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Title Insurance – what does it do? – be cautious if you purchase a foreclosed home to fix up

The NY Times’ Ron Lieber assembled an important article for anyone thinking of buying and then dumping money into a foreclosed home to fix it up either to live in, rent out, or to try to “flip”.

The crux is that if the foreclosure was upset due to “foreclosuregate” or “robosigner” issues – your maximum recovery might be what you paid for the home – and you could not recovery your repair or improvement costs.

Now, to date, I am not aware of alot of foreclosed homes being returned to people who lost them in some flawed foreclosure process. Usually, the foreclosure was for lack of payments and the foreclosed individual is unlikely to want to begin making payments on the old “under water” mortgage.

However, recognize that your “title insurance” only gives you what you paid for the home if your ownership and title to the home is somehow threatened by litigation.

Mr. Lieber: “While homeowners … may ahve title insurance, it generally covers them only for the purchase price of the home. When you buy a home out of foreclosure, however, it often needs a lot of work. ‘If I bought it at $200,000 and it’s a steal but I had to gut it and sink $100,000 more in, my recovery is limited if there is a problem,’ said Matthew Weidner, a lawyer in St. Petersburg, Fla.”

Mr. Lieber’s October 9, 2010, NY Times article (section B1 “Business Day”) is a “must read” for those investing in realty:


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