Note Options In Hot Markets - Posted by Marvin Seawood

Posted by John Behle on October 22, 1998 at 15:43:25:

The abstract can be done by computer, but you need to either tie into their system or sometimes they have it on CDs. It can be quite costly. Many of the title companies are tied in. If you have a good relationship with them, they sometimes will let you use their “title plant” where you can use their computers and mirofiche. They may be able to do it for you fairly cheaply. They offer P.R.'s or property profiles for investors and agents. Sometimes for free. They are used to doing P.R.'s and Title Insurance and may literally may not even do “abstracts” any more. We needed one recently for a legal matter and could not even find a title company in our city that could still do one.

One student of mine found a wonderful employee at the County Recorder’s office that would check titles for him for $10 on her lunch hour.

The bankruptcy court system is open to the public. You can do it direct through their system or through internet sites like Usually the courts and recorder’s are near each other so, it is just a one stop thing.

The court computers are open to the public at the buildings, but they are only accessible remotely through a service called “Pacer”. You have to sign up for and pay by the minute for Pacer.

At first I used to do the title searches myself, but finally hired an employee away from a credit union that did all of their “due diligence” on loans. He could do my comps on appraisals take pictures of the properties and check the titles without me having to do massive training.

Note Options In Hot Markets - Posted by Marvin Seawood

Posted by Marvin Seawood on October 20, 1998 at 23:28:47:

The possibilities sound exciting, but how much option
consideration is really required, and for how long can
you tie up a seller carryback note - hoping for a refi?

A few days - for a few bucks - Posted by John Behle

Posted by John Behle on October 21, 1998 at 10:19:32:

When I mention that I do options on notes, I should clarify. My purchase agreement is in the form of an option, but we are talking a very short option. Maybe a week to ten days with one or two extension periods.

Also, the option consideration is usually just $10-100 that is held by a third party like a title company. I use an option agreement for my purchase, primarily to be able to cloud the title if needed. I make it very clear that they cannot sell to anyone else. The deal is done, don’t even think about it. I cloud the title by recording a notice of interest that references that there is an option agreement to buy the note.

That way, the note seller cannot sell to anyone else. Almost any buyer would check the title and about 99.99% require title insurance. With the option agreement and notice of interest, it stops the title company in their tracks.

I’ve just had too many note sellers in the past try to take offers from others after we have a deal. Some I’ve been able to stop and others just went ahead and sold the note. Recourse is nearly worthless. Prevention is where it’s at. Now, I don’t record the notice everytime. Sometimes I am moving so quick that I could close almost as quick as I could record the notice. If there is going to be more than a couple days to close the note or the note seller seems too anxious or a little squirrely, then I may record immediately. I’ll tell them I am going to record and that they cannot sell to anyone else always. Recording the option is simple. The first step once I have an option is to do an abstract of title and see what problems there might be. I hate to waste my time chasing a deal that can’t fly. It only takes me or an employee a few minutes to do this title check. It doesn’t need to cost a penny or involve a title company.

So, that is my approach to options on notes. Can you get a longer term option on a note? VERY rarely. Note sellers need their cash yesterday and if you are trying to get a long term option, it can only be at a much higher price because others are willing to put cash in the seller’s pocket immediately.

Now, if it’s a “Troubled Trust Deed” that no one wants, then you can get an option and many times should. Never agree to buy a note that has problems, until you can fix them. Get an option and then move to solve the problems. Of course, if you solve the problems first or tell the seller of the note how to solve the problems, you likely will not even get a pat on the back. Just a commission-dectomy.

Re: A few days - for a few bucks - Posted by Greg A

Posted by Greg A on October 21, 1998 at 19:53:57:

Sorry for my lack of knowledge but…

What is an abstract of title? What does it do for you? And how do you do it?


An Abstract of Title is… - Posted by John Behle

Posted by John Behle on October 21, 1998 at 23:05:47:

An abstract of title is just a history of the title to the property. It used to be the standard before title insurance. An attorney would research the title, compile all of the documents and then write an opinion about the status of the title.

Title insurance is different in that they do not do an abstract or provide it to you. It carries the added feature of insurance on the status of the title.

I do an kind of a mini abstract. I just examine the title, print what documents I need to examine more closely and then I know what’s going on. I may just go back to the last policy of title insurance, last normal transfer of the property or last first mortgage loan. All of which should have had a policy of title insurance.

Actually, with most notes you buy, they will have been created in a standard buy/sell transaction and their would have been a policy of title insurance from the seller to the buyer. There may even be a lender’s policy covering the note when it was created.

Doing an abstract does a couple things. It identifies problems early and assures me that there is a do-able deal. I’ve had people try to sell notes that didn’t exist, weren’t recorded properly, or had other title problems. As soon as I get an option, I check the title to know problems that must be solved or whether to back out of the deal. I hate to waste time and money and this is one of the most valuable “prevention” strategies in the paper business.

I can also record my notice of interest at the time, find out specifics on underlying loans and check the foreclosure or legal history. For example, a policy of title insurance would only tell me if the loan is not in default right now. An abstract will show me if the loan I am looking at or any other loans have been in default. I can also see if there are any liens, tax liens or “lis pendens” (Lawsuit Pending).

I’ll also swing by the bankruptcy court and check the seller and buyer for current or past bankruptcies and the courts building to check for current or past lawsuits and judgements. Now the bankruptcy court and other courts are accessible by computer.

When I first started, I almost never received a credit report on the payor, but checked them out simply in other ways. Actually, my abstract is far more through than title insurance and avoids risks and scams.

Re: An Abstract of Title is… - Posted by daveh

Posted by daveh on October 22, 1998 at 08:11:22:

Do you go down the the courthouse personally to check the title and bankrupcy? Can it be done by phone or computer?