Hubzu and Auction.com have hidden pitfalls!
Online auctions are a popular source of deals, but they are not without their challenges. Here is a common one:
- Once you win the bid, you must send in your deposit within a few days. In fact, many now require a credit card to bid.
- You also must sign their contract.
- They typically agree to provide insurable title, and frequently they will even pay for that title work
Here is why, if you have the option, I think you shouldn’t take the bait, er…I mean the free title insurance:
- If there are clouds on the title, their title insurance company will provide insurance that excludes those issues. It’s insurable, but not “marketable”. Why is that a big deal? You want to sell to an end buyer, and that end buyer’s lender probably won’t find those acceptable. You’ll be stuck cleaning up the title when you have no leverage. The bank that sold it to you has no incentive to cooperate: they have your money and they wash their hands of it.
- If you have the option, use your own title company
Ok, how does that relate to the deposit?
- If they have agreed to provide insurable title, and you are borrowing money to finance the deal, your lender won’t close if the title is not “Marketable” but is simply “insurable”. That is a legal definition that I’m not qualified to discuss, but trust me, your attorney (and mine) understand it very well.
Now what? You’ve put your money down, and you can’t get financing!
Normally, a title search is done by the closing attorney after you have secured financing and are moving toward close. I recommend getting the search done right away. You may have to risk the cost of a title search without knowing if you won the bid. But the small cost of a title search doesn’t compare to losing your downpayment when you can’t get it financed.
If your attorney can’t move that fast, know that mine can. You can get the results before you have to write that check. You can move forward in the deal with confidence. And if you call me for funding, our conversation will be easy peasy.