Are title companies necessary or can you close an RE deal without one?

19 Replies

As a former agent, I never questioned the use of title companies. I understand that they provide title insurance, but what exactly do they do that I can't do myself?

This borders on a legal question, but I think one can draw up and create their own deed, do their own HUD-1, and take the deed to the courthouse and record it without an attorney or title company. I have done the recording part myself many times. For that matter, I doubt that a HUD-1 is even required if there is no financing. And as far as I know, there is no requirement to record a deed at the courthouse either. The rules and law may vary by state. I am not an attorney, and this is not legal advise.

To the best of my knowledge, no, title companies are not necessary however... I think you'd be hard pressed to find anyone with any experience at all, who would tell you it's okay to go without! Yes you can do it all yourself but remember that means you take on all the risk and liabilities that could come up as well.

Beware!!!

Title insurance is the issue. You can prepare and record deeds, just like escrow. But then the title is not insured. So if any one makes a claim to the property, and/or if there are any title problems when you go to re-sell or refinance, you won't be covered.

Always buy title insurance. That being said, I've prepared and recorded quite a few of my own docs, including deeds. The values were low enough or the circumstances didn't require title insurance, so the risk was low. When I go to re-sell it's like starting over. The title companies where I am won't insure over previously uninsured deeds, so they always go back to the sellers for affidavits or new deeds.

Title insurance required by lenders to insure the collateral is secure....hence title companies are needed, otherwise, not required but foolish not to have them to get clean title/ ins/ escrow/ recording etc.

I would think of all places to attempt to save money, title work would not be one of them. As you are aware it is rather time consuming and the comfort level of having Title Insurance is worth the money. Use your valuable time finding good deals, not doing pick and shovel work. Not a legal opinion, just food for thought

John Moore, John Moore Homes | 570 620‑8080 | http://www.johnmoorehomesllc.com

I think there are examples of when I feel title insurance is unnecessary:

- Deeding a property from entity you own to another entity you own (aka: deeding a property from your name to a trust).

- Recording a 1st trust deed for a sophisticated party that is short-term. Say I just purchased a property and need to borrow money for 60 days. My purchase has title insurance.

- Fixing title on a wholesale deal.

Title insurance companies need to go back to the last insured transaction.

- I bought a note, recorded a deed in lieu of foreclosure (without title insurance) and sold the property. The title company required me to get the person who signed the deed in lieu of foreclosure to sign an "uninsured deed affidavit." It has to a different notary and typically different date than the deed was recorded.

- I wholesaled a property to an investor. The bank forced me to have the property in my name. The person I sold it to got a Grant Deed from myself to their company (without title insurance). Someone by my same name has many legal troubles so title required all of these items to be fixed until I proved to them that person is not me.

Originally posted by @Steve L. :
I think there are examples of when I feel title insurance is unnecessary:

- Deeding a property from entity you own to another entity you own (aka: deeding a property from your name to a trust).

If you do this without getting an endorsement on your existing policy, there is a good chance you will lose your existing title insurance if a claim later comes up. Read your existing policy before you decide to do this.

Originally posted by @Jared DeValk :
As a former agent, I never questioned the use of title companies. I understand that they provide title insurance, but what exactly do they do that I can't do myself?

Write a bigger check to cover your loss from title claims against your property including defending your suit.

It also helps convince your lender to fund the mortgage. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Originally posted by @Bryan L. :
For that matter, I doubt that a HUD-1 is even required if there is no financing.

Just FYI, A HUD-1 is required for all settlements of residential properties regardless of financing, any commercial RE settlement requires an accounting of the transaction, these are tax code requirements.

RESPA is required to be followed even if there is no financing. :)

You can close your own settlement if state law doesn't require a title/settlement agent, registered lender or attorney, so long as you comply with all applicable requirements, if you're crazy enough to try. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

The HUD-1 also serves as a 1099 that is reported to the IRS.

Originally posted by @Steve L. :
I think there are examples of when I feel title insurance is unnecessary:

- Deeding a property from entity you own to another entity you own (aka: deeding a property from your name to a trust).

- Recording a 1st trust deed for a sophisticated party that is short-term. Say I just purchased a property and need to borrow money for 60 days. My purchase has title insurance.

- Fixing title on a wholesale deal.

Title insurance companies need to go back to the last insured transaction.

- I bought a note, recorded a deed in lieu of foreclosure (without title insurance) and sold the property. The title company required me to get the person who signed the deed in lieu of foreclosure to sign an "uninsured deed affidavit." It has to a different notary and typically different date than the deed was recorded.

- I wholesaled a property to an investor. The bank forced me to have the property in my name. The person I sold it to got a Grant Deed from myself to their company (without title insurance). Someone by my same name has many legal troubles so title required all of these items to be fixed until I proved to them that person is not me.

Your first point, as mentioned, nullifies your policy, any claim goes first to the current holder, they then look to the prior, meaning you and you'd be suing yourself, good luck :)

Your lender is not protected, that falls under a lender's policy, usually free with the owner's policy but you need to ask for it.

Fixing title? If you do anything effecting title it needs to show in the chain of title and that's the an issue that needs to be covered.

When there is a break in coverage suits go to the current owner, they must defend the suit. In doing so they may then sue the prior hold to be indemnified, if that past owner is uninsured they must pay fees to defend themselves and they may sue their prior owner on their dime. If you can't find that prior owner, they died, whatever, you can run out of time seeking your claims and get stuck with a judgment for passing title with defects. Coverage is for the term title is held. Often, parties will skip back to the offending issue, but they don't have to. The affidavit shows that that person was uninsured or self insured, could be an easy target, but being a quit claim as a DIL, usually indicates empty pockets. Title defects don't need to have occurred during your ownership to get nailed.

Any time your name goes on title I suggest you be insured. Your liability exposure lasts forever.

There are some "tricks" or "tactics" if the prior TI company provided coverage and they are providing the next policy, knowing no issue popped up during your hold, on established lot descriptions say over 50 years where title claims would be a lower risk, you have an insured closing letter on settlement and you have funds to play ball. If you hired anyone or obtained materials for rehabs, issues can pop up a few months later, you may not have a real loss, but messing with it takes time, energy and money, just get it insured, IMO. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

I checked the HUD website. RESPA does not apply to a cash transaction as I suspected in my earlier post. So, HUD-1 forms are not required in those cases. I also checked the IRS website. On the instructions for the 1099, there were several mentions of "if a settlement statement was used" (or similar statements), but again, no requirement for an actual HUD-1. Also, on the 1099 instructions there are several sentences that mention closing attorneys and/or title companies, but again, no requirement that the person doing the closing be an attorney or a title company.

I'm a big believer in the Bill of Rights and the 10th amendment and I suppose that the 10th amendment is one of the reasons that RESPA does not apply to cash transfers of property. Most traditional bank loans already have the Feds involved, so they figure that they can also regulate the actual transaction if the parties are using their already-regulated loans.

Disclosure: I am not an attorney, CPA, or Constitutional Scholar, just a regular guy who can read. However, I have actually read the Constitution and the Bill of Rights.

Right, you don't always need to do a HUD-1, you may use a HUD-1-A if applicable. These are the source documents to the tax filing required, completion of the forms is given under RESPA, TILA, requirements are further an issue under the Money Laundering/Reporting Act.

RE laws are intertwined under various federal statutes and tax code. If you want to just read one law for loopholes, have at it and good luck. :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Wow, the Feds are even more involved in my affairs than I even realized.

I would NEVER EVER do anything without the use of a professional. The liability you incur in real estate investing can be huge. Cutting out title or legal counsel in ANY transfer is the wrong place to cut the budget. There are circumstances that may not appear in the chain of title and having a valid title insurance policy will keep you covered. What if the title searcher missed something in the public record? Then you are under the mistaken belief that your title is clean. If the issue later revealed itself you would be covered. Think about this: If the bank REQUIRES you to have title insurance and use a closing agent for the transfer (either title or attorney) when they give you their money in the form of a mortgage, why would you do less and not protect your own funds when you finance or purchase? Again, I would agree that in some circumstances it's pretty unlikely something can happen but why take a chance? For the 1 time fee of a title policy you have piece of mind during the duration of that insured's ownership. Then again I can't complain because attorneys make money helping their clients but we make big money helping clients who thought they could help themselves.....

LOL, actually, the bar code on your toothpaste emits a very, very low radiation level that "bleeds over" like radio waves over 20,000,000 identifiers, you're wearing it on your teeth and the NSA can tract you anywhere you go at any time. Foil inside your ball cap no longer works. HUD criminal investigation division can make requests to any federal agency.

But, if you just follow what's usual and customary you'll never be sent to a foreign country for questioning or reported as "Lost at Sea" :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

Funny, I was wondering how the HUD police were going to even know if I didn't use the HUD-1. I guess I temporarily forgot about the NSA.

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