Thursday, September 18, 2014

So, You Don't Think You Need Title Insurance? Think Again!!

Lucky #7 was bought as a foreclosure.  Foreclosures are always challenging, but this one was especially so.  You have to have a strong stomach to get through the process!  First step on this one was a bidding war.  We made our bid, along with 4 other parties.  Good news - we got the house and went under contract.

But going under contract on a Foreclosure is always a bit daunting.  In addition to the standard Purchase and Sale Agreement, you also have to sign their special contract - usually 15-30 pages long that gives them all sorts of leverage and wriggle room.  We've been through the process before, so I wasn't quite as overwhelmed to sign it (the first time we bought one, it was nerve wracking!).  But it's still an uncomfortable feeling, because you really are buying 'as-is' and it doesn't matter what you find later - it's yours and the bank isn't going to do anything about it.

But one clause that I found odd in this agreement, was that they would do the title work and would pay for the Title Insurance policy.  Hmmm......and the title company was in Maryland.

I quickly contacted Abby Douglas of Douglas Title Company (she helps me with all the properties I acquire) and we agreed that it made much more sense for me to pay for my own title insurance and have it done by a Maine company.  That way we would follow Maine practices and I would have someone looking after my interests in the property.

So......she got to work.  In Maine, a title company typically goes back 40 years to examine the title.  Abby ended up going beyond that as she started researching, and that's where the fun started.

Evidently, when this house and the one next door were first built in the 1920's, they were owned by a brother and sister.   The sister decided to give her brother 10 feet of her property - so he could have a driveway (and ultimately a garage was built at the end of the driveway) next to the house.  Nice sister, don't you think?  And she did it all properly and took that 10 feet off of her deed.  The problem?  Her brother never added it to his.  And so for the last 80+ years, that 10 foot strip was in limbo.  Abby quickly found it when she looked at the plot plan (hint - ALWAYS order a plot plan, it's worth it!) which showed a lot 60' wide, but the deed said 50'.  This was something that the bank had to address.

The next issue?  Mortgages that were never properly closed out or 'discharged'.  And not just one mortgage.  Several.  You see, when the big recession hit, lots of mortgage companies went out of business.  They were bought up by other companies, but the mortgages didn't get properly managed in that transition.  This house was bought, sold and ultimately foreclosed up during that time frame and there were multiple mortgages that were improperly discharged.

Which brings us to the topic of Title Insurance.  First thing we needed to know - is this house insurable?  To decide that,  the insurance company looks at these different risks and decides whether they are likely to become an issue or not.  In our case, we had the driveway issue and improperly discharged mortgages to deal with.  That's a lot!  But particularly for issues like mortgage discharge issues, they see that all the time as a result of the mortgage crisis.  They know whether it's something they're willing to insure or not.  Thankfully, we were able to get affirmative coverage for all of these issues.  And having that kind of insurance makes me comfortable that if anyone was ever going to file a claim, that we are covered.  Plus, they will provide that same coverage for the next buyer.

The morale of the story?  Buy enhanced owners title insurance when you  buy a house.  It's a one time fee (for this property it was around $750) and will give you great peace of mind.  Yes, if you're getting a mortgage the bank will also get title insurance.  But that just protects them - you need your own and it's worth every penny!!   And once you receive your policy (it comes in the mail a few weeks after closing)?  Put it in a safe place and hopefully you'll never have a reason to use it.

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