Closing Without Title Company

Closing Without Title Company

Rental Property Investor · Santa Fe, NM · Member since 2013 · 33 posts · 3 votes

I am buying a condo without a title company. I know most people will say to use one, but I've done the title search and am confident that the seller is the only owner and that the only encumbrance is a mortgage. I also already own 15 condos in this complex, so I know who the original developer was, and only had to trace the title chain back to him.

I have a statement from the mortgage holder, and I know what the payoff amount is.

Our closing day is going to look like this: I call the county clerk to verify that the seller is still the owner. Then we meet at my bank where the seller signs the warranty deed and I give him a cashiers check for the purchase price minus the mortgage payoff amount. Then we drive together (hopefully) to the post office and send another cashiers check to the mortgage company using certified mail. Then I drive to the county recorder's office and record the deed.

My question is this: if we drive separately to the post office, who should have the payoff check? That is, who should be more worried about that payoff not happening, him or me? In other words, does a mortgage attach to the buyer or to the seller?

Also, am I missing anything?

Thanks.

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Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
11y

Yes A title company

See this reply in the discussion

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  • Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    11y

    Yes A title company

  • Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Britt Griscom 

    IF I would do it I would carry the check.

    I have been professionally trained in title searching and I get title insurance.  There can be ex-spouse that can claim interest in the property.  There can be un-recorded mechanic's liens.  There can be Federal Tax Liens.  There can be state & local government liens.  There can be delinquent taxes.  Here the tax delinquencies are not recorded until the year after they occur, for example.

    Another big one not recorded is nursing home liens, and public welfare liens.  Often times they don't get recorded until the recipient passes away.

    Do you feel lucky?

  • Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    11y
    Originally posted by @Account Closed:

    Yes A title company

    From our experience IRS Liens do have a habit of appearing unexpectedly !!!

  • Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes
    11y

    I guess, my question would be: "what are you trying to accomplish by taking this risk??"  Save a few hundred bucks or time, or something else?

    While the risk may be relatively small, it doesn't seem like the reward justifies taking it.

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    You don't you're aware of what is involved in a settlement. Drop a check in the mail to payoff a mortgage and it won't be the right amount, you have per diem interest and who knows when that lender receives a check.

    A condo is a single family home, you're in violation of RESPA, TILA, IRS Code under several tax requirements. Where is your HUD-1, 1099's, required disclosures, where is the audit trail of escrow deposits and accounting of you paying off someone's mortgage, ever hear of federal settlement requirements or ALTA, money laundering, tax evasion, ?

    How do you know the owner's spouse died before your seller bought the place and that a title search error was not discovered and they insured your seller? A title search involves more than looking at land records! Are you an attorney? No, I'm sure you're not.

    Title insurance coverage for the insured lasts forever, claims can arise after you sell it and you'll be defending title issues to any future owner.  I suggest you get title insurance.

    Buy insurance or not, you can't close your own real estate transaction! Split the costs with the seller and stay out of trouble. :)   

  • Rental Property Investor · Santa Fe, NM · Member since 2013 · 33 posts · 3 votes
    11y

    Is it true that buying real estate without a title company is illegal?

  • Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
    11y

    @Britt Griscom The collective knowledge is always better than doing something on your own. There are tons of experienced people that have been doing this for 10,20,30 and even more years here. I don't think you will find anyone to advocate what you want to do, unless you have a great why, and then I still wont advocate it. Have I done a deal without a title company yes, for more than 2-3 k no, and I have been doing this for many years now. I recommend you get title insurance no matter what, which involves just using a title company, escrow accounts and hud-1's exist for reasons. YOU SHOULD NOT PROCEEDED WITHOUT PROFESSIONAL HELP OF A TITLE COMPANY. No legal or financial advice. 

  • Philly Burbs, PA · Member since 2015 · 338 posts · 133 votes
    11y

    I too am wondering WHY??.

    It's not expensive, and I sleep better without worrying what's in the mailbox, if that knock on the door is a process server, or what kind of notice I'm going to find taped on the door of my property.

  • Jean BolgerPro Member
    Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
    11y
    Originally posted by @Britt Griscom:

    Is it true that buying real estate without a title company is illegal?

    I don't think anyone is saying that it's illegal, it's just that the odds that you may inadvertently do something illegal are greatly increased, which is what @Bill Gulley  mentioned, you'd need an awfully good reason to justify going that route, and I can't imagine what that would be. If the idea is to save on the cost, that would be "penny-wise and pound-foolish" , as they say.

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    No, you don't have to use a title company, a Real Estate Broker or an attorney can close, deals are closed at banks, I closed deals in my mortgage company office as well. What you must do is follow all the settlement laws applicable to that transaction and after recent changes, I would not close a transaction now, so that should tell you something. Not that I don't know how, it's the liability and lack of an insured escrow and licensing. You need a bond and must be insured as well as a license to close transactions now. The old days of closing with a handshake over a fence post are long gone. DIY will look like tax fraud. Failure to obtain insurance breaks the chain of title, it is required in some states as that is how title is perfected and transferred, with title policy.

    This is to sale transactions, I'm not talking about doing a quit claim to your ex-wife after a divorce. :) 

  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    11y
    Originally posted by @Bill Gulley:

    No, you don't have to use a title company, a Real Estate Broker or an attorney can close, deals are closed at banks, I closed deals in my mortgage company office as well. What you must do is follow all the settlement laws applicable to that transaction and after recent changes, I would not close a transaction now, so that should tell you something. Not that I don't know how, it's the liability and lack of an insured escrow and licensing. You need a bond and must be insured as well as a license to close transactions now. The old days of closing with a handshake over a fence post are long gone. DIY will look like tax fraud. Failure to obtain insurance breaks the chain of title, it is required in some states as that is how title is perfected and transferred, with title policy.

    This is to sale transactions, I'm not talking about doing a quit claim to your ex-wife after a divorce. :) 

     Bill- I respect your posts however in what way does title insurance break the chain of title and which states require title insurance? 

    I have only done deals in 3 states Fla,Nevada and Texas and that is not the case in those states

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    Missouri is a title insurance state I believe KS, IL, AR, LA, OK, TN, OH are as well. TX uses title insurance to perfect your equitable interest, according to my attorney in DFW and mineral rights are not conveyed with title unless specifically mentioned, there, mineral rights are transferred separate from title.  

    The chain is broken as to insurable title, in title insurance states if coverage is broken then that is considered a break in the chain, an individual may not be responsible or able to cover a loss, therefore the next insurer has no rights of subrogation against a previous insurer, they have to rely on the financial ability of an individual to cover the loss. That can mean a future insurer may not write the policy. If they won't write a policy that becomes a marketability issue, if title is not insurable and at that point, not being able to convey insurable title is considered clouded title or not good title. The alternative is to exclude matters prior to that failure of having insured title, which they might do, but here, insurance can't exclude history or the abstract entirely only specific matters which is also customary.   You can check on the matter at the ALTA (American Land Title Association)site. :)

  • Rental Property Investor · Santa Fe, NM · Member since 2013 · 33 posts · 3 votes
    11y
    Originally posted by @Jean Bolger:
    Originally posted by @Britt Griscom:

    Is it true that buying real estate without a title company is illegal?

    I don't think anyone is saying that it's illegal, it's just that the odds that you may inadvertently do something illegal are greatly increased, which is what @Bill Gulley  mentioned, you'd need an awfully good reason to justify going that route, and I can't imagine what that would be. If the idea is to save on the cost, that would be "penny-wise and pound-foolish" , as they say.

     If I draw up a settlement statement that we both sign, and I pay both the seller and his mortgage company with cashiers checks that have records in my bank account, what's illegal about that?

  • Rental Property Investor · Santa Fe, NM · Member since 2013 · 33 posts · 3 votes
    11y

    apparently HUD-1 forms are required whenever there is a mortgage involved. Do I have to be bonded and insured or work for a title company to fill out a HUD-1 form?

  • Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    11y

    I don't believe these guys are telling you what to do, but they are giving you free information on what they know, which you have solicited in the first place. I believe you got an answer from David regarding your first question, and you have several answers to your "am I missing anything" question.

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    @Britt Griscom 

    Some get on BP to actually get good advice, then some after receiving good advice argue with it when it's contrary to what they want to do. I'm not arguing with you.

    From what you have posted in this thread indicates you don't have a clue about settlement requirements and from your plan to mail a check for settlement indicates you won't be able to payoff the lien properly.

    Anyone can fill out a HUD-1, seriously doubt you'll do it correctly and yes, a HUD-1 or a complete accounting of any real estate settlement is required under federal law.

    Federal law violations aren't a hand slap like state RE laws, violations carry fines up to $100,000.00 and/or 10 years in federal prison. Doing what you have proposed the way you have proposed it, you will be in violation of federal law.

    So, my advice is that you should not even attempt to close your own real estate transaction. If you can't afford to have the closing done then don't buy or sell real estate. :) 

  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    11y

    @Bill Gulley 

    I am not in any way advocating the OP close his own transaction. However, a HUD-1 is only required by RESPA in transactions involving a federally insured mortgage. Although it is used virtually all transactions at a title company with the only exception I am aware of is Wraps. Based on the information the OP provided, it would appear that the HUD-1 is not required

    When is the HUD-1 Used?
    The statutes of the Real Estate Settlement Procedures Act (RESPA) require the form be used as the standard real estate settlement form in all transactions in the United States which involve federally related mortgage loans. It’s used for nearly all transactions that involve a buyer and seller, including cash closings.

    In regards to Title Insurance of which I am speaking of transactions in the State of Texas,  Title Insurance is just insurance and in no way perfects title or is title to a property diminished without the insurance.  The insurance company, in return for a premium,  agrees to defend any imperfections that may arise up to the policy amount for 25 years which is the maximum statute for adverse possession in Texas

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    Check IRS Code, what I said was a "HUD-1 or a complete accounting" of all real estate transactions is required. There are specific requirements for the HUD-1 to be used as you pointed out, it's also the more accepted form to provide the detailed accounting required and universally used for residential. It is not generally used in commercial, but could be, as commercial usually has much more accounting matters and a settlement statement is made in good accounting form.

    You can not learn real estate requirements from simply looking at the obvious RE laws. Tax law, money laundering, depository requirements, state laws all are related, much like a chain that links the concepts and requirements together. You'll find laws that refer to other laws for compliance, once some requirement is made and another law skirts that same topic the related matter will extend the compliance under its domain by adopting other requirements. As an example, look at the Dodd-Frank Act, it adopts and modifies dozens of related regulations, TILA, RESPA, Tax Code, Treasury Regulations, FDIC Regulations, FCRA, on and on. Finance laws are intertwined by law, regulation, rulings and orders of determination by various agencies, that's why it's not a simple matter to achieve financial compliance.

    Hope that answers your question :) 

  • Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    11y

    Gee, got the poor OP convinced he CAN'T close without benefit of title, versus ought not.

    Title insurance is generally a pretty good value. However, if your opportunity is good enough and your tolerance for risk high, sure , why not consider acquiring without. 

    In the beginning, that's what I did and occasionally still buy without benefit of title. 

    Here's what you're up against: 

    Undisclosed liens that are filed against the record owner but not on the property. These would include judgments and tax debts against the owner. You buy the property and while title may transfer, the liens don't go away. 

    Later, you'll probably want to sell or at least refinance. This is where the title industry will have their way with you, likely requiring affidavits from people long unavailable and put you through your paces by additional steps as exceptions to clear. After all, they are in the insurance business which means they are happy to charge you for the perception of risk but stingy to pay a claim. Hence, they ultimately will out the burden back on you.

    My longtime mentor Frank, a self-described 'county seat lawyer' used to describe insurance companies like the guy who offers you an umbrella on sunny days but takes it away when it rains. 

  • Rental Property Investor · Santa Fe, NM · Member since 2013 · 33 posts · 3 votes
    11y
    Originally posted by @Greg H.:

    @Bill Gulley 

    I am not in any way advocating the OP close his own transaction. However, a HUD-1 is only required by RESPA in transactions involving a federally insured mortgage. Although it is used virtually all transactions at a title company with the only exception I am aware of is Wraps. Based on the information the OP provided, it would appear that the HUD-1 is not required

    When is the HUD-1 Used?
    The statutes of the Real Estate Settlement Procedures Act (RESPA) require the form be used as the standard real estate settlement form in all transactions in the United States which involve federally related mortgage loans. It’s used for nearly all transactions that involve a buyer and seller, including cash closings.

    In regards to Title Insurance of which I am speaking of transactions in the State of Texas,  Title Insurance is just insurance and in no way perfects title or is title to a property diminished without the insurance.  The insurance company, in return for a premium,  agrees to defend any imperfections that may arise up to the policy amount for 25 years which is the maximum statute for adverse possession in Texas

     But since we are paying off the sellers mortgage doesn't this transaction involve a federally related mortgage?

  • Rental Property Investor · Santa Fe, NM · Member since 2013 · 33 posts · 3 votes
    11y

    In other words, am I legally required to use a HUD one form, or can I just use a detailed spreadsheet?

  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    11y

    @Britt Griscom 

    No you are not required to use a HUD-1 in this case as the requirements by RESPA to use a HUD-1 are based on the buyer using a federally backed loan

    @Bill Gulley 

    Please reference in the IRS code where the impetus in on the buyer, as in the case of the OP, to provide accounting or a HUD-1 ?

  • Rental Property Investor · Santa Fe, NM · Member since 2013 · 33 posts · 3 votes
    11y
    Originally posted by @Greg H.:

    @Britt Griscom 

    No you are not required to use a HUD-1 in this case as the requirements by RESPA to use a HUD-1 are based on the buyer using a federally backed loan

    @Bill Gulley 

    Please reference in the IRS code where the impetus in on the buyer, as in the case of the OP, to provide accounting or a HUD-1 ?

     Could you refer me to the place in RESPA where it makes a distinction between the buyers loan and the seller's loan?

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    Greg, while you are technically correct as to when a HUD MUST be used, your advice is bad saying or implying he doesn't need to use it. Why? Because he nor you are degreed accountants, I'm betting, and you won't know what the applicable accounting will be to show a correct accounting, it's not a standard financial statement but must show the expenses and contributions in the similar manner as the HUD, so in that case, why not use a HUD. That is the common practice, required by reference by ALTA and used in cash as well as non-governmentally mortgages, such as a HML or a private money transaction.

    Then, the logical thing to do would be to use a HUD, it's accepted if you want to make up your own, see someone qualified to account for the transaction. It needs to match the IRS filings required as well.

    Read my posts carefully, I am not wrong. I also don't do homework for students of real estate or finance, you should be able to find it, Google IRS accounting real estate settlement, that should get you on your way.  :)

  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    11y

    @Bill Gulley 

    Thank you for referring to me as a student of Real Estate as while I have been doing this since 1989, I am always learning .   The day I stop learning is the day I am six feet under

    Today I learning something from you that you are indeed correct that the impetus may fall upon the buyer to report to the IRS as listed below:

    If no one is responsible for closing the transaction as explained in 1 above, the person responsible for filing is, in the following order: (a) the mortgage lender, (b) the transferor's broker, (c) the transferee's broker, or (d) the transferee.

    For purposes of 2 above, apply the following definitions.

    1. Mortgage lender means a person who lends new funds in connection with the transaction, but only if the loan is at least partially secured by the real estate. If there is more than one lender, the one who lends the most new funds is the mortgage lender. If several lenders advance equal amounts of new funds, and no other person advances a greater amount of new funds, the mortgage lender is the one who has the security interest that is most senior in priority. Amounts advanced by the transferor are not treated as new funds.
    2. Transferor's broker means the broker who contracts with the transferor and who is compensated for the transaction.
    3. Transferee's broker means the broker who significantly participates in the preparation of the offer to acquire the property or who presents such offer to the transferor. If there is more than one such person, the transferee's broker is the one who most significantly participates in the preparation of the acquisition offer. If there is no such person, the one who most significantly participates in the presentation of the offer is the transferee's broker.
    4. Transferee means the person who acquires the greatest interest in the property. If no one acquires the greatest interest, the transferee is the person listed first on the ownership transfer documents.

    I cant imagine the IRS has ever penalized a buyer for not reporting but even though they are way down the totem poll, they are there

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