“Why A Clean Title Is A Must In Real Estate Investing” by Simon Macharia

I made a novice mistake recently and lost over a thousand dollars even though it sounds so basic. Here’s how:

Normally I only pursue a short sale if I see there is potential to create a lot of equity to justify spending all the time involved in doing a short sale. I especially love properties which have more than one mortgage because holders of the subordinate liens can lose everything in the event of a foreclosure. For this reason, they can negotiate pennies on the dollar in a short sale.

You can easily negotiate 20 cents on the dollar on a second mortgage. If you can also do a short sale on the first mortgage, you can end up creating a lot of equity for a good, profitable deal.

This is the type of deal I got a few months ago and instantly identified it as a having high potential. It had a low first mortgage, almost 50% of the value of the house, and a small second mortgage. Even if I had to pay off both mortgages, it would still have had a good deal.

The owner wanted to avoid foreclosure and just get rid of the property. We did all the paperwork, and in just a few weeks I had both short sale offers accepted.

The house needed some repairs, but no structural damage, like the foundation or roof. I had to haul off lots of junk and do a few minor touch-ups to make it more marketable before I could wholesale it to another real estate investor. The yard was overgrown, there was tons of trash to haul off and general cleanup. I ended up spending over $1,000 cleaning things up and got it ready for wholesale.

I knew I could wholesale it easily and quickly found a cash buyer. In the meantime, my title company initiated title work and other closing preparations. It turned out there were two other liens the seller did not disclose!

Both were mechanic liens attached to the property. Though it was easy to track down one of the liens, the other one had been sold several times and the contact information did not work. In other words, we could not negotiate one of the liens.

If I could not contact all lien holders and negotiate all liens, it was impossible to own the property free and clear. Foreclosure was the only option to wipe out the liens.

After spending weeks in short sale negotiations and over $1,000 in expenses, I ended up giving up on the deal.

If you buy houses from motivated sellers, this experience can serve as a word of caution. Even though motivated sellers have probably the most profitable deals on the market, they are also more likely to have multiple liens and judgments on their properties or other title related issues.

Check the title to make sure your properties are marketable before you spend time and money.

My title company does title work free for me because I have closed many deals with them. Even if you had to pay for title work, you still end up saving a lot more than if you did not check for clean title.