Creative Financing Carrying Back A Second? You Need A Lender'S Title Policy

By Matt Unangst, 23 Jan 00:45

• Anyone with an interest in the property should have title insurance
• You should have the same title insurance a lender has for a property
• Protects you from liens prior to ownership

Lenders always insist on lender’s title insurance before issuing a loan to a property buyer. If you are using creative financing to sell a property – carrying back a note for a portion of the sale price – you are lending money to the buyer. You should have lender’s title insurance for the same reasons that financial institutions do.

Title insurance protects its holder’s right to property. If anything happens affecting the owner’s rights to the property, your investment in it will be protected by title insurance. Liens recorded against the property could otherwise destroy your investment and you would have no way to respond.

As a holder of a second mortgage, you will receive monthly payments from the buyer. Unfortunately, there are a number of things that can affect the buyer’s ability to make these monthly payments, even if you are certain that there are no easements or other problems with the property. A marriage, divorce, or death can drastically affect finances and a home’s ownership. The property owner could fall victim to a forgery or a lawsuit causing him/her to lose ownership of the property; or the government could seize his/her assets because of failure to pay income taxes. A federal tax lien can result in a property being taken with no reparations for the lender. To protect yourself from such a fate, you should carry lender’s title insurance if you are carrying a second.

Any questions about lender’s title insurance can be answered by your local title company.

SEE ALSO: Title Insurance, Title Insurance: Where Does Your Dollar Go?, The History of Title Insurance in California

Tags: lender's title insurance second mortgage