Title Search Tips?

Question

I've found a property that i'd like to use for personal use. Its a vacant lot that hasnt had anything built recently, however this area has alot of history dating back to the early 1800's. The houses nearby was built in the early 1900's.

Anyway I was thinking i would go down to the county recorders office to save some money on a title search and get my feet wet so to say. Anyone have any tips or other places i can look up information? The reports i can get right now only go back to the 70's as far as owner history goes however i want to go deeper, all the way back to the 1800s if i can.

If the title is good i'll send out my first yellow letter and cross my fingers. The property has been for sale before but taken off the market so i think i'll have a good chance here.

Seth Williams · Answer

Ryan Watson - a special warranty deed is where the seller guarantees the title only against problems or defects that may have come about during the time of their ownership.

i.e. - If something went horribly wrong during the years that they owned it, they would be liable - but if something went horribly wrong 10 years before (or after) they owned it, it's not their problem.

Does that make sense?

Seth Williams · Answer

Hi Ryan Watson, I agree with Shawn H. that you should wait until you actually have a committed seller before you go through all of this work.

Searching a property's title actually involves quite a bit of working knowledge and know-how. You need to understand exactly what you're looking for in various deeds, covenant restrictions, liens, mortgage, etc. When I learned how to do a title search, it took me a long time to learn this stuff (and I still only understand about 90% of it).

The only time I'm ever able to justify doing my own title search is if the property is really cheap - so cheap that a title insurance policy is overkill ...and these kinds of properties are usually a waste of time in the first place (depending on where you're at financially).

Shawn H. · Answer

In my opinion, you're suggesting doing way too much work prior to knowing if the current owner is interested in selling.  My first exercise would be to simply find the name, address, and phone number of the current owner.  I'd send my yellow letter from that alone, and I'd call if I could find a good phone number.

The title search is a waste of time until you know you have an interested seller.  I'd wait until I had a signed contract to do the title search, and then I'd let a title company / title attorney / closing agent do it.  The title companies/attorneys have tools to help them get a complete picture of title.  Doing it yourself properly is a huge hassle and you could easily miss something.

I've learned to use professionals and spend my time finding buyers/sellers/investors/properties.  This is definitely one of those times where you want a professional when the time is right -- once you have a signed sale contract.

Good luck!

Ryan Watson · Answer

the second question is from a property detail report. it shows the lot value and improved value to show a total cost of the house by the tax assessor. then a little further down the report it mentions the tax and weather or not there is a homestead credit and whatnot

Seth Williams · Answer

Well, an oil tank would be an environmental issue, not a title issue (for the most part) - and the severity of the problem (and how much you actually need to worry about it) has a lot to do with how the property is zoned (commercial or residential) and what your state's environmental laws are (this all leads to an entirely different conversation from the one we're having about the title).

I'm not sure about your second question because I don't know the context in which you're hearing those terms.

Ryan Watson · Answer

yes. So would an example be like if there was an underground oil tank discovered after the special warrenty deed holder sells the property he's not liable?

Also little OT but whats the differance between Gross Tax and Net Annual Tax? Would this be after your personal deductions?

Ryan Watson · Answer

thanks seth. i was looking at another property around the block from the one i have in mind and this owner has a special warranty deed. whats that?

Seth Williams · Answer

Title insurance is a written policy (which can be subject to some exceptions) which guarantees that you have a clear title to your property. A title company will perform the search for you, so if there is a problem, they are expected to catch it. In these cases, the seller will have to fix the issue BEFORE you can get your final policy.

Any lender who is financing a property (and taking it as collateral) will require this - so if you're planning to sell this property to someone who will need financing to purchase it, you'll want to be sure that the title is clear ahead of time (because if you don't catch the issues, someone else down the line will).

On the other hand, if this is a rinky dink property that anybody can pay cash for (thereby keeping lenders out of the deal), you could probably get away with doing a simple title search IF you actually know what you're looking for, and how to identify problems. This is exactly what I did when I was starting out, simply because I was so tight on cash in those days and needed to conserve capital at every opportunity.

If you do decide to perform your own title search, just be sure that you're getting a Warranty Deed from your seller, and that you're issuing a Quit Claim Deed when you sell the property to your buyer. Generally speaking, this will keep you clear of any liability if there does end up being a title issue that you didn't catch.

With a Warranty Deed, the seller is giving their “Warranty” (i.e. – Guarantee) that the title to their property is clear and that the buyer will receive all rights to the property (subject to any prior restrictions). When you're selling properties, you should only sign this type of deed if you know for a fact that the title to your property is clear of any liens or encumbrances. If you’re not certain about this, don’t use this kind of deed (i.e. - don't make promises when you're you're not actually certain about a thing).

With a Quit Claim Deed, the seller is offering absolutely no warranty of any kind with regard to the title on the property. By signing this document, the seller is simply saying, “Whatever interest I may have in this property (if any), I am now transferring it to the buyer.” It provides no guarantees or promises about a clear title. If a buyer is willing to accept this, they should really be doing their homework to ensure that they know what they’re getting.

Note: In my experience, the average person has no idea what the difference is between these two documents – but as an investor, this is a distinction that you should definitely be aware of.

Ryan Watson · Answer

im looking to offer under 5000 for the property. So what exactly is a title insurance policy? Its not a monthly bill is it?

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