Once you’ve identified a good property that can make you some cash, you sign a contract with the seller. Now you have to do your due diligence, to verify ownership and debts attached to the property. For this, you take this contract to your title company to do title work.
This step is necessary for every property you buy.
If you wholesale houses, or you close several deals every year, this article will help you with title work.
What is title work?
Title work involves searching if the seller actually owns the property. It verifies the history of ownership of the property – who bought and sold it, and when, what judgement, taxes, mortgages and other liens are owed on the property. Once you buy the property, a new title is issued in your name and filed in the county court records.
A title company or closing attorney, does the title work and acts as the closing agent in the deal, representing the buyer, seller and other parties involved in the real estate transaction – such as mortgage lender. It facilitates closings, issues title commitments and insurance policies and records paperwork.
Title commitment is simply a promise to issue title insurance for your property.
A title report is issued when title work is completed. It reveals anything recorded against the property, such as liens, encroachments and easements.
You should let professionals do the title work. Don’t do this yourself!
What is covered by title insurance?
Title insurance protects the buyer and mortgage lender against problems with the title. Title insurance will pay for specified legal damages if there’s a dispute with the title.
Do I need a title insurance if I pay cash?
Yes! Get title insurance even if you pay cash, or you get seller financing. It will protect you even though it might sound like added expense.
How long is title insurance good for?
A title insurance for a buyer lasts as long as their interest or their heir’s interest retains an interest in the property. Title insurance for a mortgage company lasts until the mortgage is paid in full.
What does a title company charge?
A title company will charge $200 to $400 depending on where you live. This depends on the property and transaction type.
The total closing costs usually range between 2% to 5% of the purchase price, depending on where you live. So, if you’re buying a house worth $150,000, closing costs will be $3000 to $7500.
Title search takes about 2 to 3 weeks depending on the number of documents to be reviewed.
Locate investor friendly title company
Most title companies usually perform regular closings all day – in most cases these transactions involve a real estate agent and a buyer obtaining a mortgage.
What most of them aren’t used to are terms Assignment Agreements, Simultaneous Closings, Double Closings, Back to Back Closings, or Transactional Funding, and so on.
For this reason, you need to find a title company that is investor friendly. Visit your local REI meetings and network with other real estate investors. You’ll learn which title companies they use.
Who chooses title company, buyer or seller?
Always use an investor friendly title company.
You can then agree who pays which closing costs between the buyer and seller.
Typically, in a standard purchase contract for a home, the buyer pays for the title insurance issued to their lender. The seller pays for title insurance for the buyer.
If a seller insists you have to use their title company, let the deal go, unless you are using your own cash or a regular mortgage to buy it straight from them.
Do title work before spending money on a property
When you pre-screen a motivated seller, make sure they tell you everything that’s owed on the house, like second mortgages and liens. Then verify this information by doing title work.
You don’t want any surprises when you’ve lined up a buyer with cash, only to find liens you didn’t expect!
In my business, I can check the county records online to see this information. But I always let my title company do this job in case something slips between my fingers.
They don’t charge me anything for title work because I close all my deals with them.