Why A Clean Title Is A Must In Real Estate Investing

Recently I made a mistake that ended up costing over $1000 even though it sounds so basic. In my business, I only do a short sale when I am sure I can create a lot equity that justifies spending all the time and effort negotiating for it. In particular, I love properties with more than one mortgage because the junior lien holder usually stands to lose everything if the property goes into foreclosure. They are therefore willing to accept pennies on the dollar in a short sale.

It is easy to negotiate twenty cents on the dollar on a second mortgage. If you can also negotiate the second mortgage, you can end up creating a lot of equity for a profitable deal.
This is the type of deal I got a few months ago, and instantly identified it as a having high potential. It had a low first mortgage, almost 50% of the value of the house, and a small second mortgage. I could still have had a great deal if I did not do a short sale.

The owner just wanted to get rid of the property without foreclosure. We promptly did all the required short sale paperwork and had both offers accepted in a few weeks.

The house needed some repair, but no structural damage 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. There were tons of trash to haul off, the yard was over-grown and just general clean-up I eventually spent about $1000 getting it ready to flip.

I knew I could wholesale it easily and quickly found a cash buyer.

In the meantime, my title company started title work to get it ready to close. It turned out there were two other liens the seller did not disclose!

Both were mechanic liens attached to the property. I easily tracked down the owner of one of the liens, but the other one had been sold several times and the contact information was outdated. In other words we could not negotiate one of the liens.

So unless we could contact all the lien holders and negotiate them all, we could not own the property free and clear. Only foreclosure could wipe out the liens.

I ended up giving up on the short sale after spending weeks negotiating both short sales and spending over $1000 getting the property more marketable.
This experience can serve as a word of caution if you buy houses directly from motivated sellers. Although motivated sellers can have some of the most profitable real estate investing deals, they can also have multiple liens, judgments and other title issues.
Check the title to make sure your properties are marketable before you spend time and money.

My title company does title work free for me because I have closed many deals with them. Even if you have to pay for title work, it is likely it is not as expensive as the time and money you would lose without checking the title.

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.


May 9, 2012 | Author: | Posted in Finance

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