Athen Apaquette

Could you afford to lose a $100k cash or more on an investment?

I had a client who told me about a “great deal” they received on a home they purchased in Palos Verdes.

The sellers “wanted out” and sold the house for only $100,000 when it was worth $550,000.

The sellers needed a fast close, and it was such a good deal, that the clients paid cash.

A year later however, the happy buyers discovered there were IRS liens, a judgment, and a loan against the property!

The seller had assured them that the property only had a small loan. They went to an escrow company to make it official, but the escrow just had them sign the deed transferring the property in their name. Since they were recorded as the owners, they were responsible for all the liens.

They had no recourse, and lost their $100k and the property.

How Could this Have Been Avoided?

Unfortunately, the couple didn’t tell anyone (including me) about the home purchase. They were afraid that someone would buy it from under them. Had I known they were getting such a “great deal,” I would have suggested they get title insurance.

What is Title Insurance?

Buyers are often told they need title insurance because the lender requires it, but you will also need it if you are paying cash or getting seller financing.

Title insurance, “…is a one-time, up-front investment with rates based on the purchase price of your home and the type of policy you buy…[it] protects you by making the insurance company liable for most claims against your ownership.” (citation)

Some say, you don’t need it if you’re paying cash because it’s just an added expense. But what you are giving up is massive protection against massive problems.

An ALTA (American Land Title Association) policy covers you against many unforeseen perils.

Here’s what it provides:

Protection from problems with the seller, such as:
• Forgery.
• Fraud related to execution of documents.
• Misrepresentation of marital status.
• Undisclosed/missing heirs.
• Conveyance by a minor.
• Wills not properly probated.
• Mental incompetence of a grantor.
• Birth of heirs subsequent to the will.

You are protected from problems with the property lines and therefore value and access, such as:
• Encroachment of improvements.
• Violation of building restrictions covenants.
• Unrecorded easements established by use.
• Rights of parties in possession.

You are protected from non-disclosed information on the part of the seller, like a lien against the property, or anything of record that could wipeout your investment such as:
• Court actions.
• Federal and state statutes.
• Taxes and assessments of record.
• Liens and encumbrances.
• Mechanic’s liens.
• Right of ordinary access to abutting streets.
• And therefore your ability to transfer title when you sell.

Title insurance does protect the lender, but also it protects you from buying an asset that could become either worthless or a huge liability because of your lack of knowledge, or the seller’s lack of disclosure.

The seller may not even know that there is a problem; especially considering how many people are sellers of property they inherited.

PROTECT yourself, BE SMART, and get this insurance.

If you don’t know real estate, know someone who does that you can trust.
‘Til next time… Happy investing
Athena Paquette
Real Estate Investor, former mortgage underwriter, all around advocate.
November 20,2014