Okay investors, let’s say you contract on a peach of a deal.
You’re a tough negotiator… there are minimal repairs needed… and you’ve marketed like a pro. You’ve fielded inquiries and lo and behold, a cash buyer wants it. Assignment signed, deposit in hand and all contracts are now with the title company.
Then it happens.
The dreaded call from the title rep.
Clouded title.
Take it from me, Andrew Massaro, nothing is more freaking frustrating than thinking your deal – and bundle of cash – is all sewn up, only to have a nice, pricey lien attached to the house you’re about to flip… all at the last minute.
That’s how quickly a deal can go from being a peach… to a rotten egg.
Okay class, let’s have a quick refresher:
Clouded Title: Any document, claim, unreleased lien or encumbrance that might invalidate or impair the title to real property or make the title doubtful. Clouds on title are usually discovered during a title search. Clouds on title are resolved through initiating a quitclaim deed or a commencement of action to quiet title.
Lien: The legal claim of one person upon the property of another person to secure the payment of a debt or the satisfaction of an obligation.
And here’s another not-so-fun term to include in this lesson…
Back Taxes: Taxes that were not paid when due. Typically, these are taxes that are owed from a prior year. Taxpayers can have unpaid back taxes at the federal, state and/or local levels.
Luckily, there is a way to seriously diminish the chances of you having to deal with a clouded title due to liens, back taxes or other circumstances. It’s quite simple, actually.
Qualify your lead upfront
And do it thoroughly.
Look, it’s rare that a seller doesn’t know when there is a lien on his property. Even if he’s forgotten, just asking him will usually jog his memory. It’ll likely go something like this…
“Mr. Seller, what is the total amount owed on the house including any liens or taxes that need to be paid?
$32,000. Oh, and I almost forgot... I had medical bills of $10,000 from a car accident years ago that I couldn’t pay, so they put a lien on my house. I owe $1,500 in back taxes from the past 2 years, as well. So, in total, I owe $43,500.”
Know this: A lot of the sellers you will be speaking to are in a bind financially. And, chances are, this isn’t the first time, either.
There’s a pattern.
And, it’s probably happened over and over and over again to them throughout their life. A dark cloud is following them.
And, if you don’t press them to include ALL they owe, that dark cloud will linger over the title, keeping you from flipping the house.
Avoid this huge time-waster.
Look, nothing sucks more than thinking you’re going to make $20,000 on a flip, then finding out there is a first mortgage or medical lien or some other encumbrance that is killing your deal. And your profit. Not to mention all your time and energy you spent on the deal.
And, another thing...
Nothing pisses a buyer off more, either.
It makes us look amateurish.
And, he knows he’s also just wasted a lot of time and effort on evaluating the deal. He’s going to be that much more wary of working with you in the future.
So, take a just few more minutes when speaking with the seller the first time. Make sure you ask, not only about the existing mortgage, but also about any liens or taxes owed. This could not only save you a huge headache in a few weeks… but could save you a ton of time and effort, as well.
Tips on Clouded Titles
How do you make sure clouded title doesn’t become an issue in your deals? Share below.
Get over your fear about asking sellers how much they owe by having this question ready: What is the total amount owed on the house including any liens or taxes that need to be paid?
ALWAYS ask the seller how much they owe on their property, including liens and back taxes. Press them if you have to in a polite way – because this is critical info you need to know that could change the deal completely.
Be prepared to walk away if the amount owed simply doesn’t make sense to you financially as the investor.
Andrew Massaro
, also known as "The Maestro", is the founder of Wholesale Coaching, Inc. and is one of the most sought-after wholesale and REO coaches in the U.S. A University of Florida graduate, Andrewís house flipping career started in 2005, during one of the most dramatic and awe-inspiring real estate booms in recent memory.
After many years of success flipping houses in Tampa Bay, Andrew began also pursuing his passion and purpose: hands on, one-on-one coaching and mentoring other investors. Through Wholesale Coaching, students interact with and are coached by Andrew, personally. He has the unique ability to teach and guide his fellow investors to the results they desire. The one-on-one interaction and partnership is the key and what really sets him apart from others who offer coaching.
Andrew is also a loving husband, father to a beautiful little girl, Charlie Lynn, and an active board member of Current of Tampa Bay, a non-profit focusing on humanitarian efforts and showing love to underprivileged individuals.