Fair discount that justifies buying a house with clouded title

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Fair discount that justifies buying a house with clouded title

Greg GaudetPro Member
Investor · Pukalani, HI · Member since 2017 · 413 posts · 291 votes

Aloha all,

So we're in escrow on a house that had a wild deed recorded on title years ago. The seller went to court and won a writ of possession, effectively clearing up the title in her name. However now that we're in escrow the title company will not insure until the wild deed is expunged; meaning they want it erased from title as if it never happened even though it has been overturned and title is in good standing. Seller wants to close asap, as she sold another house and is using proceeds from both to buy her replacement home. She's not willing to do the expungement (which is ridiculous, bc if she doesn't do it now she's just going to end up having to do it for the next buyer if we canceled). 

Anyway, without getting caught up on the details, I just wanted to ask some really experienced investors what kind of discount they'd want to justify buying a house without title insurance, and known past issues that have been proven false on title? 

The numbers are: PP 617k, rehab needed about 70k, ARV 850k. For me, these numbers are good for a flip, but they certainly do not justify taking the risk of no title insurance. I am requiring seller to expunge the wild deed so we can close, and I am offering to split the cost with her. But she's demanding I close now, as expungement will likely take 3-5 months and cost 5-8k (per our attorneys).

I have purchased a condo via quitclaim deed that was not insurable. It was worth about 100-110k as is and I bought it for 50k. I did a 20k rehab and the ARV would be 150-160k with clean title, and I think I could probably get 100k for it as is. So not a screaming deal, but not bad, and a small amount of money to risk on this. Plus I know the backstory, as I was on the board at that HOA, and I know the chances of the former owner (he's in his 80's if he's still alive and left Hawaii a decade ago) are extremely slim.

Having said this; I'm considering telling my seller I would take similar terms.. about 50% off retail, so around 400k maybe to buy the house as is and take on the expungement myself. 

Thoughts?

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Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
5y

If your attorney's are sure the expungement would take then insure with exception, close now at some discount and escrow the 5-8K to reimburse? Not sure I see 50 cents on the dollar for a solvable problem. You probably know more than I do though.

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  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    5y

    You seem to have quite a bit of knowledge in this area. Clearing clouded titles seem to be in the ongoing challenge for serious investors. I’m all ears to hear how this turns out. :-)

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  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    If your attorney's are sure the expungement would take then insure with exception, close now at some discount and escrow the 5-8K to reimburse? Not sure I see 50 cents on the dollar for a solvable problem. You probably know more than I do though.

    2Reply
  • Account Closed
    Flipper/Rehabber · New York, NY · Member since 2019 · 340 posts · 122 votes
    5y

    Wouldn’t you have the same issue selling your property after it’s flipped without the insurance? Unless it’s a deep discount I would leverage that for sure.

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  • Greg GaudetPro Member
    OP
    Investor · Pukalani, HI · Member since 2017 · 413 posts · 291 votes
    5y
    Originally posted by @Jonathan R McLaughlin:

    If your attorney's are sure the expungement would take then insure with exception, close now at some discount and escrow the 5-8K to reimburse? Not sure I see 50 cents on the dollar for a solvable problem. You probably know more than I do though.

    I thought about that, so I asked. But the attorney can't say for sure (you know, we got the typical attorney answers - "it depends" lol). I think it's a very strong chance.. but you never know what the judge might decide. I'm confident we can complete the expungement after closing if needed, but it's certainly not something we're going to make a 617k bet on. We need a huge discount to assume that kind of risk.. even if it's a small chance, the consequences would be catastrophic. Also keep in mind, the wild deed is only the current problem... if we close w/o title insurance we are fully exposed to any other title issues or any other wild deed issues that could arise. 

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  • Greg GaudetPro Member
    OP
    Investor · Pukalani, HI · Member since 2017 · 413 posts · 291 votes
    5y
    Originally posted by @Account Closed:

    Wouldn’t you have the same issue selling your property after it’s flipped without the insurance? Unless it’s a deep discount I would leverage that for sure.

    Sorry I should've clarified about that part - if we buy it w the cloud then we will plan to complete the expungement after closing. Then the title will be insurable for us to resell. 

    But yes, there is a chance, a very slim chance, that we fail at expungement. In which case the only way (that I know of) to clear the title would be to somehow let it go through a judicial foreclosure...

    I wonder how much trouble you can get in for having a friend put a note on a property, with the intention of having him foreclose and quitclaim the property back to you? lol Actually I just realized.. depending on the legality of it, that might be a way to clear title on the clouded title condo I own.. it'd be worth the 10k for the foreclosure because it would add like 50k in value haha I'm gonna have to ask my lawyer about that one! 

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  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    5y

    I've never seen a case where a validly recorded document, wild or not, has been expunged from the record and I've never seen nor heard of a title insurance requirement for an action to expunge a document of record.  This situation sounds like a textbook case for a quiet title action.  You wrote the seller obtained a writ of possession and I believe possession is a far cry from a final judgment quieting the title in the seller's name.  Did you receive a commitment from the title company for your purchase?  If so what is the specific requirement addressing the alleged outstanding interest?

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  • Greg GaudetPro Member
    OP
    Investor · Pukalani, HI · Member since 2017 · 413 posts · 291 votes
    5y
    Originally posted by @Peter Walther:

    I've never seen a case where a validly recorded document, wild or not, has been expunged from the record and I've never seen nor heard of a title insurance requirement for an action to expunge a document of record.  This situation sounds like a textbook case for a quiet title action.  You wrote the seller obtained a writ of possession and I believe possession is a far cry from a final judgment quieting the title in the seller's name.  Did you receive a commitment from the title company for your purchase?  If so what is the specific requirement addressing the alleged outstanding interest?

    Thanks Peter. I wish I knew more. I've never heard of it either, but I checked with another title company I work with and they also said they'd require expungement. 

    This may sound dumb, but I always thought of a writ of possession and/or ejectment as an eviction. I just assumed that the seller was issued a writ as the result of a quiet title action (as I don't have experience with quiet title actions, so I don't know what form the judgements would come in); because what other type of action would her attorney have taken to resolve the wild deed? 

    Yes, the condition listed on the commitment from title states: 

    "Release of record an Order from First Circuit Court of the State of Hawaii to expunge Exception No(s). 7."

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  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    5y
    Originally posted by @Greg Gaudet:
    Originally posted by @Peter Walther:

    I've never seen a case where a validly recorded document, wild or not, has been expunged from the record and I've never seen nor heard of a title insurance requirement for an action to expunge a document of record.  This situation sounds like a textbook case for a quiet title action.  You wrote the seller obtained a writ of possession and I believe possession is a far cry from a final judgment quieting the title in the seller's name.  Did you receive a commitment from the title company for your purchase?  If so what is the specific requirement addressing the alleged outstanding interest?

    Thanks Peter. I wish I knew more. I've never heard of it either, but I checked with another title company I work with and they also said they'd require expungement. 

    This may sound dumb, but I always thought of a writ of possession and/or ejectment as an eviction. I just assumed that the seller was issued a writ as the result of a quiet title action (as I don't have experience with quiet title actions, so I don't know what form the judgements would come in); because what other type of action would her attorney have taken to resolve the wild deed? 

    Yes, the condition listed on the commitment from title states: 

    "Release of record an Order from First Circuit Court of the State of Hawaii to expunge Exception No(s). 7."

     I'm at a loss Greg.  I believe generally expungements relate to criminal records not recorded docs.  I'm not sure what the basis would be for an expungement.  I'd probably ask the title company if they'd accept a deed from the Grantee on the wild deed to extinguish the cloud on title.  Of course then you'd have to track down the grantee and get a deed though I've done it several times and didn't have much difficulty.  The most frequent problem I had was where they're dead, then you have to hope there's been a probate and you get a deed from the heirs and/or beneficiaries.

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