$125 Title Search Fee Upfront? Is this the norm?

Question

Hi,

I tried to post this earlier, but I guess it didn't go through.  I can't seem to find the post anywhere. So I hope this isn't a duplicate post.

But anyway, I spoke with a young lady today at an investor-friendly title company here in Houston, TX today and she told me that I would have to pay upfront a $125 for title searches. If I close on a property then the fee would be given back to me at closing, otherwise they keep the money if I don't close on the deal.

I'm new to wholesaling and am working with very limited funds right now. I'm aware that a title search is not required, but in order for me to move forward with any deal, I'd definitely want to know what's going on with the property first.

Can someone please give me some suggestions on how to go about this? Should I contact other title companies or do they all work the same way?

Thanks!

J Scott · Answer

Title companies are going to do one of three things:

1. Charge you upfront for the title search.  This is very uncommon, but that's because most title companies don't generally work with investors, and new investors are more likely to back out of a deal and stick the title company with the bill.  So, any title company that specializes in working with investors will be more likely to ask for upfront title fees to avoid losses;

2. Charge for title costs at closing, but if you don't end up closing, they'll charge you anyway.  This is pretty common -- there are no upfront title charges, but if the deal falls through, the title company has done work and will still expect to get paid;

3. Charge for title costs at closing, and if there is no closing, the title company will eat the costs.  This is more common with closing attorneys that have repeat customers.  For example, my closing attorney will never charge me for deals that don't go through because most of them do and they're willing to take the risk that some won't.  Plus, they have an agreement with their third-party title company that they are only charged if the deal is closed, so if it's not closed, the third-party title company just eats the cost, so my attorney isn't out-of-pocket if my deal doesn't close.

It's up to you if you want to find another title company, but having one that specializes in working with investors is a nice benefit, even if it means having to pay title costs upfront.

William D. · Answer

Look at the $125 as a deposit. You said yourself in your post that, "[you] I definitely want to know what's going on with the property first." The majority of title issues are latent issues and would never be discovered by the average investor. It's not until the title company sends out a searcher or purchases a search that you will know  the state of title. This was a legitimate cost incurred on your behalf. It's no different than any other form of due diligence.

In the days when title companies and settlement agents were doing big volume this was not a big deal because they could afford to eat the cost of title if you backed out. In this new era of belt tightening these same entities are now working on tighter margins and are not willing to pay for title out of their own pocket only for you to decide that you don't want to go through with the deal.

I am not saying you cant shop and find someone who will not require the $125 upfront but to me it seems reasonable and if the title company is investor friendly it shouldn't be the single issue that is the deal breaker.

Lorenzo Baranos · Answer

The other posts do a good job of justifying the need for paying a reasonable fee for a title report on a property you are interested in buying at a foreclosure sale.  But, even with a title report, you need to know something about foreclosure law OR get the title insurance people to tell you if the mortgage being foreclosed on will result in the buyer having good, unemcumbered title.  Some title companies may not be willing to include that analysis for the $125.

I would add that there is a good chance you will NOT be the highest bidder on your first property and you will be out that money.  And, you must be careful that, having paid that fee, you don't let it influence you to bid higher than you originaly wanted to bid.

If you are wanting to get "into" buying foreclosures you must eventually learn how to do title searches and learn some foreclosure law.  That's because most of the properties of interest will sell at a price higher than you would be willing to pay.  If you're paying $125 for a title report on each one, you will be burning money quick.

Hoped this helped.

$125 Title Search Fee Upfront? Is this the norm?

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