@Peter Walther, “Sounds like a conspiracy to defraud the son & daughter of their inheritance.”
Seems to me that thinking is backwards. It is investors like Blaine Alger and I who actually preserve the heir’s rights for multiple years beyond the time that counties would foreclose and sell the property out from under the heirs. It is the local counties which deprive (conspire to defraud) the heirs of their inheritance. The county will file a notice of default for unpaid taxes within a time much shorter than an investor requires to obtain title without going through probate. Counties merely send notice of their intent to foreclose for nonpayment of taxes, to the deceased at his/her last known address. The counties do not assume responsibility to notify the deceased’s heirs that their inheritance is being foreclosed. An investor, like the deceased's brother in this case, who comes along and pays the taxes, even with the intent of eventually acquiring the property through adverse possession, preserves the heirs rights in the property for multiple additional years. Here the brother has no title to the property but he has preserved the son and daughter's interest, well beyond the time the county would have foreclosed against them, -if he hadn't paid their taxes. Investors like me typically preserve these properties from waste and dereliction as well. Would you rather enrich the county at the expense of rightful heirs who are unaware of the status of their inheritance.
“based on thirty years of doing title insurance claims and underwriting, I think you don't have a snowballs chance of getting a deed from the brother insured,” Yes Peter. That is true. However, even without an insurable title, Blaine can collect monthly rent while waiting out the two years remaining on the 5 year period of Adverse Possession. He can then ask a court to award title to him. Title awarded by a Superior Court would be insurable.
“Can you adversely possess against a dead person or against someone who doesn't know they are entitled to the property i.e. the kids?”
Yes. The adverse possession is against the heirs, whether they know they had an interest in the property or not. The law does require that the heirs be notified of Adverse Possession suit, either by personal service if they can be found, or by publication in a paper of record if they cannot be found or are not known. Happens all the time.
“The OP also posted the property has been vacant for years so that's kind of a stumbling block to claiming adverse possession.”
True. It is more difficult to claim adverse possession of a vacant property. However, paying the taxes, maintaining a property, and excluding others can be sufficient continuous use, and this element would only be at issue if someone responded to the OP’s Adverse Possession suit (not likely). But even then, another few years of collecting rent on the property would be all that is required. More years of cash flow coming in.
@Blaine Alger “I don't know why but quiet title (quit claim deed) does not seem to be that popular in Texas so I need to do some more research to see what the down falls of it are.”
Title companies avoid Quit Claim Deeds because such deeds complicate the Title Company’s job. Note, that Title Companies do not get to decide whether they will recognize a Quit Claim Deed. Once a Deed is recorded by the county, it is recognized as a claim on the property. What the Title Company decides is whether it will guarantee that the Quit Claim Deed transferred some or all title. Title Companies either provide a guarantee -or not. A Quit Claim Deed transfers all rights that the signer has in the real estate, but it provides no assurance that the signor has any rights in the property at all. Since, a Quit Claim Deed is essentially the signer saying he/she won't guarantee the condition of the title, Title Companies have a strong preference for avoiding them.
If you intend to get a loan on real property, or to promptly resell a property at full market value, then having a guaranteed title is almost essential. However, if your goal is simply to make a profit, then learning to work with clouded titles and partial interests can be a wonderfully profitable niche. Clouded title and partial interest scenarios are plentiful and avoided by the common investor. Many do not realize it is possible to use a property as collateral for a loan, and to sell the property -without clear title. Just requires your will and modest creativity.
Seems to me that you were on exactly the right track when you made this comment, “the learning experience alone is priceless and if I can somehow figure out how to close deals like this in the future, then I will have the ability to close deals that other investors wouldn't even touch with a 10 ft poll.”
Did you notice that multiple replies have suggested that you should move on because there may not be enough equity or because obtaining an insurable title is likely to require too much time? It is my view that the property needs only sufficient value. I would not focus on equity (the amount the market of the property is greater than the debt secured by the property). At this point, any debt remaining on the property is not likely to need to be paid. Instead, I’d focus on how to profit from the value of the property even though no one has clear title. If you are making a profit every month, for multiple years until you can obtain an insurable title, isn’t that better than walking away?
Again, there are many ways, there is always another way, and there is always a better way. But (1) one way to get this deal done, is to get the brother to sign over all of his interest, if any, in the property (via a Quit Claim Deed). Then take over the brother's current possession of the property and start using it as if it were your own. If the brother demands more cash than your comfortable paying now, then (2) propose a contract specifying that you’ll pay him more when you get clear title in 2-5 years. Or (3) offer to partner with him until then.
Once you get possession of the property -rent it out. You don’t need to put any more money into it. Put an add in Craigslist, Nextdoor, Facebook Market, etc, advertising a “fixer” available at reduced rent for someone able and willing to repair or improve it. You’ll get more responses than you can handle. Then collect a deposit and rent from your best new tenant candidate. Just be sure you don’t claim to own the property -until you actually do. https://www.biggerpockets.com/member-blogs/12388/86773-renting-real-estate-without-the-owners-consent-isn-t-that-fraud
To enable necessary repairs, you can choose to let your tenant use some or all of the rent for the materials needed to improve the property, so long as the tenant provides his/her own labor. The tenant will think you’re being generous, while you’ll be getting free labor. Most tenants enjoy improving their home, and it makes them more likely to want to eventually buy it from you.
It really is that simple. Keep collecting rent and eventually clear the title at your leisure as described by
@Jerel Ehlert “Brother's claim to title is under adverse possession, but he hasn't fulfilled the minimum requirements under Texas' Civil Practices and Remedies Code (CPRC) (see, Sec. 16.024 et al.). Paying taxes and maintaining the property are elements of the 5-year SoL under Sec. 16.025.” … “In the end, either the Brother will get legal title or reimbursed what he shelled out + 10% of the estate.”
When you’ve completed the time necessary for adverse possession, file your action to Quiet the Title in your name, or in Texas file your “statutory cause of action called Trespass To Try Title (TTTT)”. You can file that action yourself -in a case like this your suit to acquire title is most likely to be uncontested. Once you’ve done one, it is so much easier to do again. Or, after collecting rent for a couple years hire an attorney, like Texas Attorney Ehlert to guide you through the TTTT process.
“… what would happen if one of the heirs came in and tried to assert their claim on the property?”
You would welcome him or her with open arms and appeal to their better nature! You would describe the things you did to find them and how you have preserved their inheritance. You would tell them how you and the deceased’s brother paid the property taxes every year to prevent the county from foreclosing and maintained the property to prevent waste and dereliction. You would tell them there is even a tenant paying rent on the property. If the long-lost son or daughter demands possession, you would ask for thirty days, to get the tenant out, and notify the tenant.
If the son or daughter does not want to work with you, tell them you understand. Then give them a full written accounting of what they owe for all the expenses, taxes, property maintenance, and sweat effort. Offer to return possession of the property to them as soon as you get the tenant out, which you’ll initiate as soon as you are reimbursed for your reasonable and necessary costs of preserving their property. Note that in most states, a non-owner will be repaid only for necessary maintenance but not improvements).
You should also have figures handy (from your Attorney), regarding what the long lost son or daughter will need to pay in order to probate the property as described in Jerel Elhert’s second option; “Next best claim is Brother (or you if you’ve bought the brother’s interest) appointed as administrator for deceased. He can then recover his taxes paid, improvements/maintenance, sell the property, and get paid 5% of all money received and paid. Money will likely go to the registry of the court if/when they make a claim.”
A late appearing heir, faced with the responsibility for paying $ thousands in well documented past due expenses, and faced with additional thousands in likely legal proceedings to get clear title to their inheritance, may very well be willing to Quit Claim his or her own interest in exchange for a modest but reasonable payment from you. Alternatively, you could partner with this late appearing heir and proceed to wait out the period of adverse possession as before.
