As you may know, title insurance protects real estate owners and lenders against property loss or damage that might occur because of liens, encumbrances or defects in the title to the property. A title insurance policy may seem seem like a no-brainer for a traditional 30-year mortgage, but what about a fix and flip real estate investment that you plan to be in and out of within 6-9 months?
Does a fix and flipper really need a title insurance policy?Short answer: yes, absolutely.
The Purpose of Title Insurance
The purpose of title insurance is to reduce the risks faced by both lenders and borrowers in a real estate transaction.
The risk to a lender of not requiring a title insurance policy is that a lien or other event could create a dispute to ownership and require extensive legal maneuvering to correct and clear the path to a property sale.
For a borrower or developer, the risk is even greater because any outside claim to title could kill a project’s prospect for future financing and cause a total loss of cash equity in a deal—not to mention the risk of being sued by lenders, investors and even tax agencies that have a claim against a former property owner. Some flippers may be squeezed for financing and are so eager for loan proceeds that they overlook the very thing that could protect them at a later stage of a project as well as at sale time. This can prove to be a big mistake.
Bring in the Professionals
Title insurance is NOT a do-it-yourself undertaking. Always seek the assistance of a professional and reputable insurer to research a property and issue a policy. Seeking publicly available recorded information on a property is easy but might not be accurate because many city or county recorders have backlogs in publishing to public websites and do not guarantee accuracy of data published.
The cost of a title insurance policy is a small price to pay for every participant in a real estate investment deal. Liens, restrictions, unpaid taxes and easements are discovered all the time through title searches and if not removed prior to acquisition can quickly create catastrophic consequences for even the most promising of projects. Title insurance protects you from all of these risks.
We know there are a lot of moving parts in real estate, some of which can seem daunting or confusing. You can contact us any time with any of your questions, or get more information regarding the acquisition phase of your flip with Part 1 of our eBook.