Posted by Tony Colella on June 14, 2005 at 08:43:51:
Foreclosures almost by definition have title issues. The defaulting owners often have hidden financial skeletons in the closet, many of which occurred after they bought the property.
At the time of purchase the VA, FHA or other type loan would likely require the title search and insurance but that would only include and insure up to the date of that purchase.
If there were errors made during that search, then the title company may be on the hook (but you would have to read the policy for exclusions). Additionally, anyone on the chain of title that provided a warrantee type deed when they sold, would also be on the hook (but may have no money or assets to go after if a problem is found).
The foreclosing lenders often require the buyer to sign lengthy addendums (I had to sign one that was 22 pages long) in order to buy. These addendums essentially relieve the lender of as much liability as possible and usually states that they will provide no warrantee meaning they seek to provide title by some form of deed other than a warrantee deed. In some cases I have seen them provide a special warrantee deed which essentially states that during the banks brief ownership, they did nothing to cloud the title but they are not guaranteeing the title other than that.
Many investors will look for an FHA loan in the history of the title knowing that a title search would have been required at that time but as stated in other posts, a mistake may still have been made but at least from that loan back there may be a title insurance to go after.
Where we find consistent problems is with the title of the mobile homes. Banks typically now require the retirement of a doublewide mobile home title so as to make the foreclosure a one step process. But in many cases, the title had not been attached and the bank forgets to repossess the title and only forecloses on the land. This routinely delays closings. Usually during that time my attorney also finds other title issues on the land as well that need clearing.