged. A lot of you had questions relating to the importance of title insurance.

Our first question comes from Thomas B.:

“What are the potential risks for the buyer in a short sale? Is it true that liens can appear after the sale goes through that the buyer might be responsible for satisfying such as tax or mechanic's liens?”

Buying a short sale can be a daunting a prospect. Most people aren’t completely clear on what the term short sale actually means. In the simplest terms, a short sale occurs when the current mortgage holder agrees to accept a payoff that is less than the outstanding loan amount. Most of the time a short sale is sought by a homeowner when they can no longer afford to make their payments due to a financial hardship and the fair market value of the property is less than the loan amount. We’ve seen an exponential increase in short sale transactions in the last four years due to the economic collapse. While the risk is minimal to the buyer, the specific examples that Thomas asked about can occur in all transactions, not just short sales. The best form of protection is to purchase an owner’s title insurance policy at closing. Usually the cost is about $3.00 per thousand, although book rates vary. You can ask your closing attorney what the current book rate is. Owner’s title insurance will protect you against any claims or liens filed after you close. The insurance policy works like any other. If the lien is deemed valid, the insurer will pay the claim so that you maintain good and marketable title to your property.

Our next question is from Cecelia M.:

“What is the difference between lender's title insurance and an owner's title insurance policy?

The difference is exactly what it sounds like. One policy is to protect the new owner and the other is to protect the lender. More specifically, the owner’s policy usually carries a liability limit equal to the purchase price. The cost of the new insurance policy can be paid by either the buyer or seller at closing as can any costs associated with the loan as long as the terms are stated in the purchase agreement.

The lender’s policy is only issued to the lender and will follow the loan for the duration, meaning that if the loan is sold, the new loan servicer will enjoy the same level of protection from the original title policy. Basically the lender’s title policy ensures that the deed and mortgage paperwork will be correct if they have to foreclose on the property. The policy will also act similar to the owner’s policy in that it insures against liens and claims that might affect the foreclosure process.

One very important note—the Real Estate Settlement and Procedures Act (RESPA) grants the right of choice to the homeowner. The homeowner has the right to choose the title insurance company. It is a RESPA violation for a closing attorney, lender, broker or seller to force an individual homeowner to use a specific title insurer.

Our final question this week is from Diane B.:

“I want to purchase a second home. Where can I find a list of foreclosures and other cheap listings without having to pay for the list?”

The best way I know to obtain a list of property that fit your criteria—whether that includes investor specials, foreclosures or any other type of listed property—is to ask your real estate professional. Your agent has access to all listed property included in the multiple list services of which he or she is a member. There are many services that will charge for exclusive access to the latest foreclosure listings, but I do not believe it is necessary to purchase those lists. Just call your agent—all of the information you need is at his or her fingertips.

“Ask the Broker” is a regular feature. Please send your real estate related questions to info@idealrealestateprofessionals.com and we’ll answer them here.

iDeal Real Estate Professionals LLC is owned and operated by Brandon Bramlett and C. Mark Willix and is affiliated with Maximum One Realty Greater Atlanta. For personalized service, visit us at www.idealrealestateprofessionals.com. You can also email us at info@idealrealestateprofessionals.com.