How quick can I quit claim

Question

Is it a good idea to: purchase a property using a hard money loan (18 mos terms), then use a quit claim to flip it to another investor before the 18mos is up? What are the risks in this? Is it even possible? How soon after closing am i allowed to assign my rights over to another party?

Christian Carson · Answer

Bill G. I don't necessarily "like" quitclaim deeds more than warranty deeds; however, from a liability standpoint, as a seller you will always prefer to make a quitclaim deed. A warranty deed exposes you to some liability if you miss some kind of encumbrance on the property down the line (even years and years away), but a quitclaim deed does not give the buyer any recourse if title, as conveyed, was flawed. A standard arms-length transaction involves a title search and the execution of a warranty deed. The title examination industry relies on this procedure, as it makes the job harder if the chain of title includes lots of quitclaim deeds. In days of yore, the buyer would demand a warranty deed, which would prompt the seller to do a title search. For practical purposes, any arm's length transaction ought to involve a title search/title insurance, which would enable the seller to execute a warranty deed. If the buyer doesn't ask for a title search/insurance, chances are good that s/he is either very risk-tolerant or inexperienced. If I were making such a transaction, I would do it right and get a title search done.

Shara Carlton · Answer

@Bill G., Thanks for that advice. Sincerily

Bill Gulley · Answer

Well, thanks to the techno gremblins I lost a fairly long reply! Chris C., thanks for your greater insight. Practically speaking using a QCD for a sale is difficult since lenders will require warranty, title insurance may require warranty in closing as standard purchase agreements require warranty and merchantable title, I certainly agree it limits liability in the chain, such may not always be avoided. I'd say you are giving very good advice as to search. I'd bet too that many investors are unaware of thier "forever" liability of exclusions in thier title policy shown on Schedule BII of a standard policy. Shara, every foreclosure was in a pre-foreclosure status, if you make your ability known to lenders that you can assist a distressed borrower they may work with you by suggesting the owner talk to you....gotta have your stuff together. You won't find p/fs by driving for dollars. :)

Shara Carlton · Answer

Arktavious Sally, My exit strategy is, of course, to sell the property. However, I guess what I'm trying to do is create a twist to this wholesaling thing. I have found that, in my area (Chicago), there are no homeowners out here that are in the pre-foreclosure process. If you come across an abandoned house, it has either been already foreclosed on or has already been snatched up by other wholesalers. I have also noticed that MLS properties are selling at pretty low prices. So, what I was thinking of doing is getting an HML for the purchase of a foreclosed property through an agent and then quit claim it to an investor for the amount I put down + some kind of profit (maybe only a $1000 or so, I'm not trying to get rich, I just need extra income). Then it will be up to the investor to rehab and sell it at market price by the time the balloon payment is due (hence the 18mo terms). The monthly payments wouldn't be too high because I don't plan on purchasing anything over 20-25k. Its just that I know that I wouldn't be able to keep up with the monthly payments + rehab+ other stuff with my current income. Furthermore, I would like to make a profit quicker than a buy/hold/sell will allow. I'm just fishing for a way to increase my income and my intuition is telling me that REI is it...it's just not completely telling me how.

Bill Gulley · Answer

Chris C., I'm surprised, sounds like you lean toward the use of a QCD, probably goes to show RE is local and what may be customary in the area. I don't see how executing a QCD is any easier than signing a SWD. Can you calrify a little on the CQD in a sale transaction? You should never buy without a title search and no, you should never attempt to DIY this aspect. An exception to this is when you aheva current search that can be relied upon, such as in a transaction that immediately preceeds that transaction. If any time passes that would allow any other filings to be accomplished after a transaction, you can ask that the title be brought current from that last transaction date, you may not need a complete title examination and that should save you some money. Just make sure title is insurable. How quick can you make a QCD, you can execute any conveyance deed before the ink is dry on the deed granting you your interest. Title passes at the time deeds are excuted, not when they are filed. A problem using a QCD is that such only passes that interest the grantor may have in a property at that time, you may find yourself down the road in having to show what that interest was when the interest was granted. In some areas you may find obtaining title coverage on a QCD can be diffidult. A title opinion from an attorney may be accepted to meet title insurance requirements, I'm sure Chris can overcome such issues, but not all closing agents are attorneys. Unless there is a benefit of using a CQD by the advice of your attorney, I'd suggest a special warranty deed be made providing a degree of good warranty of title while excepting out any liens being assumed. I know the preperation of a CQD is much easier than providing exceptions on a SWD, but buyers and sellers rarely prepare thier own deeds. On your part, it's just your signature. :)

Arktavious Sally · Answer

Hi Shara, What is your exit strategy?

Wayne Brooks · Answer

Shara,don't try it your self.

Shara Carlton · Answer

Thanks. How difficult would it be to perform my own title search?

Christian Carson · Answer

Title attorney here. The difference between a warranty deed and quitclaim deed is simple: in the warranty deed, the seller is making a guarantee (a "warranty") that he/she owns the property and has the right to convey it. Typically you're going to want to perform a title search each time you convey property via warranty deed so any hidden encumbrances are revealed and you don't get burned later down the road. Hard money lenders don't all operate the same way but I imagine they all execute and record mortgages on the property. It would be easiest to quitclaim the property, but a warranty deed (excepting the mortgage to HML) would also be an option. Just don't do it without performing a title search. Make sure that there is no due on sale clause in your HML contract, because any kind of title activity like a QCD or a WD will trigger that clause and accelerate the mortgage.

Fred Ramos · Answer

Hard money loan for 18 months? wow.. That should eat most if not all profits from the deal.. I'd recommend you use hard money for the shortest amount of time possible.. 18 months sounds an awful lot of time for a flip.. The problem with a quit claim is that ownership of the property is not guaranteed. What happens if after 18 months and 16% interest plus points you finally were able to finish the rehab and found a buyer ready and willing to buy it, but after the tittle search comes in, you find out 5 brothers of the previous owner had a claim to the property? I don't know about you, but i wouldn't want to be in that situation.. would you?