What to do if title isn't cleared by contract closing date?

Question

So, about 3 weeks ago I put $2500 earnest down on a duplex as a rental from a well established wholesaling entity in Houston. The property will be acquired in cash so I have no interest to pay.

The wholesaler is assigning the contract to me which has already been signed. Closing date is 9/14, which has already been pushed back once because seller has had difficulty clearing title. Apparently, the city has had a lien in place since 1978.

So with the closing date looming, what is my next course of action? I like this deal; the numbers make sense and I think there is a lot of upside. I break even on the lowest ARV price and I still make money with the lowest rent figures.

Obviously the deal will terminate if title doesn't clear, but if I still want the deal, do I sign a new contract?

Would I have to pay any of the taxes that have accrued over time (never mentioned in contract)?

Are there any "gotchas" in a situation like this?

I appreciate any feedback.

Lyall Storandt · Answer

@Michael Finkelshteyn Hey Michael, the wholesaler should sign an amendment with the seller, changing the closing date, and should have you subsequently sign that same amendment as the end buyer. I'll e-mail you a copy of the form you need...

Account Closed · Answer

Michael,

If they can not located the contractors that have the lien escrow will hold the contractors funds in escrow and closed the deal and pay the contractors when they come calling.

Joe Gore

Michael Finkelshteyn · Answer

Thank you all for the replies, and the form @Lyall Storandt. The seller will be sending an addendum and we'll be extending the close date to the end of the month.

Michael Finkelshteyn · Answer

@Sam Craven , Title is open with Texas American Title Company. The lien is a pavement lien that was issued by City of Houston in 1971. The lien is technically no longer a City of Houston Lien, it was levied and sold by the city for paving of several streets, one of which is the property in question. It appears that it was sold to the contractors who were doing the paving, and now the title company is having a hard time tracking them down.

@Joe Gore my EM is with the seller. I have it in contract and in other forms of writing that the EM will be returned if title cannot be cleared. I understand the concern here, and its a risky move, however the seller has a good reputation. I won't be putting down EM in this manner in the future.

Account Closed · Answer

Where did you put the EM?

Joe Gore

Sam Craven · Answer

If the local wholesaler is well established they should be working with you lock step to get the title to clear before the closing date.  If it can be done, they should be able to help you to not only get their assignment but to keep a customer.

If it is something that has been in place since the 70s I would think this is an easy thing to clear up, what exactly is the lien?

Who is the title open with?  A good title company also comes in handy here.

Michael Finkelshteyn · Answer

Joe,

I did not do a title search. However, the contract is contingent upon clear title, so that is my exit clause.

I did not put money into escrow.

Account Closed · Answer

Michael,

By your post you did not do a title search before you gave the EM. Did you put the EM in a escrow company?

Joe Gore

What to do if title isn't cleared by contract closing date?

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