That's what I was thinking. Thanks for confirming Seth Williams
Is it technically correct and professionally ethic to buy with Warranty Deed but no Title Insurance?
Arturo Arturo last edited by Arturo
some of you may have already seen this post on the Fb group but, for those who didn't, I have a question.
Yesterday a potential Seller from my first Campaign emailed me to ask few confirmations and say that he would have signed my purchase agreement and send back to me (my offer: 618$, comparables: 3K$). He also stated that he owns other lots in that Subdivision and asked if I could be interested (guess my answer ). Giving a quick look at the public records I noticed that the majority of those properties comes with a Tax Deed though. Assumed that I will decide to buy from him (some concerns about zoning...), the idea would be to not hire a Title Agency and to not have a Title Insurance because those options would overweigh the profit. If and when I'll receive the signed Purchase Agreement and if due diligence will be a GO, then I see two possible way aheads here:
Option A: to conduct a Title Search, buy with a Warranty Deed and sell with a Quit Claim Deed or Special Warranty Deed. I wonder though: does it really make sense to file a Warranty Deed without Title Insurance but just based on a Title search? I don't even know if that's someway ethic, from a professional standpoint. What if, for example, something goes south and tomorrow a Mr X claims rights on the property? I believe that the current owner would be called to give explanations but it was me who filed the Warranty Deed without knowing "as a fact" that the Title was clean ....
Option B: to use the fact that the properties come from a Tax Sales (no kind of warranty) as a leverage to justify a very low ball offer for a bunch of those properties, conduct a Title Search, buy with a Quit Claim Deed (freeing the current owner from any kind of responsibility) and sell with Quit Claim Deed or Special Warranty Deed.
Arturo, I don't have answers for all of your questions, but did want to suggest that if you would be purchasing multiple parcels within the same county, you might find the costs of closing through a title company would effectively be lower, on a per lot basis.
In my admittedly limited experience with multiple lot situations, this has essentially been the case. With the same parties (Buyer and Seller) involved with all lots, all in the same county so the recording of the deed could be done in one action, then the title company did not charge me duplicate closing costs.
I did have one situation, which ultimately didn't move forward, where the prospective seller has multiple lots in different counties, within the same state. Same title company that handled my multi-lot/same-county situation above at no extra cost, confirmed they'd be able to handle the closing and recording for this other prospective deal since all properties were within the state that they service, but because they'd be preparing separate deeds and doing separate recordings for each county, they quoted me the equivalent cost of one closing per county on this other one. Seller didn't accept my offer on that one so it didn't move forward anyway. I specifically asked the title company to quote the closing before I made my offer to the seller because I knew the way they handled and priced this would impact my costs significantly, and therefore what I was willing to offer.
Edited to add: I guess in short I'd recommend reaching out to a title company you've had good experience with before in this target area, if you have one. Or if you don't have one yet, call around to several (3 or more, I'd recommend) to find out how they'd handle this situation, and their costs.
Arturo Arturo last edited by
David Ludwig great! Thank you very much
Arturo - It makes complete sense to purchase with, and file, a warranty deed without title insurance. In a case where the property was later to have an issue - you then have the right to go back to the seller who warrantied good title to you and make a claim. If you were to have also obtained an owners title insurance policy at the time of purchase (paid for by either the seller or by you) naming you as the insured - the you'd have 1) additional piece of mind that what the seller was warrantying was accurate and 2) also insurance just in case it wasn't.
It is the seller to you, who signs the deed, that is at legal risk if they don't read and understand (and mean) what they are saying / signing. The are saying they will "warrant and forever defend... the property to Grantee and Grantee's heirs, executors, administrators, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, except as to the reservations from and exceptions to conveyance and warranty." (excerpt from typical warranty deed wording).
But, without a doubt, you do have financial risk if what the say isn't true - i.e. good luck getting your money back from a seller if it isn't. If you also have title insurance then you have the legal right to try to squeeze the blood out of two turnips - 1) The seller for representing (warrantying) everything is good and 2) the title company / underwriter who "insured" it was all good (notwithstanding all the expectations, covenants etc. in the policy that often makes title insurance practically not worth much better than the paper it is written on if you have to file a claim.
When I self close on the buy side I always insist on a general warranty deed, seldom accept a special warranty deed, and never buy using a quit claim deed (and don't get title insurance since I am not doing a title co. close.) On a self-close sell I almost always sell using a Special Warranty Deed (i.e. only warrant nothing happened to cloud the title during the time I owned it), sometimes have used a "deed with out warranty" (if my purchase was a tax sale purchase) and (out of principle) hardly ever have sold with quit claim deed.
I recognize and applaud the ethical dilemma you are struggling with - one solution, is to as soon as you can reasonably do it - move up to properties that have sufficient margin to always use title company on both the purchase and sale side. There are times, however, when I can do sufficient chasing of the deeds / chain of title before purchasing that I am comfortable self closing a purchase and then selling using a title company, particularly if I can see where the seller to me previously purchased for cash and closed using a tittle company getting a general warranty deed and there no unreleased recorded liabilities / liens against the property or the person since.
[My apologies for this going way long]
Arturo Arturo last edited by Arturo
Truth is that whenever you answer to somebody here, I don't think that can never be "too long" Karl James, soooo. On the contrary, many thanks for the the time and effort you put in your response.
I just want to get great deals (weird right?? ) while setting all the process in the safest possible way for both seller and buyer and in full disclosure, as you say. Of course all Businesses come with some risks but MY risks, and MY responsibility and if I want to share that burden with my seller, he MUST be aware. If he doesn't like, it's totally cool.....full of deals out there. In other words: I don't want my seller one day to be questioned on a Warranty Deed that I convinced him to sign making him think all is rainbows and unicorns but, actually, without being myself confident that the Title was clean. It's easy to let greed drive your decisions but if it's true that it can put some bucks in your pocket it's also true that it never pays on the long run; honesty and professionalism, on the contrary, probably won't make you "RICH NOW", most likely you will also lose a bunch of deals but I'm sure it will always come back to you some way, at some point of your life. That's what I teach to my son, why should I behave differently?
The seller lives out of State and just retired and wants to sell me these 15 infill lots in AZ, bought in 2003 from a Tax sales Auction (all Tax Deeds) for 400 $ each, market value is around 3K$, the area is not particularly hot, but not even cold (mildly microwaved ), and definitely growing. I will start my due diligence today to see if something can come out from there and, if I will go for it, I will buy with WD and probably sell with SWD, being sure to run an accurate Title Search (an Insurance would be perfect of course but too little profit margin on this deal). Most importantly I'll inform the seller that a Title Search coming out clean would make me confident that everything is ok, even if it's not the best form of protection (this guy doesn't look very much into transactions). At this regards, I have the name of a guy on Fiverr that seems to master the art of Title Search and provides this service for a lot of Land Investors but, if you have any suggestions or can tell me the name of a reliable professional, of course that would be nice.
And yeah....as you say, I think that for my next Campaigns I should consider the possibility to cut out the lowest deals so to have no problems to hire a Title Agency for EVERYTHING and save myself from the hassle.
I believe my post was longer....have a great Sunday Karl and, again, thanks!