We recently had underwriter Eric Borgia, VP, State Counsel at CATIC and Jadah Hill, Sr. Business Developer at Settlement Engine Inc. speak at one of our Mortgage Note Mastermind meetings. Their expertise in explaining the importance of title insurance for the note investor was invaluable!
When most people think title insurance they think of home ownership. But it goes further than that, there are actually TWO types of title insurance:
1) Owners Policy: This is for anyone buying a house. You purchase it once and it stays with you, even if you refinance. The owner’s policy insures the mortgage.
2) Loan Policy: If you get a loan from an institution, your lender will require you to get a loan policy. If you refinance, you must buy a new loan policy for the new lender.
Why do note investors need title insurance?
- For starters, let’s follow the lead of large lending institutions who always require a loan policy and obtain title insurance to ensure their investment is protected. That should be your first cue. As a note investor, you’re essentially buying the right to collect payments on a mortgage. This means that you’re also taking on the same risks as the original lender, including any potential title issues that may exist. These issues could include anything from outstanding liens, undisclosed heirs, or other claims against the property. Without title insurance, you could potentially be held responsible for these issues and be forced to pay to clear them up.
- Sometimes a claim can arise that was not discovered during the standard title search process. If you do not have title insurance, you may be at risk of losing everything you’ve invested in the property. Title insurance is particularly important for note investors because, unlike traditional real estate investors, you don’t have the ability to physically inspect the property or conduct due diligence on the title. This means that you’re relying solely on the information provided to you. Even if they’ve done their due diligence, there may still be undiscovered title issues that could affect your investment.
What does title insurance cover?
Title insurance policies vary, but they typically cover a range of potential title issues, including:
- Fraudulent or forged documents
- Undisclosed heirs or missing heirs
- Liens or judgments against the property
- Unpaid property taxes
- Boundary disputes
- Defective deeds or conveyances
- Mistakes in recording legal documents
Title insurance is an essential component of any note investing strategy. It provides protection against potential title issues that could impact the value of your investment and gives you peace of mind that you’re investing in a property with a clear and marketable title. When purchasing a mortgage note, be sure to work with a reputable title insurance company to ensure that you have the right coverage for your investment.