Purpose Of Due Diligence
What is the purpose of due diligence? In the foreclosure process, would you still have to research the title? I thought the collecting agency's lawyer or the attorney would see if the title is clean and then deliver it to you on closing.
Even if there's only 1 person on the title, they might not be reachable. I've tried to reach them before the sale, but if they're nowhere to be found, then they're not going to be found after the sale either.
Once you win the sale, do you even have to worry about a clean or dirty title status?
I buy at foreclosures all the time. I ALWAYS do due dilligence. Additionally I purchase title insurance on every foreclosed property. Its only a few dollars and well worth the investment.
The process is SUPPOSED to clear the title, but I have seen problems arise afterwards. Buy the insurance, protect your investment!
When do you buy the title insurance, after winning the sale or after the closing?
But what is the purpose of due diligence? To make sure there's only 1 owner on the deed?
Due Diligence is like the Boyscouts' Motto: Be Prepared! Due Diligence is a process of doing your homework before you commit to the purchase of, in this case, real estate.
It means different things to different people.
Due Diligence's purpose is to
RESPECT Murphy's Law,
and do whatever is possible to at least identify and hopefully avoid areas which
if left undiscovered, may exact an adverse impact upon your acquisition of a particular piece of property.
Could be title related, could be structural related, could be environmental, could be market related, etc.
Due diligence is very important whether you buy the property before the sale or at the sale. If you are buying before the sale, get a PR (preliminary title report) from your title company when you begin or even before negotiations with the seller. A good title company will give you one for free. By having this, you are in amuch more infomed position and able to negotiate more effectively. You can be aware of potential deal killers or problems (such as big tax liens, judgements, etc.) before wasting too much time on the deal. Buying at the auction increases the need for thorough research. There is no title insurance FOR YOU at a foreclosure sale.
Any issues which are appear on title after the sale will not be covered by title insurance that you buy when you finance the property.
Thus, you need to know with absolute certainty the condition of title before you buy: If you are buying a first or a second (or a third), or if there are tax liens (which take a long time to get rid of and can compromise your position) or senior judgements, liens, etc on the property. Anything that was recorded before the trust deed or mortgage remains in effect after the sale, and there are a number of things which may have been recorded after the item being foreclosed that can cause problems as well. And don't forget about easements!
Due diligence does not stop at title searches either. There are issues of flood plains, zoning, condition of the property, condition of the neighborhood, city plans for development, and on and on and on...
-Rup
You actually cannot buy the insurance until you have title to the property. What I do is contact the lawyer who is handling the foreclosure after the sale. I ask them if they did a title search and filed a lis pendens, if they say yes I ask them for the name of the title company.
If the title company will provide insurance then I am set. If they will not, or the atty did not do the above steps as part of the foreclosure process, I go to my local neighborhood title company and have them do a full search, purchasing the ins after I have deed.
I thought the attorney would have to include a title search as part of the foreclosure sale process. Why would they neglect in doing so?
If you perform a title search, and you find that it's dirty, what does that mean? Does it mean there's more than 1 homeowner? In such a case, would you abandon persuing the property?
Just because the atty does a title search, it does not mean that it is complete. A Lis Pendens stops any further attachment on the title, if this is not done, then the title may have attachments after the atty title search.
The bottom line is BUY TITLE INSURANCE, either from the title company the atty used, or your own, but buy it.
Regarding a problem title; You compare the foreclosure filing (listed defendants) with the entries found in the title search. If they match, then the journal entry confirming sale will have them on it, and your title will be ok. If they do NOT match, you need to contact the atty handling the foreclosure and have him modify the filing.
Just cover all your bases.
telemon - this is some good advice, but I am confused at the process myself.
If you purchase the property at auction and then go to get title insurance how are you protecting yourself from a title issue?
Aren't you giving the clerk a check paid in full for the foreclosed property. If you then go to get title insurance and their is an issue with the title, isn't the title company going to come back and tell you that they won't insure it because there is an issue and they you are stuck with it with no title insurance?
Quote:If you purchase the property at auction and then go to get title insurance how are you protecting yourself from a title issue?Well, the title insurance carrier will defend your title, or even pay off a successful claimant.Quote:If you then go to get title insurance and their is an issue with the title, isn't the title company going to come back and tell you that they won't insure it because there is an issue and they you are stuck with it with no title insurance?
If they find a problem, they won't cover it. If they don't find the problem and issue you insurance, and it crops up later, they cover it.
Rehab -
Here in Ohio we buy at sheriff sales. We give 10% down at sale time and have 30 days to do a title search, the balance is then due 15 days after the filing of the journal entry of sale (Prepared by the attorney).
This is the way we do it here, I am not sure how other states do it, but regardless, if you are interested in a property you should be able to look up the case history on the property. Get a list of all defendants and match them the list of attachments to the title. If they match, and the atty filed a lis pendens then I would think you were ok.
You can also get a title co to do a preliminary seach and match their results to the court document. If they match, you should be ok and they will normally provide title insurance.
Hope this helps!
Bill
Telemon - I'm still a little confused on the title company covering you after you make the purchase. I don't see the difference between that and take for instance:
I buy a property today, 3 months from now I find out there is an issue with the title. I then go and buy title insurance. It would be too late at that point, they won't insure against the defect.
I was under the impression that the title company would have to be hired at the closing, providing a title search which they would then be aware if there was an issue already and they would then insure since they already know there is no issue.
If you buy the property and then ask them to insure they will do a search first and if they find something you are SOL.
As far as our process in Colorado you have to pay for the property in full at the time of the bid.
Basically you have to set up in your mind the top dollar you will go to, arrive at the trustee sale with a cashiers check for that amount. Had it over to the Trustee and register for the sale. If you end up bidding and winning the property and don't reach your maximum amount you gave them they will return the difference within a few days, but you have paid for the property in full at the time of the sale.
In Florida we can try and move the court to vacate/set aside the sale. This can be done by anyone that thinks it is in his or her best interest and it happens all the time. When the foreclosing attorney does his title work and joins and serves party defendants he is including defendants as he feels best helps his case, never ever assume when you buy at the sale the title work done by the foreclosing party is there to give you clear title because it aint so. This is a number one reason some of you guys get burned at the sale.