Do Thorough Title Check before Deed in Lieu

5 Replies

This is a reminder to all note investors to do a thorough title review before finalizing a Deed in Lieu of Foreclosure/Cash for Keys Agreement. A foreclosure will eliminate most liens. In a short sale or Deed in Lieu, however, the liens have to be addressed & dealt with in some way during the transaction.

Do a title search and clear all of the liens by having the borrower clear them before your transaction or get the lien amounts credited to you so you can pay them off post transaction.

We generally pay the full amount of the net cash for keys amount when the borrower vacates the property & leaves it in broom swept condition.

Yesterday, we were surprised when a town refused to provide the transfer stamp, which we needed in order to record the Deed. (The town is in the suburbs of Chicago.) The $3,000 in unrecorded fees were incurred when the borrower's wife took a number of ambulance rides over the years without paying.

Our attorney assured us that this was illegal and that we wouldn't have to pay these. (Towns can get aggressive & lots of people just pay the fees instead of pushing back.)

In this instance, we could have been proactive in calling the town ahead of time. Another alternative would have been to withhold part of the cash for keys until we successfully recorded the Deed in accordance with our agreement.

Just do what you can to avoid surprise liens in your deed in lieu and short sale transactions :)

@Andy Mirza

I see many people forget this

I had one in Virginia where we agreed to a dil and a week before we ordered the title a company (property was a duplex rental so it was a PM) put a $12k lien on property for unpaid fees

We had to go through foreclosure as we offered the PM company $2k to settle and they refused to accept it. They got wiped in the foreclosure but if we did not run title we would have been stuck with a $12k lien

Originally posted by @Andy Mirza :

Good point!  I always have the title report company run on unrecorded lien search as well since these pesky nuisance liens can come back to bite you. Especially unpaid utilities. Nevertheless I've accepted numerous deed-in-lieu where I knew there was an underlying lien. Generally is still cheaper and quicker then foreclosing.

Great point!

There are certain areas I expect to see this behavior from, including Cook County, IL. The title reports from ProTitleUSA have absolutely made/saved many of the investments I've evaluated. 

I'm interested in what happens with this situation, keep us posted!

 I would think that unpaid ambulance rides would be a judgement/lien that follows the borrower. (Which I'm assuming is why your attorney is saying the city's action was illegal.) Hopefully they don't try to throw any more road blocks your way.