When to do a Title Search?

Question

When do you perform a title search for a wholesale property?
First, I put a contract on the house from the seller.
Then, I assign the contract or double close with another investor.

Where in this process do I do the title search?  Surely, I or another investor would not want a contract on a property that doesn't have a clear title.

Chris T. · Answer

I guess I have the newbie wholesaler jitters.  I've bought and sold several houses over the past few years but I just focused on Owner Financing.  Most of what I already know applies to wholesaling.  I guess I just need a lot of affirmation, especially from the one's who are successful wholesalers.  After I get a few hundred assignments, and sub 2's under my belt I'll feel cool, calm and collected again.   :D

Ryan Webber · Answer

Just about any standard real estate purchase contract is going to have a requirement of clear and marketable title, so I don't think you really need to concern yourself with checking the title before you negotiate or put a property under contract.

If you can get title insurance on the property then the title would be clear for all relevant purposes, so I don't know why it would matter if your contractual obligations are not automatically eliminated.

I would not recommend a real estate expert to do a title search.  I would recommend a title agent who works for a licensed title company or if your state works through closing attorneys then a licensed and qualified real estate attorney.

Chris T. · Answer

Yeah I would like one.

Thanks!

Charles Whitaker · Answer

Yes, Chris.'

Said property is to be sold free and clear of all encumbrances, liens, etc

I forget the wording but really close to that. Do you not have the standard investor purchase agreement yet? I have seen so many people lately, all with the same contract in hand. Need one?

Chris T. · Answer

Can't you just add a condition in your contract that states that you are buying subject to a clear title?

Salvatore Giovanni · Answer

There are a bunch of legal issues involved in any transfer of real property. I think one of the biggest misconceptions that people have relates to the process of "title search" and "when to do a title search". I always would advice that a title search be done by a knowledge individual in real estate law before signing any contract. A person should really know what he/she is bargaining for before entering into contractual obligations.

I have seen to many people stuck in a bad position having entered into a contract before a title search and sometimes even without any title search at all. While title insurance is great and all, it does NOT automatically eliminate everyone from their contractual obligtions!

So to answer your question, get an experience real estate expert (non-generic personnel who will not make mistakes) to do a title search before signing anything.

Chris T. · Answer

Thanks Ryan.  I justed added this to my BOOK of notes.

Ryan Webber · Answer

Well not exactly, Chris.  Whenever you sell a property the buyer's lender will require a title policy.  Now whether you pay for it or the buyer does is negotiable.  In Texas, at least, the seller normally pays for it.  
            
On an assignment, if the seller is paying for it then you're covered, and if you communicate to the buyer upfront that they have to buy it then you're covered also.
            
The issue of having to pay for it arises when you are doing a double closing or if you are actually buying the property and then reselling it.
            
With a double closing, if the seller is paying for the title policy, then you can do a title premium pass through.  This is where you would only pay for the policy amount on the difference between what you are buying it for and what you are selling it for.  Some title agents are not comfortable with this and you would need to discuss it with them beforehand.  If the seller is not paying for it, then you would need to let the buyer know upfront that they will have to pay for it or you would need to pay for it in full.
            
 If you are buying a property that you are planning to resell a short time later, then there's another option.  You can have the title company just do a title search on the property when you buy it, and then actually get the title policy when you sell it.  There is some risk to this.  If the title company misses something on the search when you are buying it but finds it when you are selling it, you are going to have some major problems.  Keep in mind that title companies are very good at what they do and the odds of this are slim, but it is a possibility.

Now, the reason I start title work immediately on every property is because on several occasions I've already had the property sold and I find out there are title issues.  My buyer ends up getting strung out for weeks or longer, and they end up with a bad taste in their mouth.  I want to know ASAP so I know I'm not wasting my time or my buyer's time.

Robin Vidovich · Answer

For straight up deals that I believe don't have issues, the title is done only after the contract is assigned in preparation for the close at the title company.

Robin

Chris T. · Answer

Thanks guys.  There is a title company about two doors down.  I will build a relationship with them to find out everything I need to get a title search done quickly.  I really need to learn how to do a title search myself.  That would save me a lot of money!