Do you need to know if the title is clear? Do you have that as a contingency in your offer to buy contract?

Question

I am educating myself like crazy right now. I plan to begin my business wholesaling houses. I am currently watching Steve Cooks wholesale DVDs that he did in Long Island a while back.  But I don't quite understand about Titles.  I know he recommends finding a good title company with experience.  But my question is about when you are making an offer to buy.  He emphasizes not using "Weasel Clauses". I understand that part.  When I went online to find sample offer contract forms, one included a clause that the seller must provide proof of marketable title.  Is this necessary? If the title company finds out there is a lien or something, am I still obligated by the contract if I have not added this clause?  Thank you all for any responses.
Linda

J Scott · Answer

If the contract doesn't indicate that clear ("marketable") title be a precondition of the sale, you risk losing at-least your earnest money if the title is clouded and the seller refuses to clear the liens.  If you assign the contract, your buyer takes on this risk.

I would never accept a deal where there is no requirement for clear title, unless I had already done a title search myself and ensured that any liens were factored into my analysis.

Demetrus Gibson · Answer

Hey guys
I have a contract that has been signed recently. I plan to do an assignment, but the contract I used has the 
"Assigns" clause but not the "marketable title".

Will that affect the deal this particularly time?  I plan correct that on the next deal I do.
Thanks for your feedback

Steve Babiak · Answer

Seems most of your other questions have already been addressed, leaving the one being quoted here.  You should see whether the proceeds of the sale that are to go to the seller would be sufficient to pay off whatever is found.  This is what typically occurs.  The seller just ends up netting less because they had to cover liens that had to be cleared.

Ibrahim Hughes · Answer

Linda I would suggest, as a wholesaler (and investor in general) that you learn to do your own title/lien searches. Yes you will still order a professional title search in the end but you still will want to know that a title is clear of issues BEFORE you pick up the phone and call your investors. This is generally a policy of mine. After I get a verbal acceptance of my offer (and verbal confirmation from the seller that there are no mortgages or judgments against the property) I usually do my own title search to make sure.

The reason being is that I buy a lot of free and clear properties, with some passed down to heirs.  Often a house is supposed to be free and clear but there might be an old mortgage that no one knew was there and now needs to be discharged before you and your investor can close.

I and another investor I know (separate transactions) just ran into that within the last 2 weeks. I'm trying to close on a rehab deal I'm buying and an old 1987 Howards Savings Bank mortgage pops up. I was supposed to do a lien search when my offer was accepted back in November and never did. I was THEN supposed to view the title report when my attorney sent it over to the seller's attorney a month later but I never requested it. The seller's attorney was THEN supposed to talk to their client about it and never did. So now we have a complete breakdown of communication and we're facing a foreclosure with the clock running down. Luckily I was able to get it discharged yesterday.

A friend of mine called me with the same problem with an old Champion mortgage (now defunct) lien that's holding up his closing. He's wholesaling it and already has the rehabber waiting to close. All of this is a good reminder that I need to follow the procedures I laid down when purchasing properties. If I wasn't my own boss I'd be in danger of being fired :)

So I suggest you learn how to do your own title searches as it gives you an opportunity to address and resolve issues before you bring your investors in. Not to mention it's a GREAT education in real estate.

Dion DePaoli · Answer

Like Jon said, it is a something you want to make sure you have and is generally in most standard contracts.  Be careful about the contract templates you download from the internet as they may not be so standard.  Perhaps find a real estate agent that will give you access to their standard state form contract.  Make sure you read the contract either way and know what it says and means so you understand the rules of engagement you are offering.

Jon Holdman · Answer

Yes "clear and marketable title" is very essential to a real estate transaction. This is a standard clause.  Without this clause you could perform a transaction and not really acquire the property.  Its essentially the difference between a quit claim deed and a warranty deed.