Do you know your deeds?
I was talking to an investor recently that was trying to figure out how to do a deal. He was a successful flipper and wholesaler, and he had a deal that was under contract with a nice profit margin. The problem was the house needed some work. His sellers could not close for a few months and he was wanting to figure out a way to get the work done between now and the closing date, while ensuring the sellers could not back out in process.
We talked through a couple of different scenarios. One I offered was for him to buy an option from the seller to buy the property for the agreed upon price, use the cost of the rehab as the consideration for purchasing the option and then get it recorded with the security instrument used in his state.
Now, I don’t normally throw real estastease at you, (you know, the language and jargon associated with real estate), but I needed to illustrate a point. First off, did I just speak over your head? If I did, you aren’t alone. It has been my experience that most novice and aspiring real estate investors do not know the language of real estate yet. That’s because they’re focused on how to get started, and, more importantly, how to get paid.
That being said, I often find very experienced investors who cannot really define terminology like “what is a deed.” The reason for that is they often get caught up in the daily grind of their business, doing what they are successful at, and don’t create the time to increase their education.
And let me tell you, knowing your way around the deed room can make you a lot of money. For instance, we once found a title flaw on a property that was an REO valued at $80,000 at the time that allowed us to buy it for $7,500.
Yes, you read that right. We still have an interest in that property today, but now it’s worth more than $200,000. See how it pays to be educated?
With that in mind, I would like to increase your knowledge in real estatease today. First, I want to define for you what a deed is, and then I’d like to go over some common deeds you’ll see in the courthouse.
A deed is a written document that transfers ownership or interest in real property to another person. And the most common, and the best way to transfer ownership, is via Warranty Deed.
The reason why a Warranty Deed is the best is that it is a guarantee that the seller has clear title to the property and has the right to pass ownership on to someone else. And because of that guarantee, this is the strongest kind of deed for transferring ownership.
Now there is another type of deed you’ll see that transfers ownership that’s called a Quit Claim Deed. This deed passes ownership to another party, but it does not have the same guarantee of clear title found in a Warranty Deed. I have heard it put like this, “A quit claim deed says I may or may not have ownership in the property. But if I do, I’m giving any claim I have in the property to you.”
There are a couple of other deeds you may see. The two I think of the most are a foreclosure deed, and an administrative deed. The foreclosure deed is just what it sounds like. It’s the deed created after a foreclosure auction that transfers title from the borrower to the new owner. And the administrative deed is used when the property owner dies to transfer ownership from their estate to someone else. The person who does signs for the transfer is called the administrator of the estate, and is how it gets it’s name.
So, the ownership portion of deeds is pretty easy to understand. But what about the interest part of the deed definition?
An interest in a property can mean a right, claim, tile or legal share in a property. The one we are going to focus on is the way a claim is attached to a property.
In Georgia, we use a Security Deed to attach a claim to a property. And by claim, I mean some sort of lien which most of the time is in the form of a loan. When you get a loan to buy a house, you give the lender a Security Deed. And this document gets recorded at the courthouse so that when you get ready to sell the house, the attorney will see that there is a loan that needs to be satisfied to gain clear title.
Now when you look at a normal chain of title, the first thing you’ll see is the warrant deed (or one of the other ones listed above that transfers ownership) followed by the security deed if there is a loan on the property. And know you should know more about the deeds we use in Georgia.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.