The Right Title Company

Posted on October 30, 2013 by

When discussing investment real estate everyone focuses on finding deals, locating financing, remodeling, selling, etc. Few people speak about the importance of a title company. Not only do you need a title company that closes real estate transactions but that closes investment real estate transactions. Most people believe that any title company will close any transaction but that is not true. Title companies will usually only close transactions that they are comfortable insuring. They are also able to only close transactions that their underwriters will approve.

Opening escrow at the wrong title company can cost you a deal. When interviewing a title company you want to know if they close investment real estate transactions. Also, make sure they will close an assignment contract, double assignment contract, a double close, a wrap, a subject –to, etc. Surprisingly, title companies that do not deal with real estate investment type transactions may not be aware of what some of these are or how to close them. All the transactions mentioned here are fairly similar with settle differences that can allow one title company to close and another title company to not close. Of course, you have to do your part and make sure the contracts are in order. 

Closing an assignment consists of a home owner contracting a property with a “buyer” who then assigns his/her contract to the same property to the actual buyer for a fee. When you assign a property, the seller is aware you may assign it because it must be in the contract giving you permission to do so. However, they are not aware of the fee you are charging the actual buyer for the assignment of the contract. If the assignment fee is high, there may be issues at closing if the seller sees the amount that could have been theirs. To avoid this issue, you can request the title company prepare a split HUD. A split HUD shows the seller’s and borrower’s/buyer’s their respective costs/profits. In other words, the seller sees what he/she is taking away from the transaction but does not reveal the first “buyer’s” profit. Some title companies will only use the traditional HUD you see on most transactions. As you can see there are a few moving parts. Now add another assignment to the original assignment and most title companies will not close.

How about a double close? Most title companies will say no immediately but that is because they still think it is illegal. Yes, title companies will actual say it is illegal while the title companies down the street closes them religiously. To be clear, a double close is when a property is sold from A to B and B then turns around and sells it to C. Keep in mind that B must fund and close the first transaction before selling to C. In some counties the deed is recorded electronically and a recorded deed can be provided as proof that the A to B closing has taken place. Other counties or states like, Georgia, do not record deeds electronically. The county still waits to receive the signed deeds from the closing to record it. This can take days or weeks.  As an investor you do not want your funds in limbo for that amount of time. Title companies in these counties may allow the B to C closing with a copy of the A to B HUD and signed but not recorded deed. Make sure you know your title company’s procedures before closing a double close. Imagine doing a double close with transactional funding only to discover your profit is going to be eaten up by financing fees.

Now a wrap and a subject-to is another story. These closings may or may not qualify to close with an owner’s title policy, depending on how you structure the deal. In addition, these transactions require plenty of disclosures. Make sure the title company/attorney you go with has the proper documents to protect you and the seller.

In the end, you may have done everything correct but having the wrong title company can ruin even the simplest of transactions. When you find the companies that provide everything you need to close your transaction, you now need to judge their execution and customer service. Keep in mind that the title company will be dealing with your clients and you want to know that they are in great hands. The right title company will make the transaction smooth and easy which will make you look great and the buyers and sellers will be knocking on your door. 

Michael VazquezMichael Vazquez has been offering properties to real estate investors significantly below market value since 2006 in both Texas and Georgia. Michael taken on projects starting with just 4 brick walls (literally) to managing his own rental portfolio. When it comes to investing in real estate he has done much more than many twice his age. Michael is always looking for more investors to work with.

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