real estate

Is it safe to buy a foreclosure?

Cloudy titles

However the foreclosed house ends up in a buyer's hands, issues that lurk in the property's past could "cloud title" -- cast uncertainty on the buyer's ownership rights. Title insurance protects against such defects in the title, such as undiscovered liens, forged signatures or defects in documentation.

There are two types of title policies. Lender's policies protect lenders and owner's policies protect owners. Mortgage lenders always require lender's title policies.

Owner's policies are optional, and are recommended for properties that have been through foreclosure.

"From the consumer's perspective, I don't think they have a lot to fear as long as they're able to purchase title insurance on an REO property," says Ivan Choi, national default sales executive for New Vista Asset Management based in San Diego. "By and large, the title companies are still out offering policies."

There have been reports that title insurers have refused to issue policies on some homes foreclosed by lenders involved in the robosigning scandal. Responding to these reports, Fidelity National Financial -- the largest mortgage insurance company -- issued a statement that "this situation will not have a material adverse impact on its title business."

The statement said "new owners and their lenders would have the rights of good-faith purchasers which should not be affected by potential defects in documentation."

Those "good-faith purchasers" won't be kicked out of their houses, Skilling says. He adds that Fidelity's message is that "they're still going to underwrite on REO properties."

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