Why YOU (not just title company) need to look at title issues.

Question

I am writing this because I see so many post about Midwest properties and while mine was a rather easy (though still sot money) issues to fix not all of these situations will be.

Let me start with do you have your title company research things that are not (yet) public record. Examples could be, unpaid registration fees, water bills, and outstanding code issues. So if you are investing in cheap Midwest properties and lets says the water bill is 6 months behind, the property owner is responsible (intimately) for ensuring payment, and this would not show on title search but as soon as title transfer the utilities company discovers this and sends you the new owner a bill. Maybe you could fight and win that's another post, but you either pay with time or money (maybe both). Title company did its job so title insurance wont cover it. So I now call city utilities and neighborhood code to make sure of no outstanding issues, or make sure they are paid at closing. A code violation may exist but you not know because they are within the window to fix it and instead selling it. Now in IN they are required to disclose, but sometimes the bigger sucker theory applies to low dough houses.

I will briefly explain that in general a title policy does not cover items not of public record. Below is a cut sample of a title policy. Full disclosure, I am not a attorney nor giving legal nor financial advice, just some lessons learnt. So to Recap I cal (not title company) neighborhood code and water department to check for issues. If their are issues I make sure seller will remedy them either before or at closing, because if its not yet public record them insurance wont cover this. Happy Investing in 2015 hope this helps someone save some headache.

3. EXCLUSIONS – RISKS WE DO NOT COVER

You are not covered for any loss or damage of the type(s) listed below. We will not pay any loss for these matters. Also,

we are not obliged to pay costs, legal fees or expenses for these matters.

3.1 General risks which are excluded.

Risks which:

(a) cause you no loss or damage;

(b) you create, allow, assume or agree to at any time;

(c) arise because you did not pay full value for the Land;

(d) are known to you, but not to us;

(e) occur, come into existence or appear in Public Records after the Policy Date, other than those risks insured under

Clause 2.2;

(f) arise out of or relate to any business activity.

2.2 Risks occurring after the Policy Date

We insure you against the following Covered Risks only if the circumstances creating or giving rise to these risks occur

after the Policy Date.

Forgery, fraud and mistake

(a) an instrument is registered or otherwise recorded by which someone else claims to have an interest in or an

encumbrance, charge or lien on the Title to your Land because of;

(i) an act of forgery, fraud or misrepresentation; or

(ii) a mistake by a title registry or a governmental or local authority.

Encroachments

(b)someone else builds a structure, other than boundary walls or fences, which encroaches onto your Land.

Guy Gimenez · Answer

It's imperative to review all schedules of the commitment UNLESS you're not sure what you're looking at or what can be done about it. For instance, in Texas, very few investors understand that they can and should object to all exceptions to coverage, as allowed by contract, not to mention it often provides a great avenue for termination of a contract when absolutely necessary...even up to closing. Like every aspect of the process from contract to closing...he who has the knowledge has the advantage.

Jeremy Tillotson · Answer

@Bill Exeter Reminds me of a time that 3 houses were sold in the same day at an auction a friend of mine bought 2 and I bought one, the title company was in a hurry to get closing done and gave me the deed to the wrong property, but thats a whole other posting. Luckily I knew they other guy so we fixed it ourselves and never used that title company again. Also relearned why I only use a certain title company that I prefer, and to read your closing docs no matter how rushed you are, it was only a 5k house so I wasn't too worried but still.

Joe Moore · Answer

More due diligence. Thank you.

Bill Exeter · Answer

I thought I would just jump in here first to congratulate you on the post. I am amazed at how many investors really do not understand the closing process, the purpose of title insurance, closing agents, etc. They are focused on the end result - buying real estate - but they miss so many of the important due diligence steps along the way. Here is one that might seem obvious, but can really prevent many headaches later. Ask to review a copy of the Deed that has been drafted BEFORE it is actually recorded to ensure that recorded legal title will be exactly how you instructed them to do. I have seen many transactions over the years where the title/escrow/closing company did not draft the deed correctly and it was not discovered until well after closing and recording. It can create a huge problem later in the investment cycle. I would always insist on reviewing and approving a copy of the draft deed before closing occurs.