Real Estate Investing - Don't
Just GET THE DEED - The Infamous "Kitchen Table Closing"
By Lou
Castillo
Q: Hi Lou, I
have a property under contract that I want to resell/flip as-is to a
rehabber/renovator, but I may have to purchase it quickly and simply record the
Quit Claim Deed, without using a closing attorney or waiting for a title exam.
I need your advice.
The seller just
called me and left a msg on my voice mail stating she did not want to sell to
me because she received a better offer. Now I do have it under contract, with a
signed purchase and sales agreement from her, and I had her sign a Quit Claim
deed, too. I did that because she was fighting with her sister over ownership
of this property, which was given to her by her mom who passed away 2 years
ago. The deed is in her name alone, not the sister's, moms or anyone else. I
did see the deed and made a copy of it.
So, I thought I
should get the Quitclaim deed, just in case I needed to record the deed because
of the family issues, and she agreed as well. She said she just wanted to get
rid of this property. I also filed at the court house an Affidavit for the
property showing I had it under contract, as you all recommended. I'm in the
process of getting a title check done by title company.
Now what do you
recommend I do? Should I go back to the court house and record the Quitclaim
deed or wait until the title search is done and record the deed, or walk away,
or what? If I chose to wait and schedule an attorney to do the closing, would
they except the title search done by the title company?
Thank you, G.
A: Hi G., what
you're describing is a little risky, yet it's done pretty often. It's a VERY
good idea to get title exam run first, before doing a "kitchen table
closing" and getting a Quitclaim Deed (QCD) from Seller, if you're not
using/hiring a closing attorney to do a formal closing....
Normally we
wouldn't recommend you do your own closing, but since you're rushing your
purchase so you can "preserve" your deal before the other Buyer moves
in and buys it, and/or before the sister does anything rash.... just be sure
that the transaction has been up front, and that you truly intend to move
forward as you agreed. I think that I would go ahead and file/record the QCD. I
don't see that you have anything to lose, and a lot to gain.
I would let the
seller know that she can not sell to someone else because she already has a
binding agreement to sell to you, and you already "technically" own
the house (since you recorded the QCD), and that your plan is to review the
deal like you had already agreed with her, and if you decide not to do the
regular closing as described in your Purchase & Sale Agreement, then you
will release the house (ie YOU'D have to sign and record another QCD, canceling
the prior QCD from her to you) for her to sell to whomever she likes.
It was great
that you already recorded your "Affadavit of Contract", putting
yourself into the chain of title, showing that you have a contract to buy the
house. Now if all of this "blows up" and you're not able to, or
choose not to record the QCD for some reason, the Affadavit you recorded will
protect you, and allow you to still purchase the house in the future (if the
Seller tries to sell to someone else or tries to refinance the house).
By filing the
QCD you become the official owner of the property. No one can take the deal
away from you. Since you're buying it "subject-to" any loans, you
will need to start making the payments on any loans (call the lenders to get a
"statement of account" to make sure there are no surprise back
payments or penalties you're "inheriting"). I'm assuming you gave her
no/low equity/cash at this point, so you don't have any funds invested, or at
risk with the seller. Now you've got time to evaluate all the financials and
make an informed decision. If in the end, you do not want it, you can always
Quit Claim the property back to the current owner, as you told her earlier.
**Note to all
my fellow investors : you don't want to even play this "kitchen table
closing" game, unless you have a strong indication that this is a good
deal and you're 90% sure you're going to go all the way with this deal. Taking
ownership via a quick recording of a QCD, and then bouncing ownership back to
the original seller with another QCD later when you've "had a chance"
to do your due diligence - is not a cool game to play. We're only walking
through it in this example, because the investor is trying to rush to protect
his good deal from being "sold again" fraudulently, by the seller to
another buyer.
But you also
don't want to suddenly own a property where you have some potentially unknown,
overlooked liens that may be attached to the house, that you'd have to pay off
before you re-sold or refinanced the house, and no ability to insure yourself
via title insurance,. So consider these 3 risks you've got with a "get the
deed, kitchen table closing" --
1) You probably
won't have the Seller sign the standard "Owners affadavit" and
"Gap affadavit" that attorneys use, where the seller warrants that no
other "bad stuff, liens, judgements, etc." exist against him or the
property, other than what the title examiner has found.. AND even though Seller
signs those Affadavits, we've had some sign knowing they're lying and
committing fraud. Title insurance would cover you, if Seller lied, but you
can't get that (see #3).
2) title
examiners are human and make mistakes and overlook title stuff (liens,
judgements) b/c they get too busy, too tired, etc.
3) You CAN'T
get owner's title insurance to cover all of the above issues if you close the
deal yourself at a "kitchen table", because an attorney at a closing
can sell that policy to you and you DO need to buy one.
We have had
several instances where either the seller has lied about other not-yet-filed
judgements and loans (see #1), or title examiner has missed a significant lien
during the title exam (see #2) and we've been covered by our title insurance
policies.
If you have
those types of title problems and NO title ins. policy, you've got to pay all
the legal fees and/or pay off the liens, etc. before you can re-sell the
property. Soooo, unless you're a serious gambler :-) close with an attorney so
you can get the Seller to sign the 2 Affadavits and get yourself an Owner's
Title Insurance policy.
And yes, about
50% of the time attorneys will buy a previously done (must be within last 30
days usually) title exam and use it for the closing--just ask your attorney in
advance.
Now, if the new
Buyer stills wants the property, they can buy it directly from you. The current
homeowner, is of course, going to be upset and is probably going to say you did
something illegal.
Q: Can the
title company issue a Limited Warranty Deed, if not who provides a limited
Warranty Deed that I have seen other wholesaler issue to the rehabbers?
A: The closing
attorney can fill out a Limited Warranty Deed on your behalf as the seller
(when you resell the property), saying basically that you warrant that
ownership of the property was "valid" during the *limited* time
period that you owned the house.
Best of success
& abundance,
Lou Castillo
Lou Castillo
has been successfully investing in real estate since the early ‘90’s. Castillo
was on his way up the corporate ladder until he recognized that real estate
offered a greater opportunity for financial freedom, and for the lifestyle he
desired. Lou has a knack for developing powerful & proven systems that work
in real estate and has authored more than 7 books and courses on the subject.
For more
information, visit http://www.Investorriches.com or sign up for his
Powerful Investing Tips at http://www.Freerealestatestrategies.com
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