Title Issue at Closing

[Lisa Shankus]

I was supposed to close on my 5th rental property two weeks ago. Less than 24 hours before I was to close I received a call indicating that the property didn't have a clear title. Apparently the seller sold the house on land contract to a couple in 2017. The seller went through the legal process of removing the couple but one of the tenants names was crossed off on the Judgment of Possession After Land Contract Forfeiture document and my title company wouldn't proceed. I gave the seller two weeks to figure it out and have now backed out of the deal. Unfortunately, I'm out the cost of the appraisal but will at least get the EMD back. How can I avoid this in the future and ensure the house I'm putting an offer in has a clean title? Not sure if it makes any difference but the seller's agent is his son.

[Chris Mason]

Originally posted by @Lisa Shankus:

I was supposed to close on my 5th rental property two weeks ago. Less than 24 hours before I was to close I received a call indicating that the property didn't have a clear title. Apparently the seller sold the house on land contract to a couple in 2017. The seller went through the legal process of removing the couple but one of the tenants names was crossed off on the Judgment of Possession After Land Contract Forfeiture document and my title company wouldn't proceed. I gave the seller two weeks to figure it out and have now backed out of the deal. Unfortunately, I'm out the cost of the appraisal but will at least get the EMD back. (1) How can I avoid this in the future and ensure the house I'm putting an offer in has a clean title? (2) Not sure if it makes any difference but the seller's agent is his son.

 (1) You can ask for a copy of the preliminary title report early in the transaction. That's still not 100%, far from it. At the end of the day, I'd consider the occasional wasted appraisal fee just a cost of doing business. This isn't the only thing that could have killed this deal, I've seen sellers decide to get divorced a few days before close of escrow, all sorts of stuff like that. Last month I had a listing agent die on me. For this latter type of stuff, all you can do is close fast, before the sellers have a chance have their big fight leading to the decision divorce, before the seller's uncle starts to insert his opinion on what it "should" sell for, etc.

(2) Often times Realtors do wonky things when it's immediate friends and family member. They think they are doing someone a special favor, more often than not it blows up in their faces. It's a known phenomenon, at least among my lender buddies and I.

This is directed at the Realtors reading this: there shouldn't be deviation from the advice we give our clients v the advice we give our family. That's the ethical bar we (myself included as a lender) should hold ourselves to. The reason you wouldn't tell an arm's length client to do a thing, is the same reason you shouldn't tell your fam fam to do it, and it's the same reason that thing isn't commonly done in the overall marketplace, whatever that "thing" is. And it's why 60% of "should I refinance to lower my payment $27/mo?" phone calls I get end with me turning the business away with a "no, it doesn't make sense, here's why."