A no-good deed goes unnoticed

A no-good deed goes unnoticed

A no-good deed goes unnoticed:

 

The deed room is a very important place to frequent, especially once you put a house under contract to buy. You need to make sure the people selling you their house can legally do so.

 

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Your closing attorney will look at the chain of title for you, but this often occurs a day or two before your scheduled closing date. By running a preliminary title search, you can give them a heads up if something is awry.

 

If there’s a title flaw, it can delay your closing or possibly kill the deal. This is why it’s important for you to know your way around the deeds room; you should run title as soon as your offer is accepted.

 

We had a deal that we neglected to run title on ourselves. We got all the way to the closing table, and our attorney informed us of an issue- and boy was it an issue. The sellers didn’t legally own the property. As it turned out, they were more surprised at this news than we were.

 

I’d like to walk you through the story of what happened in this chain of title and identify the kind of deeds we should have been paying attention to. This will give you a grasp of what you need to be looking for when you run a title.

 

The story goes like this:

 

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A man bought an acre of land using a private mortgage to buy the property. A mom and son bought that property from the man leaving that mortgage in place. Later on, the son decided he didn’t want anything to do with the property. So he quit claimed his interest to his mother.

 

Here’s where things get a little confounded:

The mom decided to subdivide her acre and sale half of it. The new owner sold the half acre again to someone else with a faulty contract. The faulty contract holder then quit claimed their interest back to the son because the son decided he’d like to own the property again.

 

And for the grand finale:

The mom passed away with no will. Because of that, the half acre she retained was sent to probate and left to her five heirs.

 

So we had five people who had claim to half an acre and no idea who owned the other half. Needless to say, our sellers didn’t have a clear title.

 

Let’s go back through the story and identify the deed types in this chain of title.

 

Most of the time when someone buys a property, the seller gives the buyer a warranty deed. This type of deed states who the current owner is. The original buyer in this story received a warranty deed when he purchased the property. He also gave the mom and son a warranty deed when he sold the property to them.

 

Next is the security deed. Security deeds name the people or institutions that have a lien against a property. In this case, the original buyer had a private mortgage on the property. The security deed let everyone know that a mortgage still needed to be paid off, and it protected the individual that held the private mortgage.

 

Lastly we see some quit claim deeds. The son gave one to his mom and eventually the faulty contract holder gave one to the son. This kind of deed states you’re relinquishing any rights to the property that you may have had to the person receiving said deed. So the son gave his rights to his mom, and the faulty contract holder gave their rights to the son.

 

Because we didn’t run title, it delayed closing for more than two months. We had to do something very creative to get this closed with a clear title. Want to know how we did it? Ask me at Cashflowwithjoe.com

 

 

Joe and Ashley English invest in real estate in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com

 

 

 

 

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4 comments

  1. Hey Iris,
    Thanks for reading the column.

    We had to think outside the box to get this one closed. So stick with me and if it doesn’t make sense, please ask.

    Recall the first paragraph in the deed story:
    “A man bought an acre of land using a private mortgage to buy the property. A mom and son bought that property from the man leaving that mortgage in place. Later on, the son decided he didn’t want anything to do with the property. So he quit claimed his interest to his mother.”

    The original owner sold his house subject to his existing private mortgage to his mother and brother-in-law. So the Mom and Son in the story are related by marriage to the original owner.

    The mom and son then muck up the title with “kitchen table” closing an faulty contracts.

    So in order to do away with all the title issues, we had to go back to a place were there was a good title. That place was the Security Deed held by the private mortgage holder.

    What we did was buy the note from the private mortgage holder. Because we were buying the house, He was about to be paid off anyway and didn’t mind selling us the note. We bought it for face value, which was the payoff. The reason we did this was when we bought the note, the Security Deed held by private mortgage holder could be assigned to us.

    Once we owned that security deed, we could foreclose it and gain a clear title. We did what is called a “friendly foreclosure”. It is called friendly because we were not seeking any money from the original owner. Were able to get in touch with him via the son-in-law and made him aware of what we were doing and why. We let him know we weren’t planning to report the foreclosure to any credit agencies and this was just a way for us to get a clear title. He agreed and we moved forward. That is what makes it “friendly”.

    Once the foreclosure happened, anything in the chain of title after the security deed was wiped away.

    Now we technically owned the home and had a clean title.

    Even though we now owned the house, our sellers had not been paid. So we settled up at our attorney’s office with a true settlement statement that reflected what they would have received had they had clear title, minus the foreclosure expenses of course.

    We now have the house, the seller has their funds, and we all shared a great teachable story. Win-win-win

    One more thing to note:
    Because we bought the note and didn’t technically buy the house, the county did not recognize this transaction as a sale. So when I went to fight my property taxes, and showed our purchase price as what the tax value should be, they rejected it on the grounds that this was not a fair market sale.

    And that is how we did it.

    Once again Iris, thanks for reading. If you need any clarification on this just let me know. Have a fantastic day.

  2. My father told me many years ago to never buy a piece of real estate without a title check and title insurance. He was very smart so I’ve always purchased real estate with both. I’ve heard many, many horror stories of complications in buying real estate. One purchased a home and land with cash. The owners took the cash but didn’t pay off the mortgage. These people list what they paid for that house.
    Another one bought a house that was actually built on Corp of Engineers property. There was a creek beside it that the government owned and 1/2 the house was located on their easement. This actually was resolved many years later but it was a very stressful situation.
    As I write this I hear my fathers words ring in my ears. Do not buy a property without having the title search done by an attorney’s office. Also purchase personal title insurance. Even if the bank buys title insurance that you pay for at closing, you need to buy personal title insurance to protect you.

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