In the past 20 years of performing title research for investors, we have been fortunate to hear some great stories of success and failure, which have been interesting and informative. Passing these along to other investor clients is often helpful and entertaining. Here are a few from our “Title Search Chronicles”
South Carolina – A woman had called to inquire about obtaining a title abstract for an investment property coming up for auction in a few weeks. As we discussed the order, she explained that she wanted to get a title search “this time” because she did not get one on her last deal. It turns out that she became an accidental investor the year before. While looking through classified ads, she had noticed a property listed for sheriff’s sale with a familiar address. It was one house down from where she grew up as a child. Curious, she drove 15 minutes back to her hometown and saw the property. The auction starting bid was $10,000 and she knew from personal knowledge that the neighborhood was worth more. Offering a high bid of $16,500, she won the property. A friend helped her paint the house and fix some minor items. After putting in another $5,500 she sold it for $42,000, netting almost $20K. The fascinating part of the story was that she was 92 years old at the time, and the granddaughter of a former slave in South Carolina. The $20,000 was the most she had ever earned in any year of her life. The better news was that she was going after it again!
Los Angeles, CA – A man called asking for a rush title search on a property he had “just acquired.” He was excited about the great deal he snagged at a foreclosure auction. He went on to say that the house had an assessed value of $1.2 million and he got it from Countrywide with a winning auction bid of $280,000. Upon later examination of the title abstract we performed, it was discovered that the Countrywide auction was for a second mortgage. The first mortgage of $880,000 from Wells Fargo was still in place. There was no way out of the deal as he had already paid certified funds for his winning bid immediately upon sale as required by the auction terms.
Boca Raton, FL – A man called about a title search on his own property that he had paid for as a cash deal, no mortgage. He had been getting some confusing letters in the mail about refinancing his property. He lived in New Jersey and had purchased the small, single-family residence for $102,000 to be used by his son as a college residence while he went to school in South Florida. It turns out that the year after he moved in, the son, who had a similar name as his father, had forged a deed into his own name. Once the titleholder, the son applied for and obtained a 75% loan-to-value cash out mortgage. Since the property appraised for $125,000 at the time, he managed to walk away from the closing with about $100,000. At this point, he decided that college was not as much fun and took the money to travel Europe. He left the property in the hands of some college buddies who installed a hot tub, cabana, and new kitchen, all on credit. The mechanics liens added another $50K to the clouds on title. The father went from having a $100,000 free and clear house to a trashed college frat house worth maybe $120,000 but encumbered by $150,000 in liens.
Alpharetta, GA – A client had purchased a home for cash in the amount of $310,000 in a relatively upscale neighborhood. The next year, he went to pay his property taxes and discovered that a mortgage company had already paid them. Our title search revealed that when the property was closed at his purchase, the prior owner had been able to use an escrow loophole to place a credit line for $80,000 on the house after he had sold it to our client. He did it by first being aware that his buyer was paying cash and had no mortgage. Then he applied for a LOC from a “correspondent” lender who did all of the paperwork by mail. The lender did their due diligence and verified that the man owned the property, but would not have discovered that it was under contract. The borrower/seller waited until the day of closing to send back his completed loan paperwork. By the time the lender received he had already sold the house. They funded the loan and mailed the mortgage instrument to the courthouse for recording. Since it was a correspondent lender, they did not do a “bringdown” search to double check the ownership again. The seller made all of the payments on time, so there was no notice to the buyer. It turns out that the seller had negative equity in the property when he sold it, and needed the extra cash to get out of the house. Bonus: The buyer and seller had sons on the same baseball team. Awkward.
Seattle, WA – Investor lien mitigation discovery: Many years ago, we had a client who bought mortgage foreclosures. On one deal, there was a lien listed on the title search we provided, but the lienholder had not filed an amount for the lien on the documents. So we called the lienholder to determine the lien amount. They looked it up and calculated $38,000. But just before hanging up, they said, “but we would take a discounted amount of $5000.” Since then, we have recommended to investor clients to contact all lienholders listed on title to ask about discounted settlements. In no instance have we heard of a lienholder not accepting a lower amount. Sometimes much lower. The advantage for the informed investor is that at auction, competing bidders will either avoid these lien-encumbered properties or adjust their bid to reflect the full value lien amount liability. The investor who inquired about this “lien mitigation” can bid more ambitiously knowing that they have the discounted offer in their pocket. Indiana – In one instance, a title search showed records of a two-bedroom house, but the listing was a 3 bedroom. Upon further inspection of the property, it was discovered that the third “bedroom” was actually a converted porch. The bathroom was actually the original utility room. More interesting, was the installation of the shower. The shower head pipe came out of the wall, and hanging from it, was a mirror on a chain – presumably used for shaving while in the shower. It appeared tacky, but not completely unexpected. Until, that is, the mirror was removed and revealed the fuse box in the wall, 8 inches below the shower head! This was one of the old school fuse boxes with the screw in copper fuses! Title researching sometimes is a tedious task of pouring over obscure, bland, recorded documents, scratchy microfilm, and dusty deed books. But the stories around the research can be fascinating.
Written by: Dave Pelligrinelli