subject: Importance Of Clean Title In Real Estate Investing [print this page] Recently I made a mistake that ended up costing over $1000 even though it sounds so basic. Generally I only do a short sale if I see the potential of creating a lot of equity to justify spending all the time and effort involved in negotiating a short sale. I especially love properties which have more than one mortgage because holders of the subordinate liens can lose everything in the event of a foreclosure. They can therefore easily 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 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. 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 did all the necessary paper work for both short sales and within a few weeks had both my offers accepted.
Only minor repairs were needed, it had no structural damage like roof or foundation.
Before I could wholesale the property, I had to remove a lot of junk and do a few touch-ups to make it marketable. Apart from general cleanup, the yard was over-grown and there were tons of trash to haul off. In total I ended up spending about $1000 getting it ready for sale.
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. As it turned out, the seller forgot to disclose two other liens!
Both liens were mechanic liens. 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down the owner of one of the liens, but the other one had been sold several times and the contact information was outdated.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 short, we had no way of negotiating one of the liens.
This means I could not own the property free and clear unless contacted all lien holders and agreed on a pay-off. Only foreclosure could wipe out the liens.
I had to give up on the deal, after spending weeks negotiating a short sale and over $1000 in expenses.
If you buy 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.
Make a point of checking the title before spending money to make sure the property is marketable.
In my business, I do not pay for any title work because I have closed many deals with my title company. Even if you had to pay for title work, you still end up saving a lot more than if you did not check for clean title.
