Mortgages & Creative Financing

Wait for Clear Title Before Spending Money

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spending money on real estate transactions

Last month I came close to making a fairly novice mistake on a short sale I was purchasing. This was a property I was buying for my personal residence and I had finally received an accepted offer from the bank after 6 months of negotiating.  I was excited that the bank had finally accepted my offer and without thinking, I began spending money towards the transaction without waiting for the title work to come back.

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In any short sale transaction, getting the bank to approve a discounted payoff does not necessarily mean you are in the clear. It is still necessary to make sure that there are no title issues that might impede the process.

As was the case in my transaction, the bank had finally agreed to my price, but in running title, my closing attorney found multiple judgments against the seller.  Having waited on the bank as long as I had, I was anxious to finally close on the property and simply didn’t wait until the title work was back. I had already spent money on inspections and other miscellaneous expenditures when I got the news. In the end,  the seller was able to work through the judgments and get them cleared in time to close on the property. However, had he not been able to do this, I would have been stuck holding the bag on these expenses.

Let this serve as a word of caution to those investors who are negotiating short sales (or any investment property for that matter).  Sellers who are in distress may represent a great opportunity to buy property at a discount, but they also have a much higher likelihood of liens, judgments and other potential title issues. Learn from my (near) mistake and make sure you work through any title issues before spending unnecessary money or time on the transaction.

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience...
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    Sharon Vornholt
    Replied over 8 years ago
    Great advice Ken. We sometimes rush to get the deal done and in the process skip over important steps that could end up costing us money at closing. That was a great reminder to just slow down and get your ducks in a row.
    Jeff Brown
    Replied over 8 years ago
    Hey Ken — I’m curious, did the purchase contract call for the seller to deliver clear title, as per normal transactions?
    Replied over 8 years ago
    Yes, the contract stated that the seller needed to provide clear title. – If he had not been able to clear title, I would have at least received my earnest money back.
    James Mikel
    Replied over 8 years ago
    True are the words. We have been flipping a few homes in Missouri and came close to making a similiar mistake. Just a week over the finish of a 31 day rehab we were eager to get started on the next home. The home we were eager to start on is to close next week. As usual we entered the home, with realtor, to generate a supply list for the house and to price our materials for the rehab. We found a great deal on a lot of materials, got to love habitat, and were warned that placing anything, including ourselves, in or on the property would constitute tresspassing. The lender in ownership would consider this a breach of contract and it could therefore hold up our closing and possibly be reported to the police. While we generally do not put anything into a house before we have acquired it, we didn’t want to pass up a great deal. We also conduct most of our rehabs in other states so we do not have the facilities to store the materials. In a pinch a uhaul truck does the trick.
    Replied over 8 years ago
    I would suggest always have your attorney check title beyond any Seller attorney. I have seen Sellers (bank) attorneys at some larger firms make some key errors. The last one I saw, I was about to be sold a house that the bank did not legally own. Yikes! I walked on that one.