Tax Deed Insurance: When Does It Apply?

A tax deed is a legal document that transfers ownership of a property when a home has gone into foreclosure. However, a tax deed does not guarantee a clear title, and there are risks associated with investing in tax deeds. One of the main risks is that the previous owner may have municipal fees or mortgage debt attached to the property, which the new owner becomes responsible for. Additionally, the title may not be insurable, and there may be issues with the title that need to be resolved. In the state of Florida, for example, a tax deed must be of record for 20 years before it is considered marketable and insurable. In some states, such as Ohio and Kentucky, investors can obtain insurable titles and remove or avoid liens on tax deeds.

Take actual possession and wait four years

In some US states, a property owner who fails to pay their property taxes can have their home sold through a public tax deed sale, also known as a tax deed auction. At these auctions, bidders purchase tax deeds, which are legal documents that transfer ownership of a property when a home has gone into foreclosure.

However, there are some risks associated with buying a tax deed property. One of the main risks is that the title to the property is not immediately insurable and is not considered legally marketable. This means that the new owner cannot sell the property until they have cleared the title. In Florida, for example, a quiet title action must be filed to obtain marketable, insurable title. This is a legal process that bars prior owners, mortgage and lien holders from asserting any interest in the property.

Another risk of buying a tax deed property is that the previous owner may have neglected the property, leading to damage, pests, and other issues. Additionally, there may be outstanding municipal fees, mortgages, or other liens on the property that the new owner is responsible for resolving.

To avoid these risks, it is recommended that prospective buyers work with a proficient attorney or title company to identify any title issues before committing to a purchase.

One strategy for making a tax deed property insurable is to take actual possession of the property and wait four years. This strategy is likely referring to the process of obtaining a quiet title through adverse possession. Adverse possession laws vary by state, but generally, if a person occupies a property continuously and openly for a certain period (often between 5 and 30 years), they can gain legal ownership of that property. This process can be complex and may require the assistance of an attorney. It's important to note that simply occupying a property without taking the necessary legal steps to establish ownership may not be sufficient to obtain title through adverse possession.

By taking actual possession of the property and waiting four years, the new owner may be able to establish adverse possession and obtain a clear and insurable title to the property. This process can help to eliminate any potential claims or liens on the property and make it legally marketable. However, it's important to consult with an attorney to understand the specific laws and requirements in your state.

File a quiet title lawsuit

A tax deed is a legal document that grants ownership of a property to a government body when the owner fails to pay their property taxes. The government body then sells the property to the highest bidder at a public auction, also known as a tax deed sale, to recoup the delinquent taxes.

Once the winning bidder has paid the entire amount owed, the tax deed sale is complete, and the new owner takes legal possession of the property. However, in some states, there is a redemption period during which the original owner can pay back their tax debt and reacquire the property.

After purchasing a property through a tax deed sale, the new owner must obtain a clean title to the property. This can be done by filing a quiet title lawsuit, which serves to establish the rights regarding the legal title to the property and resolve any disputes or "clouds" on the title.

• Determine if filing a quiet title action is the appropriate course of action. Consult with a specialised real estate attorney to navigate the complexities of property law and ensure all necessary parties are included in the lawsuit.
• Obtain a copy of the deed from the county clerk or records office. This will provide information on the property's description, title held by the current owner, and any adverse claims to the title.
• With the help of a real estate attorney, draft a verified complaint that includes the following information:

• A description of the property
• The title held by the plaintiff
• Any adverse claims to the plaintiff's title
• The date as of which the determination is sought
• A request for the court to determine the plaintiff's title against any adverse claims

• File the lawsuit with the appropriate court in the county where the property is located. The court will then examine the evidence and make a ruling.
• If the plaintiff is successful, the court will issue a judgment quieting the title in their favour, and no further challenges to the title can be made.

It is important to note that the quiet title action process can vary depending on the state and the complexity of the claim, and there may be specific civil codes that govern the procedure. Additionally, failing to properly file a quiet title action or omitting necessary parties can have severe consequences, so it is crucial to seek legal advice throughout the process.

Combine title insurance with an approved third-party tax deed search company

A tax deed refers to a legal document that grants ownership of a property to a government body when the owner fails to pay any associated property taxes. The government can then sell the property to the highest bidder at auction to recoup the delinquent taxes.

However, properties purchased through a tax deed sale may have what is known as a cloud on their title. This means that the new owner will not be able to sell the property until this cloud is cleared. One way to do this is by purchasing title insurance, which insures against financial loss from defects in the title to the real property.

One way to obtain insurable title to the property is to combine title insurance with an approved third-party tax deed search company. A tax deed search company will conduct a review of the public records to confirm the absence of defects in the title which would prevent the title insurer from issuing an owner's title insurance policy. If there are no such defects, the tax deed search company will issue a search certificate to be relied upon by the title insurer for the issuance of an owner's title insurance policy without exception to the tax deed. The fees paid to the third-party tax deed search company are often much lower than the cost of a quiet title lawsuit, which is another way to clear the title.

This approach offers the new property owner a cost-effective and expeditious way to reduce the risks associated with title defects. It may also make it easier for the new owner to finance or sell the property.

Title certification

A tax deed sale occurs when a homeowner fails to pay their property taxes and the property is sold at a public auction to recoup the tax bill. The tax deed is the legal document that transfers ownership of the property. However, properties sold at tax deed sales have what is known as a ""cloud" on their title, which needs to be cleared before the property can be sold.

A title certification will validate the tax deed sale and tax foreclosure process. A consultant will work with a title insurance agent to clear the home's title. This process can also be used to resolve ownership disputes where there is a break in the "chain of title" or it is unclear who owns the property.

In Florida, a quiet title action is required to obtain a marketable, insurable title. This is because a tax deed of fewer than 20 years is not considered marketable by subsequent purchasers, lenders, and title insurers. A quiet title action bars prior owners, mortgage and lien holders from asserting any interest in the property. Once the action is complete, the property can be sold, a marketable, insurable title can be offered to a prospective purchaser, or title insurance can be obtained.

In addition, a quiet title action stops redemption periods and eliminates potential claims of lien. In some states, the owners of properties sold at tax deeds can pay back the property taxes they owe, plus fees and penalties, to regain ownership of the home within a set period of time, known as the redemption period.

Title insurance

A tax deed is a legal document that transfers ownership of a property when a home has gone into foreclosure due to unpaid property taxes. The property is then sold at a tax deed sale, usually held at a public auction, to recoup the tax bill.

Now, let's discuss title insurance and how it relates to tax deeds.

There are two main types of title insurance:

• Lender's Title Insurance: This is the most common type, purchased by the borrower to protect the lender from financial loss. It covers banks and other mortgage lenders from unrecorded liens, access rights issues, and other defects. In the event of a borrower's default, the lender is covered up to the mortgage amount. Lender's title insurance is typically required by lenders to protect their interests.
• Owner's Title Insurance: This type of insurance is optional but highly recommended. It is purchased by the seller to protect the buyer against defects in the title. Owner's title insurance covers the buyer against risks such as conflicting ownership claims, outstanding lawsuits, liens, erroneous public records, fraud, and undisclosed easements. It provides added protection and peace of mind for homebuyers.

In the context of a tax deed sale, title insurance is particularly important. Homes purchased through such sales may have "clouds" on their titles, meaning there are unresolved issues that could impact the new owner's ability to sell the property. By obtaining title insurance, buyers can clear these clouds and ensure a clean title. Additionally, title insurance protects against any unforeseen claims, such as unpaid property taxes or fines, that may arise after the purchase.

In summary, title insurance is an indispensable tool for homebuyers, offering financial protection and peace of mind. It is especially relevant in the case of tax deed sales, where there may be complexities surrounding the property's title.

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