Question About SubjectTo And Title Companies
OK, so from the limited research that I've done, it is obvious that almost all loans made today have DOS clause, but in reality bank's won't care too much if the loan gets paid. I can even understand that a buyer can sign over a deed to you, and you will become the owner of the property(which can be dangerous without obtaining title insurance). However, here is the kicker that I can't understand yet:
Let's say I buy a property subject to 1st mortage that has DOS clause. The bank doesn't know I acquired the deed, I make payments, and the bank is happy. Now I want to sell the property to a buyer with "owner" financing. No buyer in their right mind will purchase the property from me without obtaining title insurance. The title company will do a title search, and it will find the original owner's 1st mortage recorded against the property, and they will find a deed recorded from the owner to me.
Question: Won't the title company care to see the mortgage docs from the 1st mortgage before issuing title policy to make sure that DOS clause is not violated? Or does the title company not care?
If you have done your title research, like you should have, and you are the rightful owner, because you are on the deed, what does the title company care? As long as you give them a clear title at the sell they don't worry with the loan. That is the problem of the seller.
Short answer No
Best to you
Sire
My question to you is, what type of 'owner financing' are you planning on doing that requires you to give title to the buyer? This would not be a very good move, investment wise.
Also, the comment, "in reality bank's won't care too much if the loan gets paid," is wrong. Banks care very much whether or not the loan gets paid (try not paying one and find out how much they care).
Roger
What I was trying to say is banks don't care WHO PAYS the mortage IF it DOES get paid. They care, of course, when payments are not made.
Are you guys saying that owner-financing does not give deed to the buyer? Do you do a contract for deed then?
Even if you do a contract for deed and keep the subject-to loan, here is the dilemma:
When you buy a house from distressed owner subject to, and then you resell it via owner-backed financing - since you don't purchase title insurance when you buy subject to, if the original owner gets in trouble, a lien can be recorded against the owner and the house, and when it's time for you to produce a marketable title to the buyer, you may NOT be able to do that. To my knowledge, foreclosure process and title insurance are the only certain ways to ensure marketability of the title.
compwhiz
Glad to meet you.
I can see by your post you do not understand the make up of a Subject To deal.
First you never buy on Contract for Deed only sell on Contract for Deed.
You get the Deed in a Subject To deal, so after you record the Deed anything that happens to the seller does not attach to the property in your name or entites name.
You do a preliminary title search on the property this will show you what is recorded against, part of your due diligence. Once you are satisfied with the title search then record your deed.
John $Cash$ Locke
[ Edited by JohnLocke on Date 07/18/2003 ]
John,
Well, here is the reason I am skeptical about this whole thing.
I've made a first mortage on a house that mortgagor defaulted on. As we realized that the old owner could not repay the mortgage, I started the foreclosure proceedings, and somewhere in the middle there the owner signed over the deed to me as deed-in-liue of foreclosure.
What turned out is that AFTER I made the mortgage out to the homeowner, they've committed a lot of wrongdoings that resulted in judgements against them. I've placed the property on the market and found a buyer for it. The title company initially gave us title committment, but when the transaction was supposed to close, they did a search on the previous owner and discovered a $100k judgement recorded against them. They now refuse to issue a title policy for the transaction, and we've tried two different title companies so far.
This is what I am talking about - if you take subject to and don't obtain any title policy, you risk not being able to clear the title later on. I just found another investor on another forum who has a similar situation to me - bought subject to, flipped to the rehabber, rehabber fixed it up, put it up for sale, and then the last minute title company finds out that original owner filed for BK and refused to issue title policy.
Seems to me like a lot of risk is involved.
Also, John, my specific question is how you deal with sales of properties you bought subject-to to other buyers. Any buyer who's smart enough to use an attorney will want a title insurance policy, and the title company will not issue one unless all liens on the property are wiped out. How do you deal with that?
Thanks a lot in advance..
compwhiz,
I always have a preliminary title search done before I take the deed. If any liens and encumbrances show up that I did not bargain for then I do not do the deal.
Did you have a title search done before you took title to the Property?
I am at a loss to understand if you did your due diligence how a $100K lien was overlooked.
John $Cash$ Locke
John,
Of course, when I had mortgage done the title search was done and insurance policy was issued - the house was free and clear. It's AFTER my loan to mortgagor closed that the owner started racking in various liens and judgements against them. They ended up deeding the house to me via quitclaim deed BEFORE the $100k judgement was recorded against the owner, but now that the title company found out that it was recorded against the owner, NOT the house, and they've decided last minute that they won't issue a title policy on it because they suspected it wasn't true deed-in-liue.
compwhiz,
If the property was Quit claimed to you the previous owner would have no claim on the property therefore you should be able to get the judgement removed relatively easy. The previous owner have no rights to the property when the judgement was attached. I would get this removed. You had a bad experence with this one house. Don't let this one thing stop you from doing the business. Just get it removed...
Best to you,
Sire
compwhiz,
I am having a little trouble trying to figure out what happened here.
"Of course, when I had mortgage done the title search was done and insurance policy was issued - the house was free and clear."
$$$
At what point in this deal did this happen? You are saying you took out a new mortgage?
$$$
It's AFTER my loan to mortgagor closed that the owner started racking in various liens and judgements against them.
$$$
What loan did you give to the mortgagor the original sellers?
$$$
They ended up deeding the house to me via quitclaim deed BEFORE the $100k judgement was recorded against the owner, but now that the title company found out that it was recorded against the owner, NOT the house, and they've decided last minute that they won't issue a title policy on it because they suspected it wasn't true deed-in-liue.
$$$
I understand that liens are against the seller however they do attach to the property.
Let's examine your paperwork:
Deed in lieu of foreclosure:
A deed by which the borrower conveys fee-simple title to a lender in satisfaction of a mortgage debt and as a substitute for foreclosure.
If you used this proceedure without being the lender then it does not apply to what you did this is why they have a doubt.
Quit claim deed:
A deed that conveys a grantor's complete interest or claim in certain real property, but that "neither warrants nor professes that the title is valid".
You will find that most Title Comapnies frown on quit claim deeds, because someone else could have one besides you thereby you have a partner you did not know about.
Alway get a Warranty Deed when doing a Subject To deal.
From what I see it was your paperwork that caused this problem, not because it was a Subject To deal.
I am trying to get to the bottom of this, so bear with me.
John $Cash$ Locke
John,
Since it was me who gave the mortgage against the property, I was the lender. Anyway, you say that one should always get warranty deed when buying subject to. That's great, but isn't only title company able to offer warranty deeds?
compuwiz,
You can give or recieve a Warranty Deed it has nothing to do with the title company. It simply tranfers "all" of the title to the holder of the deed and warrants this to be true.
It is becoming clearer now, you should look for another title company. If this was a true deed in lieu then your title company is out of line in there assessment.
I will give you an example. If you are the lender and your buyer defaults, then any liens or encumbrances your buyer had will realease from the property even an IRS lein. Howerver the IRS has a 120 day redemption period but this is rarely used.
When selling a property always sell under Contract for Sale, this way the deed is held in escrow and not recorded thereby no attachements to your buyer will be recorded since the deed has not been filed. The deed is held in escrow until your buyer lives up to the terms of the contract at which time the deed is given to your buyer or his new lender.
At what point did Subject To get involved in this equation?
John $Cash$ Locke
John,
Why sell under Contract for Sale? What benefits does it give me(other than owner-financing that I wrap around the subject-to mortgage)?
John,
Actually, I think warranty deed or quitclaim deed don't have much difference if the title policyt is not issued - sure, warranty deed allows you to go after the grantor if something is wrong, but if they're really distressed and screw up even more while marring the title, it won't do you much good.
compwhiz,
Everytime I think I have your question figured out, it seems like a curve ball gets thrown.
So let's start from the basics.
How did you aquire this property? Give me the details.
John $Cash$ Locke
I gave the owner a mortgage. The owner defaulted. I started foreclosure proceedings. Sometime after the foreclosure proceedings the owner signed over the deed to me via quitclaim deed.
If the owner signed a deed in lieu when was it? You do not have to accept deed in lieu unless somewhere in your original contract you agreed to. A conveyance (in your example deed in lieu) needs offerance and acceptance. you did not have to accept.
my $.02
compwhiz,
Quote
I gave the owner a mortgage. The owner defaulted. I started foreclosure proceedings. Sometime after the foreclosure proceedings the owner signed over the deed to me via quitclaim deed.
$$$
You sold someone the property and you held the mortgage.
You started foreclosure then had the property Quit Claimed back to you.
Because you did not go through with the foreclosure you did not wipe out the liens. All you did was have a property Quit Claimed to you and all liens an encumbrances in place.
Had you completed the foreclosure then those liens or encumbrances would have went away.
This does not resemble a Subject To deal.
John $Cash$ Locke
John,
Of course, it's not quite "subject to", but it's similar enough to discuss the dangers/problems with subject-to deals. I loaned money on the property, the I took the deed to the property BACK, subject to my own loan, but what happened indeed is that because I did not obtain a title policy, now the title company is refusing to issue one because of the lien recorded against the previous homeowner. This is how it would've worked out if it was a subject to:
I approach the owner, they deed the property to me(without title insurance) subject to existing first mortgage, I later on go and try to sell it, but the title company discoveres some judgements against previous owner and refuses to issue title policy to a new owner. Worst, the previous owner files for BK, and then title company is definitely refusing to deal with it. How do you protect against that? If you never encountered the situation, it doesn't mean that it doesn't/can't happen.
compwhiz.
What you have described is not even close to a Subject To deal.
First I alway do a preliminary title search on the property this shows me all liens and ecumbrances on the property. This is what a title company does before they issue title insurance.
Now since my buyer does not take title to the property until they complete the terms of the Contract for Deed anything that happens to my buyer in the way of liens or encumbrances does not attach to the property.
The previous owner can file bankruptcy, however I hold title to the property so this has nothing to do with the previous owner they are not on title. If I need to I will have the Bankruptcy Trustee discharge the property from the bankruptcy which the title company will accept.
You made the mistake of giving up the title (Deed) to the property to your buyer, if you had sold on Contract for Deed then you would have held the title in escrow and it would be a mute point that anything would have attached to the property because your buyer would not have held title.
You accepted a Quit Claim Deed from your buyer, with this deed came the liens and encumbrances, had you have gone through with the foreclosure then the liens and encumbrances would have disappeared.
I can understand you are upset but bottom line you have no one to blame for what happened but yourself.
You did not do your due diligence all the way around. Subject To is a method of buying, Contract for Deed is a method of selling.
John $Cash$ Locke
There is a world of difference between a Warranty deed and a quit claim deed. Quit Claims are used generally to uncloud the title. Often a lender will ask people int he residence to sign a quit claim even though they have no interest in the property.
Of Warranty deeds the general is the best. Where the owner warrants the title to be free of incumbrances other than those listed.
ANd if you took it "Subject To" and want to sell why not do a double close?
John is the guru here on www.S.T. listen and see what he can tell you to help your next deal.
[addsig]
Stockpro99,
Of course, theoretically speaking, there is a world of difference between warranty deed and quitclaim deed. However, if the title company is not involved in issuing the warranty deed, it's value is significantly diminished, because your only recourse is to go after the grantor is something goes wrong. If grantor is already in a lot of trouble, it won't do you any good.
Why would you NOT have the title company involved?
As John Locke has already said, you should have a title company do a title search before you buy. If you have any doubts/fears about it still, go ahead and pay for the title insurance as well.
Roger
I am sorry. I am missing something.
Why wouldn't you get TITLE INSURANCE?
Is there any reason you would DECIDE not to pay a few hundred dollars for the insurance? Especially with esoteric deals like this.
Is it that you can't get Insurance when doing Subject To?
Does DOS clause on the seller's loan cause title company to not want to write a policy?
Once you have the deed, you have title.
But, The old loan in the Subject To is ATTACHED to property, isn't it?
If you stop paying, the bank forecloses, right?
So, can you sell this with conventional lending because a new loan will satisfy the mortgage and title will be passed seamlessly? or is there some other issue here?
Neill