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Investing Strategies

Protect Your Business: Handle the Chain of Title This Way

Heads up Moguls - Jason Lucchesi here today to keep you out of trouble!

And it all starts with understanding what’s happening in today’s market regarding a little something called the Chain of Title.

I have loads of helpful info, so I want to get right to it, but first…

Important Disclaimer: I am NOT a lawyer, so please consult your attorney on this matter. I’m simply offering helpful tips based on my experiences to help YOU maintain both your reputation and your business. Absolutely seek legal advice from a local, trusted, experienced attorney, but in the meantime, you can take measures to stay in a safe zone.

Assignment Contracts: I’m Not a Fan

If you haven’t seen an ad or heard someone recommend assignment contracts, consider yourself lucky. They’re all the rage, but personally – they don’t get my vote.

Here’s why...

Real estate investment trends are demonstrating more and more that using assignment contracts – incorrectly – can lead to bigtime legal implications. The problem is too many investors are using assignment contracts without the proper chain of title, and they’re getting into trouble.

Like, big trouble and paying fines unnecessarily.

You may not even be aware perhaps because it’s not prevalent in your state and in your face. But it’s happening, and you need to be sure you’ve covered your butt by becoming a part of the title.

Avoid Legal Implications by Keeping it Real

So how can you avoid the legal drama?

Rule of thumb: Always keep your business processes and practices transparent to keep your business reputable, credible and making money. In other words, don’t be shady. Be honest, be ethical and fully disclose information when it’s necessary.

Once you’ve got those practices on autopilot (which should be a no-brainer), understand that real estate commissions are cracking down on wholesalers who are making offers left and right but not closing on them.

Remember this – if you’re putting in an offer, you’re expected to close. This isn’t rocket science, but some wholesalers are greedy, overzealous, trigger happy… whatever you want to call it.

In short, they’re foolish.

Secure Your Cash Buyer First

If you can’t find a buyer, don’t put in an offer!

If you don’t have a buyer’s list, that’s a problem, people!

chainYou need at least a dozen names on your cash buyer’s list before you can make an offer. Even seasoned investors with hundreds of cash buyers are getting their wrists and their bank accounts slapped, so Big Brother IS watching, and he IS going to raise his eyebrows if you consistently fail to close.

So, review your numbers to be sure you even have a deal. (We’ll probably go over this in detail some other time, but know your finances before you put offers on the table.)

Look, things happen. I get it...

Sometimes you have no choice but to back out of a deal, but more often than not, you should be closing. It’s just good business, and you don’t want to be in the business of bad business. If you raise red flags, you will be reported. That’s the way of the real estate world can be, and I don’t foresee it changing anytime soon.

Close as many transactions as you can. That’s the bottom line.

Know Your Chain of Title ABCs

So how do you become properly recorded on chain of title as the owner of record?

Meet the A to B – B to C transaction where YOU are always “B” in this equation (in case that wasn’t apparent).

This commonly used transaction is a way for you to close with the (current) owner of record - the person you found and created a contract for. Once you’ve secured that person, and you execute the contract, you’re completing the A to B part of the transaction.

Again – I repeat – you need to have your buyer lined up before you get deals under contract.

Once your A to B contract is in play, you can begin the B to C contract process that will allow you to sell the A to B property to your end buyer.

2 Ways to Be Documented Owner of Record on Chain of Title

1. Always use an investor-friendly title company and talk to them openly about using an end buyer’s funds to fund your transaction.

This is also known as the “simultaneous close.” Some say it’s illegal, but I assure you it is NOT. Many underwriting companies are well-versed when it comes to simultaneous closings as long as an affidavit is signed by the end buyer allowing you, the investor, to use their money to fund the first transaction.   

2. What if you can’t find a title company that’s winning to simultaneous close? Not a problem. A company like Best Transaction Funding can help you get properly recorded as the owner of record on the chain of title. Just submit your information through the website and apply for transactional funding for that day.

I’m Not a Fortune Teller, But….

The bottom line is this – make good offers that are backed with the bucks to close deals. Have the mindset and take action ensuring that you WILL close every transaction (even though some will fall through). That’s your end goal.

Remember to keep your business transparent, stay out of gray areas and always use investor-friendly title companies.

I don’t have a crystal ball (I wish), but I can tell you this...

I believe assignment fees will soon be considered commission. So if you’re not a licensed sales person (agent) in your state and you’re receiving “commissions,” you’re in big trouble. This is why I don’t recommend assignment contracts unless they’ve been reviewed and given the thumbs up by an attorney.

Talk to Us!

Have a comment about chain of title? Talk to me below.


Do It To It! Immediate Action Steps

Maintain longevity in this business - stay out of trouble by being honest, transparent and ethical.

Find investor-friendly, knowledgeable title companies who will work for you.

Consult an attorney in your state to be sure your assignment contract covers all necessary bases.

Make sure you are documented as owner of record on the chain of title, always!

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