Posted by Tony Colella on April 11, 2006 at 09:58:51:
Bob,
While I understand you are willing to accept this risk, I think it is terrible to advise others to do so.
The land/home foreclosures we have purchased almost always had errors in the foreclosure process. Our closing attorney was able to either fix them or have the title insurance identify them as not excluded from coverage.
The cost of a title search and insurance on these properties is extremely low because of the low purchase price.
Where most of the errors have occurred is not necessarily the foreclosure (although they were almost always botched) but in title searches conducted prior to that purchase. Many times we have found prior existing liens or deeds not signed off by spouses etc.
The cost to have a title search conducted and title insurance issued is too little to worry about but allows us investors to conduct a more in depth due diligence so as to enter into the deal with eyes wide open.
Not having title insurance when you buy could make a future sale a bit sticky, especially if your buyer is using FHA type funding. Typically their closing attorney will look at your title search and title insurance and depending upon the loan requirements may simply begin the search there but if FHA or the lender requires a longer search, skeletons in the title closet may come back to haunt the deal.
In addition, most often I have found that the foreclosing lender will only issue a special warranty deed which as Bob knows only covers the lenders ownership period (thus the reason he requires a warranty deed). When we buy these properties at wholesale prices we are often at the mercy of the foreclosing lender regarding the paperwork. If we want to get the property at the right price, we may have to agree with a special warranty deed.
If Bob is comfortable accepting the risk blindly then that is fine for him. But for others and new investors I do not recommend it.
Tony