When Choosing your Title Company....Choose Wisely
From Tom Nardone, Millionaire Mailman …
As a wholesaler or a rehabber, your title company can make or break your business.
In my 29 years of rehabbing and wholesaling, I have come to learn that one of the most important people to be on you power team, is your title company.
Be advised though – NOT all title insurance policies/companies are alike, when you are taking the title to a piece of real estate.
Be aware of the fact that just because you go to a title company and close your deal and get title insurance, that different title companies have different underwriters, and different rules and Exceptions From Coverage.
I remember one time closing on a deal buying 22 lots from an old, retired builder…
That was the day I learned what Schedule B Exceptions mean when you get your Title Insurance Commitment and Policy.
When I bought the 22 lots from the builder, he knew that the city had a special sewer assessment lien from when they put in new city sewers and dug up all the streets some 5 years earlier. He knew he never paid the special assessment bill, and kept quiet about it.
I remember being in a rush to get the deal closed because it was a really good deal. I went to the closing in a hurry to drop off the check and actually buy the lots, and because I was in hurry, I never bothered to read the Schedule B of the Title Commitment, or the Title Policy.
BIG mistake... 3 months later I had a buyer for the 22 lots, and when the buyer’s title company checked the title for liens, they caught the $22,000 unpaid assessment. OUCH.
The title company I used to originally buy the lots had exempted the $22,000 assessment in the Schedule B.
But it was MY fault, because when the title company sent me the Title Commitment during my Title Examination Period under the terms of my purchase and sale agreement, I should have caught that they exempted the $22,000 lien right on their Schedule B that they sent me.
The title company can “Except From Coverage” (which means they are not going to provide title insurance coverage for the Schedule B listed items) just about anything they want to on your Schedule B, and it therefore makes your title insurance worthless, in the event they do exempt something that should be cleared up prior to your buying the property.
No two are alike...
NO two title insurances policies are alike, unless you read what they are NOT insuring on the Schedule B.
This is what makes the difference between a Title Policy worth what you paid for it, and one that’s barely worth using as toilet paper.
Sometimes the Schedule B will just give you the Official Records Book and Page Numbers in the Schedule B of what the exemptions are. It’s your job as a savvy investor to look up each and every book and page number to be sure what the exceptions say, and if they will come back to haunt you when you go to resell your deal.
ALWAYS look at each and every exception – unless you have your own lawyer do it for you or you have a good relationship with a title company that is looking out for your best interest.
As soon as you find your buyer when selling a property, have your new buyer pull title immediately! If there is something that they need to get an Indemnity Letter for from the prior Title Policy, then you want them to get working on it right away…
This way, your closing on the exit of the property will not be held up, and any interest you may be paying on hard money loans will not be adding up.
In my case with the builder and the 22 lots, I had the seller carry back a mortgage for me for from my acquisition from him. The mortgage was a $30,000 seller held Purchase Money Mortgage. So I had some leverage against him to be sure that HE paid the lien for the $22,000 when I resold the lots, and we just netted it out of the payoff on the Closing Statement upon my reselling the property.
Whew! I got lucky on that one!
So be sure you use a good title company that is looking out for you. It is one of the most crucial pieces of your power team!
Enjoy the Journey!