Q & A With America's Real Estate Professor: Title Insurance Foreclosure Issue
By Leonard Baron
Title Insurance Foreclosure Issue
Q. I am in escrow on a bank owned foreclosure and I just received the Preliminary Title Report and Schedule of Exclusions. I actually read it, which I know most people don’t, and found that one of the Exclusions from coverage is “any issues related to the foreclosure.” Isn’t protection from these types of issues the reason we buy title insurance? Mike M., Fairfax, VA
A. These title insurance policy schedule of exclusion clauses related to foreclosures are newer and a result of the robo-signing scandal and foreclosures paperwork processing issues. There are many legal opinions out there, depending on the state and foreclosure process, on how an issue would be handled and who would have to pay in case a foreclosed upon individual made a claim that they still owned the property due to an errant foreclosure process.
Regardless, if the title insurance company has placed an exclusion clause on your policy related to a previous foreclosure, and a problem does arise, the title company is going to let you know that it is your issue to resolve, not theirs. This is because they excluded coverage for that issue. So you want to try and get that exclusion off your policy, and maybe cancel your purchase if you cannot.
You can request that clause is removed, you can try another title insurance company to see if they will write a policy without that clause, and/or you can ask your lender to request that clause be removed (lenders often demand it be removed from their policy, and I believe that works sometimes). Or, as noted, you can cancel the purchase contract.
Make sure that whatever you do with the title insurance company, you get it in writing that the clause is removed, so as to protect yourself in case an issue arises down the road.
Miami Beach Condo
Q. I’m considering buying a rental condominium in a downtown Miami high-rise because demand seems strong, inventory is low, rents are rising, and I think prices will increase. What issues should I consider related to this investment? Maribel S., Miami, FL
A. As with all real estate, there are many issues to consider when purchasing property. One of the top issues for me on this type of an investment would be the financial picture. Many times, these types of real estate have low rents as compared to the high purchase prices of downtown condos and high HOA fees (though they may be reasonable for the soaring cost of operating a high-rise building). Due to that, many people like me do not think these make financial sense because you will be negative on your cash flows for years, and maybe decades.
Here’s what you might consider doing. First, figure out the reasonable and conservatively estimated rents and expenses on paper. Subtract the expenses from rents, and annualize that number. If you are negative on cash flows, stop, stop, stop - those are the three most important words in real estate when a deal pencils in as a negative!
Find a property that pays for itself. I would guess negative cash flow is probably pretty likely for the condo property you are considering. Talk with a financial advisor and have them help you pencil out your real estate deal to make sure properties you consider are positive cash flow and you are earning a fair rate of return on your investment. They are out there, probably in moderately priced areas of Miami, and a comfortable retirement is banking on you making a smart decision! Good luck!
Leonard Baron, MBA, is America’s Real Estate Professor® - his unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt! Email Your Questions to: Leonard@ProfessorBaron.com