Posted by Brad Crouch on November 15, 1999 at 14:56:03:
Jim,
Thanks for the valuable insight. You’re the greatest!
Brad
UPDATE: Subject to deal–Need answers please! - Posted by Justin-IL
Posted by Justin-IL on November 13, 1999 at 15:21:35:
I posted a few pages down about a subject to deal I was going to look at. I just got back from meeting with the seller. She is ready to go ahead with the deal, and we will start taking over the payments in December.
I will be paying closing costs, and the seller will simply walk away from the house. There is little equity in this deal. However, this deal is attractive because it is a house that I want to live in myself…
I want to minimize my closing costs, and only want to do what is absolutely necessary. I am wondering if title insurance is absolutely necessary in this deal? I will have no money in this deal, and nothing to lose. The plan is to live in it for 3-6 months, and then lease option it to a tenant/buyer. I also plan to refinance this house within a year.
The seller bought this house in 11/96 and just recently refinanced. I will check the title out down at the courthouse.
Can the title insurance hold off until we get a t/b in there? I don’t want to pay for it now if I don’t have to. I understand it is a risk, but it is a risk I am comfortable taking. Would I have a problem getting title insurance after I had owned the house for 6 months or so?
Any input would be appreciated…
Thanks,
Justin Lee
Why refi subject to with no equity? Curious… - Posted by Tim Randle
Posted by Tim Randle on November 13, 1999 at 22:25:58:
Not that it’s any of my business, but I was curious why you plan to live in this house such a short time and then L/O? Also, why would you want to get a loan for a property that you own with no personal liability and no equity? As far as the escrow refund issue goes, I’ve asked that same question more than once and never received a good response. I’ve had some folks tell me that the POA (limited to the property) works, but then again I’ve also had title companies tell me that institutional lenders will send the checks to the prior owner of record regardless. I will watch for responses to that question. Good investing, and congratulations…
Re: UPDATE: Subject to deal–Need answers please! - Posted by JoeKaiser
Posted by JoeKaiser on November 13, 1999 at 19:03:20:
It’s never a good idea to buy property without obtaining title insurance. Still . . . you gots to do what you gots to do.
If you simply don’t have the dough, the question becomes “do I buy the house without insurance or do I just pass entirely?” I’m guessing you do everything you can to minimize your exposure, understand what the risks are . . . and buy.
Joe
Re: UPDATE: Subject to deal–Need answers please! - Posted by Rob FL
Posted by Rob FL on November 13, 1999 at 18:45:05:
If the seller bought the property just 3 years ago, he probably got title insurance then. Ask for a copy of his owners’ title policy. If you know how to correctly update the title at the courthouse you can start from the date the seller took the title. This could greatly minimize your risks.
Just make sure you know how to search the title correctly before doing anything like this. You may want to provide the seller’s title policy to the title company. They should give you a discount for providing them a title base to come from.
I’m on your side, maybe. - Posted by Bud Branstetter
Posted by Bud Branstetter on November 13, 1999 at 18:08:31:
You want to minimize closing costs. what does that entail. Are you going to type up the deed yourself? What if you do something wrong. Are you going to hire an attorney to draw up the documents? If you have done it numerous times before you may feel comfortable drawing them up. Did you inspect the property and feel confident that there are no code violations, unpermitted modifications or infestations that someone could sue you for. Is it not the same for title insurance. You can get an abstract done or do it your self. You can also pay for a title policy as insurance. You may also have a corporation that you do this type of deal from to insulate you personally. You can have you other property in LP’s so you have some liability protection. And you can have that million dollar liability policy just in case.
What you have to risk may be different from me. For a typical L/O at 100K, a title policy will be $1000+ here. A complete closing would approach 2K. Or I could type up the documents myself, get an abstract for $50, and record it myself for under $20.
I do not like property that the owner has not owned it long or may have been in business. Too many loose ends.
Why do you want to L/O and refi. Why not sell for cash or on a wrap with a long term positive cash flow.
Re: UPDATE: Subject to deal–Need answers please! - Posted by JPiper
Posted by JPiper on November 13, 1999 at 16:13:49:
Glad to hear that you understand that it?s a risk to not have title insurance. I?m surprised to hear that it?s a risk you?re comfortable with?..hopefully that comfort is based on knowledge rather than hope.
Allow me to reprint part of your post? ?I am wondering if title insurance is absolutely necessary in this deal? I will have no money in this deal, and nothing to lose. The plan is to live in it for 3-6 months, and then lease option it to a tenant/buyer. I also plan to refinance this house within a year.?
Now let?s create an imaginary scenario. Let?s assume you go to the courthouse and you miss something. Not that you necessarily would?.but title companies do and it is a possibility. How do you then propose to lease/option this to a tenant/buyer? Would you feel comfortable entering into a written contract to deliver title at some point in the future, knowing that you don?t have clear title? If you are unable to lease/option the property would you have anything to lose? Anything like upfront option consideration, monthly cashflow, a backend profit?
Let?s assume that 3-6 months from now you still don?t feel it?s necessary to get title insurance?.and you go ahead and lease/option the property to a tenant/buyer. At some point in the future the tenant/buyer exercises his option?and you are unable to deliver title for some reason. Do you think the tenant/buyer might sue you? Would you have anything to lose?
You plan to refinance within a year? What happens if the title search is done at that time?and there is a problem? Would your inability to refinance cause you to lose anything?
To answer your question though?.yes, you can hold off on the title insurance. You just won?t know if you can get the insurance until the title company searches the title.
Here?s a site that you can read a little about some of the various problems that could come up?.decide for yourself. http://www.firstam.com/faf/html/news/chronicles/1200.html
JPiper
Re: UPDATE: Subject to deal–Need answers please! - Posted by Brad Crouch
Posted by Brad Crouch on November 13, 1999 at 15:32:37:
Justin,
You may have a problem trying to refi after a year, with a tenant buyer in there . . . who has recorded a memorandum of option.
Brad
Jim has some good points - Posted by Tim Jensen
Posted by Tim Jensen on November 13, 1999 at 16:39:42:
Justin,
Jim is 100% right. Spend the $500 on title insurance. It is worth the money. I figure that total closing costs should be under $800, depending on the sales price.
One other question. Who gets the escrow funds if there are any? If there are no escrow funds don’t forget that taxes are due in another 6 months.
Also as for the insurance, I would just go ahead and add Double Capital as an addional insured. I have a feeling that the mortgage company will look at that as a second mortgage holder.
Good Luck,
Tim Jensen
Re: UPDATE: Subject to deal–Need answers please! - Posted by JPiper
Posted by JPiper on November 13, 1999 at 16:16:09:
Why would you record a memorandum as the seller, or permit the recording of one?
JPiper
Recording memorandum - Posted by Brad Crouch
Posted by Brad Crouch on November 14, 1999 at 05:08:49:
Hi Jim,
As a seller, I wouldn’t want a memorandum recorded (I would want the freedom to be able to do whatever I wanted with the property, knowing that in the end I would do whatever I had agreed to do . . . whatever it took). I would probably tell the tenant buyer that if anything WAS recorded, his option would be nullified. Words to that effect would even be in writing as part of the agreement(s) we entered into.
However as a tenant buyer, I would feel that recording a memorandum was the primary protection that I had against the seller over-encumbering the property or selling it out from under me (unless the seller would give me a performance mortgage). I realize I could sue for any damages incurred, but that would entail me pulling money out of my pocket. If I simply recorded the memorandum, the burden of “reaching into the pocket” would be on the seller . . . a better circumstance for me. More quickly resolved, too.
As for the part about “not permitting” a tenant buyer to record a memorandum, I understand (I think) what you mean by inserting language to that effect into the agreement (as I understand that you do when selling on a land contract).
Maybe you can help me out here, Jim. I think such instructions, which would basically be for a tenant buyer NOT to exercise the protections of the law which are (or were) available to him (especially in advance), would probably not hold up in a judges eyes, if the matter ever reached that far.
If you can show me where my thinking is “off”, as you have so many times in the past, my gratitude would be increased (I realize this does nothing for your bank account, however).
Take care,
Brad
Re: Recording memorandum - Posted by JPiper
Posted by JPiper on November 14, 1999 at 10:23:03:
Hi Brad:
My option contains language that automatically revokes it if the tenant/buyer records a memorandum. (He probably won?t be successful at recording the option itself because the agreement is not notarized.) By the way, I have similar language in my contract for deed. Both also contain language making the tenant/buyer liable for any damages associated with recording a memorandum or costs of clearing title.
Is this type of clause enforceable? I can?t tell you. Never had anyone record one on me, so the issue has never come up. I?ve never even had a tenant/buyer question the existence or purpose of the clause. And if you came to me wanting to acquire a property via my lease/option?.and told me you wanted to record the option, I simply wouldn?t deal with you. I should tell you that I?m not looking for tenant/buyers who are acquainted with terms like ?performance mortgage?, have a desire to record a ?memorandum?, or have a copy of ?Rich Dad, Poor Dad? tucked under their arm. Mention any of these 3 items to me and you will be disqualified.
The one observation I would make is that there is a distinction in my mind between ?prohibiting? a recording (my contracts don?t do this), and ?revoking? the agreement IF it is done. Perhaps the distinction is small?.and again, I don?t know if it is enforceable.
Nevertheless, this is one clause that will continue to be in all my agreements of this type. As you know, tenant?s come and go?.sometimes in the middle of the night. So one of my first goals is to not put myself in a position where I would need to deal with this issue when the tenant bails out of my property.
Is this a disadvantage for the tenant? If the tenant asked me this I would tell him yes it is. It creates a risk that I could take some actions voluntarily, or have some involuntary actions take place, that might preclude my ability to convey title if and when he exercises. I would then point out that the tenant himself is a risk. He?s probably not a guy who can obtain bank financing?..so I?m taking a risk that other?s won?t. I?m one of the few people willing to give him an opportunity. So what this comes down to is that he?s going to have to trust me a little that I?ll perform according to my written agreement (which he can sue under if necessary) just like I?m going to have to trust him that he?ll pay, repair the property, improve his credit so that he can get financing to exercise, not have judgments recorded against him precluding his ability to exercise, etc?..like he?s agreed to do. In other words, we?ve entered into a written agreement, and now we?re both trusting each other to perform our agreements. We each have a remedy if either of us defaults on our agreement. If he doesn?t want to take this risk, then he should go get bank financing, so that he doesn?t need to take the risk, and I don?t need to take the risk of non-payment, lack of repairs, etc.
Will the tenant have a problem with this? I doubt it?..but if he does that?s OK with me. I?ll sell to the next guy. He can go on down the street trying to find someone who will A) lease/option to him and B) permit recording.
What would happen if the guy recorded despite the agreement? First, I?ve never had it happen. The people I?m dealing with really aren?t all that sophisticated?.I doubt if it?s something that would necessarily occur to them. I suspect that many of the readers of this newsgroup have never recorded a document, nor are they familiar with a memorandum. So what are the odds that one of my tenant/buyer?s is going to do this? Low at best. As to the enforceability issue?.again, I don?t know. I?ll let you know if it comes up.
Finally, as with most things in life…I would be willing to negotiate this IF a tenant/buyer gave me a LARGE amount of cash upfront, presuming that we then had some documents held which would be recorded to remove the cloud if he defaulted. BUT, I’ll let you know when I have a tenant/buyer with a LARGE enough amount of upfront cash that makes this requirement.
JPiper