Why Title Insurance is Important for Your Real Estate IRA

We sat down with Real Estate Associate Veronica Alvizar, who has more than 9 years of experience working with Real Estate IRA investors. She enjoys sharing her knowledge with clients and is adamant about making sure that they understand the importance of using a title company and/or getting title insurance when purchasing real estate with an IRA, an expense many investors choose to avoid.

Here’s what Veronica had to say about the purpose and value of title insurance:

What is title insurance and why is it important in Real Estate IRA purchases?

Title insurance is an indemnity contract that will reimburse you for a loss in the event someone asserts a claim against the property that is covered by the policy. 

It’s important because a title company will make sure that the title to the real estate is legitimate, and will issue title insurance for the property being purchased in the IRA.

How can there be a title defect if the title has been cleared by the title company?

Title insurance is issued after a careful examination of public records. But even the most thorough search cannot absolutely assure there are no title hazards. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search. 

Here are some of the things title insurance will protect you against:

• False impersonation of the true owner of the property
• A forged deed, release or will, and instruments executed under invalid or expired power of attorney
• Undisclosed or missing heirs
• Mistakes in recording legal documents
• Fraud
• Gaps in the chain of title
• Administration of estates and probate of wills of missing persons who are presumed deceased
• Issues concerning the rightful conveyances by corporate entities
• Probate matters

What protection does title insurance provide against defects and hidden risks?

Title insurance will pay to defend you, the insured, against any lawsuit attacking the title, and will clear up title problems or pay the insured losses. For a one- time premium, the title insurance policy remains in effect as long as you or your heirs retain an interest in the property. 

Here's a scenario of an investor who purchased a property in his IRA and did not use a title company:

The investor instructed his IRA administrator at the time to send funds directly to the seller.  The seller received the money agreed on in the purchase contract, but neither the seller nor the investor recorded the warranty or grant deed in the name of the IRA. Once the seller had the money, he turned around and sold the property to someone else. The IRA investor lost the investment and his money. 

What does using a title company for the purchase of the real estate mean to you? 

Peace of mind.  Although using a title company or getting title insurance are not required in an IRA transaction, it is highly recommended to make sure you are protected against fraud. 

For more information on how to use IRA funds to invest in real estate, contact us.