Early Issue Title Insurance: Why You Need Every Invoice & Legitimate Contractors

[Dan Gandee]

Hi Fellow Flippers, 

Just wanted to drop a note here because my team works with a ton of rehab investors throughout the State of Oregon. 

Time and time again we see flippers who are cutting corners, hiring unlicensed contractors, and don't have a paper trail from their projects.

Why is this so important? Because most title companies need to notify the lender (of your end buyer) that major work has been done to the house in the last 75 days. 

"Early issue title insurance is a type of title insurance policy issued before the final closing of a real estate transaction. It provides protection to the buyer or lender against potential title defects, liens, or ownership disputes that may arise before the official transfer of ownership. This type of policy is commonly used in new construction projects, fix-and-flip investments, or transactions where title concerns need to be addressed before completion.

Early issue title insurance helps mitigate risks by ensuring that any unforeseen title issues do not delay or disrupt the transaction. It may also allow investors to secure financing or begin renovations with confidence, knowing the property’s title is insured up to a certain point. However, full title insurance coverage is typically issued upon the final sale and recording of the deed."

This leads to Early Issue Title Insurance being a requirement of the buyer's lender, leading to higher closing costs for the buyer and the seller having to document the following:

1. A list of all licensed contractors (and/or handymen/women) who worked on the project or property

2. The contact information for all contractors so that the title officer can call each and every contractor to verify payment

3. Preliminary title report showing that no liens have been filed against the property before it can close.

So what are your next steps to protect yourself and not have closing delays? (Time is money in this business)

First - Keep a running list of every contractor that comes to the property and their first name, last name, company name, website, email address and phone number. Create a Google Drive folder for your project and put a sheets document together with this information. Once they are completed with their portion of the project, then collect an invoice and receipt of payment. Document all of this on your project payment spreadsheet. 

Secondly - Have your attorney or someone who knows how to create legal documents draft the following: Lien Waiver or Release of Lien. This document is signed by the contractor, subcontractor, or supplier after they have been paid in full, and it legally waives their right to file a mechanic’s lien against your property for the completed work.

There are two main types of lien waivers:

1. Conditional Lien Waiver – Becomes effective only when payment clears (use this if you’re issuing a check or waiting for a transaction to process).
2. Unconditional Lien Waiver – Takes effect immediately upon signing, meaning the contractor cannot later claim unpaid amounts and file a lien (use this only when you’re certain payment has been fully made).

To protect yourself, always require a signed and notarized unconditional lien waiver after making final payment. You may also want to use progress waivers at each stage of the project to prevent unexpected liens from subcontractors or suppliers.

Third - Be prepared to chip in on closing costs for the buyer and mention the early issue title insurance in the private remarks when your broker lists the property. This way the buyer doesn't feel like an added cost is unexpected and at fault of the seller who is turning over the property to them with potential liability. I also advise my clients to provide a Home Warranty to provide a second layer of peace of mind for the buyers. If it's new construction, a one year home warranty will be a requirement anyways. 

Lastly - No matter how much money you can save, don't hire unlicensed contractors who will fail to provide you a paper trail and will want to be paid in cash. You will be performing mortgage fraud by not including them on the list of contractors who worked on the property when the title company asks for the list of contractors. Keep things above board and hire people who have good accounting and communication. Nobody wants to have to track down subs and contractors who don't return calls from the title company. 

From time to time, I will see brokers list in the private remarks - "The property can't close until X date unless the buyer wants to pay for early issue title insurance. " This may be an option for you but TIME IS MONEY and why lose potential buyers or offers by creating roadblocks to your flip project. By following what I have outlined above, and notify the contractors you are hiring that that title company may call to verify payment, you get in front of the problem vs. being last minute reactive to the situation. 

Happy Flipping. 

[Jay Hinrichs]

Quote from @Scott Mac:

Quote from @Dan Gandee:

Excellent comment - So that is the responsibility of the GC we put on the project and it's in his contract with me (or my clients) that he will ensure that all accounting and lean releases are completed. We can't guarantee past our GC that the sub's employees are paid so we rely on hiring a good GC that has reputable subs, contractors, and not a bunch of cash workers. That is a great point. As you can never truly be protected other than making sure it's in the contract with your GC who is doing the project. 

 And if something pops up later such as unpaid material man, or a couple of subs who received no payment and did not provide lean releases- do you go after the contractors bond money after filing for a court order to do so?

In Texas an unpaid sub can put a lien on a property, sometimes as late as 4 months after the project finishes?

PS this is how I became a home builder in the first place I had funded a GC who controlled the payments and of course in the GFC he did not pay.. I was also on the construction loans.. I had to protect my bank whhile he went broke so I ended up paying for a few subs twice.. Once to him and he stole the money and once to the sub to remove the lien. At that point I realized since I have the money and I really take all the risk compared to ANY GC I am just going to control the process all the way through.. So here we are 500 new builds in Oregon later ..
But I am never the GC  just the money and control the money