Importance Of Clean Title In Real Estate Investing

Recently I made a mistake that ended up costing over $1000 even though it sounds so basic. Normally I only pursue a short sale if I see there is potential to create a lot of equity to justify spending all the time involved in doing a short sale. I am particularly fond of properties which have more than one mortgage, because the holder of the junior lien mostly stands to lose everything in the event of a foreclosure. For this reason, they can negotiate pennies on the dollar in a short sale.

It is not unusual to negotiate 20 cents on the dollar on a second lien.   If you can also negotiate the first mortgage, it means you can end up creating a lot of equity and potential for a good profit in your deal.
I recently got a dela like this which I instantly identified as highly potential. It had a first mortgage almost 50% of the house value, and a smaller second mortgage. Even if I did not do a short sale, I could still have had a great deal.

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.

It needed minor fixes, no major repairs like foundation or roof.

I had to haul off lots of junk and do a few minor touch-ups to make it more marketable before I could wholesale it to another real estate investor. Apart from general cleanup, the yard was over-grown and there were tons of trash to haul off. I ended up spending over $1000 cleaning things up and got it ready for wholesale.

I was sure I was going to make it a great wholesale deal and quickly got a buyer with cash.

In the meantime my title company started the closing process including title work.   The seller had forgotten to disclose two other liens as it turned out!

Both were mechanic liens attached to the property.   Though it was easy to track down one of the liens, the other one had been sold several times and the contact information did not work. In other words we could not negotiate one of the liens.

If I could not contact all lien holders and negotiate all liens, it was impossible to own the property free and clear. Only foreclosure could wipe out the liens.

After spending weeks in short sale negotiations and over $1000 in expenses, I ended up giving up on the deal.
If you are a real estate investor that buys houses from motivated sellers, this experience can serve as a word of caution. Motivated sellers usually have the most profitable deals, but they can also have multiple liens, judgments and other title issues.
Before you spend too much time, effort and money, check the title to make sure the property is marketable.

My title company does title work free for me because I have closed many deals with them.   If you have to pay for title work, you would still end up spending less than the money you would lose without checking the title.

About the Author

Simon Macharia is a real estate investor in Dallas Texas, and specializes in buying and selling houses. Learn how you can automate most aspects of your real estate business with a database-driven real estate investing website saving you time, money and effort, while closing more deals by increasing your efficiency.

Author (simon87). Submitted on Wed, 9 Nov 2011 Time: 2:45 PM

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