Why Is Title Insurance Important When Flipping A House?
Updated: Dec 8, 2021
Flipping houses can be highly profitable. You purchase a home for a bargain rate, perhaps through a foreclosure auction or short sale. Then you spend a few months fixing it up, doing both big and small renovations until you transform that bargain home into a remarkable masterpiece.
When it comes time to list it, you have a buyer right away - and you remind yourself just how easy it is to earn a great income flipping properties. Nothing ever goes wrong, right? Wrong.
What is Title Insurance?
Just as the name suggests, title insurance protects the title. It protects your right to and financial interest in the property should something come up that was not detected in the title search. Let’s say, for instance, a tax lien or a substantial judgment was missed or an unknown heir to the estate of the prior owner appears. As the new owner of the home - even if only for a short time - there are a couple of things you should know.
First, any liens on the property that were missed by the title search have now been passed on to you. When you go to sell the house to the new buyers, if the missed lien appears this time around, guess who is responsible? That’s right - you. And, some of these liens can be very costly.
Second, if an unknown heir appears or someone who is claiming they have a legal right to the property, there is going to be a legal battle. You may lose the property or you will have to fight it out in court. Either way, it’s not going to be cheap.
Title searches are meant to protect you by making sure the property title is free and clear. But like most things, they don’t come with a 100% guarantee. Things get missed from time to time - or aren’t there to be found until it is too late.
This is where title insurance comes into play. If you purchase it when you purchase the property, you are protecting yourself from any title search mishaps. Should something come up, you submit a claim to the title insurance company and they handle the rest.
The Need for Title Insurance When Flipping Houses
Title insurance is something every home buyer should consider - even those who don’t intend to keep the house.
If you want to make money flipping houses, you don’t sit on them and take your time, right? Rather, you purchase the property and get to work tearing out walls, replacing rotten plumbing, adding new flooring, installing new windows or new appliances, and so on. In other words, you are investing quite a bit of money in that property to make it a hot item on the market when you are through.
Whether someone comes forward claiming a right to the property or a lien appears on the title search before the sale, it could cost you big time. Now you have bought the property, renovated it, and are faced with fees you didn’t expect. You may even risk losing the property altogether!
And, that’s exactly why you need house flipping title insurance.
Weighing the Costs
When you are buying homes to flip, you want to try to do it as reasonably as possible. Although there are many ways that you work to cut costs so that you can make the biggest profit, title insurance should never be on the chopping block.
Some seasoned home rehabbers or flippers try to bargain by asking - do you really need to buy title insurance when you are only going to own the home for a couple of months?
There is no law says you must purchase title insurance. But no law says you must carry water with you on a hot summer hike, either. You will likely get through the hike, but what happens if you get lost? What happens if you get too overheated? Take the water - it is added insurance for your hike, just in case.
Buying title insurance for flipping houses is added protection for your investment.
Title Insurance from District Title
If you are still on the fence about title insurance and want to discuss it further - or you want to make sure you include it on your next purchase, the experts at District Title can help.
Contact our office today at (202) 518-9300.