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Clearing Title 101

I’m sure you have either heard of, or even lived through the war stories of trying to close on a tax sale property only to find out that all of the interested parties weren’t notified so there is a cloud in the title.

Because of this, one of the most challenging aspects of tax sale properties is the ability to get clean title once the redemption period or validity of sale period has expired. Remember, you can’t get title Insurance or ANY type of loan on your properties until you have clear title.

Ok sure, you could use a lawyer and pay $10k to $20k and wait 6 months to a year or more to get an outside company to give you title insurance. Instead of that lengthy process, I’m going to walk you through a foolproof process of clearing title so you can have your property free and clear.

I promise that if you just take one little nugget from this post you will save thousands and thousands of dollars in costly mistakes down the road. But don’t take my word for it, read below and see for yourself!

 

  1. Conduct a Title Search
    This is the process of retrieving documents evidencing events in the history of a piece of real property, to determine relevant interests in and regulations concerning that property. The challenging thing is that you don’t know which properties to do title searches on and these searches, if outsourced, can be expensive. Title searches will reveal the current owner, purchase price and date, mortgage amount, lien and judgements, and the current deed. By the way, I recommend doing title searches AFTER you’ve toured properties, narrowed down your list, and are getting ready for the auction. Here’s what I recommend using in Google, input this exact formula:  COUNTY NAME real records property/search. This will show you the county records and you’ll find all kinds of title lingo which leads us to the next step.
  2. Know The Title Lingo
    Here are the top terms you should know while searching through county databases:

    ➤ Warranty Deed = deed where the grantor ( seller) guarantees that he/she hold clear title to a piece of real estate and has a right to sell to the grantee (buyer)

    ➤ General Warranty Deed = protects the grantee against the defects arising at any point in time, extending back to the property’s origins

    ➤ Special Warranty Deed = protects the grantee only against the title defects arising from the actions or omissions of the grantor, so only responsible for when the seller owned it, nothing before.

    ➤ Lien = a legal claim on a piece of real estate granting the holder a specified amount of money upon sale of the property. Such liens are often used to ensure the payment of debt, with the property acting as collateral against the amount owed

    ➤ Deed of Trust = deed where legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender. The equitable title remains with the borrower.

    ➤ Affidavit = written statement confirmed by oath, for use as evidence in court

    ➤ Release = when the lien/mortgage is fully repaid, a release of the lien is provided by the lender

    ➤ Government Superior Lien = the IRS, under special circumstances, have the right to redeem a property as long as they do it within the 1 year redemption period from deed recording.

    If you’re not comfortable doing title searches on your own, you can always pay someone to do it and we highly recommend: www.brixsy.com and www.gettitlesearches.com.

  3. Triple Check Lien Owners Have Been Notified
    I mentioned this already, but trust me, it’s worth saying twice because this will save you a ton of time. You don’t want to wait out a feud among heirs, especially when it turns out later that only some were notified. On average just a quarter of the time all deed owners have been notified so waiting it out could sometimes take YEARS
  4. Get a Title Insurance Policy
    This is the difference between those who stay in the tax lien business and those who just dabble. I want you to stay in this game long-term because regardless of the economy, it’s an incredibly lucrative industry.

So once you bid and win at auction you get the title of the property which can sometimes be called a tax deed or sheriff’s deed. Here’s the thing though, you have rights to the property, but you’re not yet protected (by the way, wait until after the redemption period is over and then proceed on any rehab plans you have for the property).

Let me stop here and define title insurance. Basically it protects you against challenges of your title from the former owner, mortgage companies, or even from the IRS who was wiped out by your tax foreclosure that you purchase. We recommend getting that title cleared and then taking out a loan against the property and use that money for your next deal. You could also get a loan against the equity of the house and use it for the rehab, again though, after the redemption period expires.

We recommend Orange Coast Title and make sure to tell them that I sent you. They are the best company I’ve worked with on how to clear title in various states. We’ve gotten titles cleared in less than 90 days in California! We also recommend Tax Title Services. Remember folks, we’re not attorneys and we’re not giving legal advice. If you need to speak to one let us know and we’ll connect you with our guys.

To sum up, we always do our title work on properties to know what we are getting into, sometimes we have to let great deals go because the title is a mess and it doesn’t seem worth the legal battle later on. If you buy a property and you missed something in the title and someone comes after you for money, you have to negotiate negotiate negotiate! Don’t just pay them right away.

Our students have a very high success rate and in 2016 purchased in total 2.7 million in properties and made over 4 million in profit. If you want to partner with us on deals and be taught how to handle this process like a pro, text “CONSULT” to 909.344.5272 and we’ll send you some additional information.

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