Once you’ve identified a good property that can make you some cash, you sign a contract with the seller. You then take this contract to the title company to do title work. This step is necessary for any 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 a buyer buys the property, a new title is issued in the buyer’s 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!
Who chooses title company, buyer or seller?
As a wholesale real estate investor, you should have your title company do title work. Talk to other real estate investors in your area to find out investor friendly title companies. 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.
What is covered by title insurance?
Title insurance protects the buyer and mortgage lender against problems with the title. If there’s a dispute with the title, title insurance will pay for specified legal damages.
Do I need a title insurance if I pay cash?
If you pay cash, or you get seller financing, get title insurance. Even though it might sound like added expense, it will protect you.
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?
Depending on where you live, a title company will charge $200 to $400. 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.
Depending on the number of documents to be reviewed, title search takes about 2 to 3 weeks.
Do title work before spending money on a property
When you first talk to a motivated seller, pre-screen them properly to get all information on what is owed on the house.
This includes any junior mortgages and liens on the property. Then verify this information by doing title work.
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.
Example – How I lost $1000 because of not pre-screening properly.
I once got a great deal which I identified as a great short sale candidate. It had 2 mortgages, and even though I’d still have made some money if I paid off both mortgages, I decided to negotiate a short sale.
All the owner wanted was to get rid of the property without foreclosure. We did all the necessary paper work for both short sales and within a few weeks had both my offers accepted.
The house needed some repair, but no structural damage like foundation or roof. There was also a lot of junk to remove and touch-ups I had to clear before I could wholesale it to another real estate investor.
It had an overgrown yard; there were tons of trash to haul off, and general cleanup. When all was said and done, I ended up spending over $1000 cleaning things up and got it ready for wholesale.
I spent this $1000 before I had the title work done.
After all, I was pretty sure I was going to flip it easily and quickly lined up a buyer with cash.
In the meantime, my title company did title work.
It turned out there were two other liens the seller did not disclose!
Both were mechanic liens attached to the property. One of the liens was easy to track down, but the other one had been sold twice and none of the contact information on the lien was working.
In short, we had no way of negotiating one of the liens.
This means I could not own the property free and clear unless we contacted all lien holders and agreed on a pay-off.
Those liens could only be wiped off through foreclosure.
I ended up giving up on the property after spending weeks negotiating both short sales and spending over $1000 getting the property more marketable.
Always check the title before spending money to make sure the property is marketable.
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 must 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.