00:01

Welcome to Episode One of Season 14 of the Growing Empire Show. Today we're going to talk about understanding the title process. And I have brought my team from Steel Abstract to share in the discussion, so stay tuned.

00:16

Welcome to Growing Empires. Hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.

00:37

Well, welcome Michelle and Audrey to the Growing Empire Show. I'm so glad that you're here. Let's kick off this episode with you sharing a little bit about yourself.

00:47

Hi, I'm Michele. I've been in title for over 20 some years. I started out not even knowing what title was and learning to love it. Title is something that you never stop learning. And this is Audrey was Steel Abstract.

01:06

Hello, I'm Audrey. I'm just getting into the title field. I started with Michelle a few months ago. And it's definitely a lot of learning. And it's something that I'm really enjoying.

01:17

And how do you guys work as a team, you are both handling all transactions that are coming in to Steel Abstract?

01:24

We work on together. Okay, how you're usually opens to file and orders to title and tax certs. , and once it comes in she or I will input the information in an imprinted title commitment. Okay, then she usually sends them out to the real estate agents.

01:43

And then as far as closing, she both are handling the closings.

01:47

I usually do the CDs and get the approval and then she'll help with the copies. And then we both go into film together. If I'm not here, I'm sitting in for the settlement.

01:59

Well, today we're going to talk about the actual title process. And I've asked Michelle and Audrey to join me to share their knowledge in the title business. We're gonna jump right in. And my first question is, what exactly is a title search?

02:15

A title a search goes back 60 years on the property, they'll show any defects that are found or an example like open mortgages that haven't been cleared, federal liens, judgments.

02:29

Okay, why 60 years? Why so far?

02:33

That's what the full search covers. We do a little search unless it's like a refinance or just like a breakdown, which just goes back to the current owner.

02:45

Okay. And that's standard across the industry, right? So if you're going to any title company, they're all doing 60 year searches, right?

02:55

They should be.

02:57

So we help self? Is that what you're saying? Yeah. So as the consumer, you should be asking how far the searches go back. Am I correct? Is that what I'm hearing? Yeah. Okay, wonderful. So can you explain the title search process to me in detail?

03:16

First, you get an agreement of sale, then we open the file and order tax certs and do the title search. Once the search comes back in, we look over it to see if there are any defects that need to be cleared up. If there are no defects, and we have to type up the legal description which comes from the deed, put any mortgages liens judgments, which will come from the search and any exceptions which would be easements, right of ways, property lines. That's about it. Okay,

03:48

So if I understand this correctly, the title search process is really a way to research the history on the property and make sure that when the property is transferred, it's transferred without any, essentially, issues, right? Like uncleared easements or and making sure that it's the property is transferred free and clear. Is that correct? Yes. And the title searches the first part of that process. Correct. Okay, now, you mentioned tax certs, what do tax certs actually show you

04:23

They show you the county tax amount, the school, the city, water and sewer enters any rental registration licenses. Anything that would be a lienable item, delinquent taxes. They'll tell you who the delinquent carrier is if it's pouring off you have to order another cert through them if it's Lehigh County,
elite, you will have to order a texture through them and then it'll give you what is your I'm standing for like the water and sewer through Lehigh county or city of Bethlehem. And then once we get all that, and we get all the tax shirts, and then it'll tell us exactly what's outstanding
and what needs to be collected and paid.

05:14

Okay. And if I understand this correctly, you're not actually the one doing the actual search, right? That's a searcher? Okay. And then the searcher provides the title agent, you Steel Abstract, with the information that they found in the search. And you're then getting simultaneously tax certifications from the municipalities and the taxing authorities. And then you as the title agent are reviewing both the search and the tax certs to identify items that have to be cleared for that free and clear transfer. My correct on that? Yes. Okay, wonderful. So how long does the title process actually take?

05:54

Depending on the property and what's all involved, we can get a search back within the two or three businesses. Some take longer, depending on how in depth they have to go. Tax certs could take up to three weeks.

06:08

Okay. Why did tax sorts take so long? Is that just the municipality or…

06:14

Yeah.

06:17

So that's just the initial search process. So if somebody was going to be doing like a cash transaction, if the search takes, you know, two to three business days, sometimes three to five, and then tax certs take three weeks, would you say it's safe to say that even if you're closing in a cash transaction, you probably should not try to close in under 30 days?

06:42

I would say so unless there's a way of proving all the taxes being paid. Okay. Search takes three to five business days. And if I push buttons, I can get it sooner. But tax certs, there's no way of getting them any sooner. They can provide paid in full receipts and hold money in escrow just to make sure nothing comes back to get it to close sooner for cash deal.

07:13

Right. But even if they provided receipts of like current paid taxes, that wouldn't necessarily tell you about back taxes. Correct, correct. Or other liens that they're not telling you about? Correct. So that's why you would suggest an escrow. That sounds really risky, though, it sounds to me like you're better off waiting to make sure all the relative searches are back, if you want to make sure that you're protected. If you're an investor buying a property,

07:37

I would say 30 days to 45 days to play it safe.

07:42

Okay. All right. So what are some of the common title problems and claims that you see

07:50

Some problems and claims, we see your prior owner mortgages, that are private mortgages that were never satisfied. That the person holding the mortgage died, so there may be no proof proof of payoff. Name verifications, make sure that they're two separate people, municipal liens not being satisfied, and having to call the company that has the lien to get them satisfied.

08:18

Okay. So how do you clear some of these title problems?

08:23

Well, we can always reach out to a company which is called Require. they can usually get a mortgage satisfied, if they don't, sometimes the underwriter will insure over it. Or we could reach out to the lender and try to get it satisfied. If it's a prior owner mortgage, though, they usually want signed authorization from that seller. And usually we can't get that. Required does have a good turnaround with getting mortgages satisfied. We had one instance where there was a development that had a mortgage on the property and nobody could get it satisfied other than Require, and it took about three weeks, but they weren't able to get it. And that was on the whole subdivision of the property. So they passed a client like almost $400 I think to get it done but they did do it. With municipal liens being open and not being satisfied, we have to call them and stay on them about satisfying and show checks that they cash, showing that it's been paid. And usually the attorney that works for the delinquent taxes is the one that needs to be satisfied, to satisfy it.

09:52

Okay, does every company use Require

09:57

um, I don't know. I'm not sure about

10:01

The issues that you brought up that are these common title problems, do you feel like this is maybe an area where all title agencies are not created equal? Like, you know, are some going to try a little harder than others are to get something satisfied so that you can go to closing? Because it sounds like it's an awful lot of work.

10:23

It is an awful lot of work. And yeah, I do think some of them don't try as hard as they should. Some of them just want the seller to handle it, which isn't great, either. Because they don't know where to go, or where to turn and get the information. So yeah, I think they could try a little harder.

10:47

So what should an investor look for in a title company, then? If they're looking to invest in they're trying to find a title company to do business with on a regular basis, what should they be looking for in that title company?

11:00

Everybody's time is valuable. So they should look for somebody that's not going to keep them at closing for over an hour. They should also look for a title company that will go over and above what they should to get it done. What do you think?

11:17

Somebody that has experience working with investors. That has a good reputation and offers competitive rates.

11:26

Those are all good points. I think that's really critical.

11:30

What underwriters do they use? Especially like Conestoga, with giving different rates for over a million dollars, which will save them money, and just making sure they know what they're doing basically.

11:45

What's the underwriters role and the title?

11:49

They insure the policy.

11:51

The title policy, okay. So when should an investor start the title process.

11:59

So it's tricky. Because you want to make sure your inspections are good, and the appraisal comes in. However, depending on the area, the appraisal could take longer, or the inspections. Because if the buyer and seller can't meet somewhere in the middle, it could end up being a dead deal. So I mean, if
they want to settle within 45 days, I would at least try to get ordered as soon as possible. But I would say maybe after the inspections.

12:31

Okay. In the real estate business, it's fairly common for buyers and or investors to order title searches, well start to title process as soon as the agreement of sale is signed. But you're saying that, you know, there's so many things that could happen in a deal that could void the deal that you would recommend trying to wait as long as you can until you were certain that the deal goes through? Is that correct?

12:57

Yeah. I mean, I would wait a little bit. Because a lot of times, once you get through inspections, it could be a dead deal. And then the title company puts out the money for the search and tax certs. But if it's a dead deal, they don't get that money back until it actually settled. Okay, go out to your appraiser. And if it doesn't appraise, and they don't move forward with it, they have to pay the appraisal, or they're not going to do it.

13:30

So if you're the type of investor that throws a bunch of deals out there starts title searches and the title process and then cancelles a high volume of deals, you could be essentially damaging your relationship with a title company. Does that sound accurate?

13:45

Trick question Jen. I don't want to say you're gonna ruin your relationship. But it's gonna be harder to keep a good relationship because of all the work that title companies doing in that deal.

14:07

Yeah, well, like you said, the costs associated with it. There's a loss for the title company, so yes, okay.

14:14

The episode will continue in just a moment.

14:18

As an investor, we know it's important to stay on top of market trends and real estate opportunities that add value to your portfolio. We also know that having a trusted source of reliable information to help you stay a step ahead of other investors is critical to your success. If you're interested in having these types of resources, as well as access to me and my team, I invite you to join the Empire Investment Club. A free service that gives you an easier way to make sense of today's and tomorrow's real estate opportunities. As a member of the Empire Investment Club, you'll get access to relevant resources and investment focused experiences such as live interactive webinars, market trend presentations, and investor socials designed to equip you with what you need to succeed. So whether you're an active investor, passive investor, a combination of both or just starting out, the club is where you'll get what you need to build a portfolio you love. To join, just head over to JenniferdeJesus.com, sign up, and we'll see you in the club, where everyone's on a journey to becoming a better investor.

15:17

Are their claims in the title business you have to deal with?

15:21

There are. There could be federal taxes, back taxes that may have been missed by the searchers, or the title insurance company, conflicting wills, missing heirs, liens, or for unpaid child or spousal support, repair work, and undisclosed owners.

15:41

Or you mean claims as in like, somebody's putting, opening a claim with their title insurance carrier because of something being missed prior after closing?

15:53

Both. Audrey did a really good job of explaining the types of claims we're talking about. But to me, this is like where it all starts from. Right. So like if a searcher miss something, and then you know, the title company missed something, or maybe there's an undisclosed owner that we find out later, right. Those are the things that happen in the title process that could eventually be a claim, like an insurance claim, after the fact correct? Yes. So to me, it sounds like going back to what we were just talking about with like, have any experience title agent, right, the more experience they have, the more likely they are to have been able to identify some of the common issues that come up and know where to look. So the more experienced the title agent is in the industry, I would assume the less likely you are to have a potential claim or problem post settlement.

16:54

Yeah, I mean, everybody's human. So we do all make mistakes, too.

16:59

Yeah. How important is the underwriter in this whole process? So they're the ones insuring it. But are they are they additionally looking at the title search or looking for potential issues?

17:13

It depends if the title person asked for them to take another look at it to make sure they're not missing anything. Make that extra step.

17:25

Okay, so So in other words, like if you were doing a title, process, title transaction, and you had a question, like, maybe you weren't 100% Sure, because something just wasn't right to you. You could actually lean on your underwriter and say, Hey, can you look at this for me and tell me what you think about this? Yes. Oh, that's great to know. So that's, they're a good resource for you, as well as being the one that insures.

17:47

Yeah, okay. I always reach out and ask your question, if I'm not 100%. Sure.

17:54

Okay, good to know. What is title insurance?

18:00

Title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in the title to a property. A title insurance policy will cover numerous risks, like flawed records, incorrect ownership and falsified documents.

18:25

Okay. And there's two different types of insurance. Am I correct? There is lender insurance and then owner insurance. So what is the difference between the two?

18:36

Lenders protects the lender and owners protects the owner.

18:41

Okay, so in a transaction where there was no lender, there would not be lender insurance, correct? It would only be the owners or the purchasers insurance? Yes. Okay. What is an enhanced policy and who should buy one?

18:56

Enhanced title insurance policy covers all of the coverage of a standard policy plus against additional risks. The enhanced policy covers encroachments after the policy date of the new coverage, and only
individuals can purchase enhance policies. LLCs cannot.

19:17

Oh, that's interesting. LLCs cannot purchase enhance coverage. Can investors purchase enhanced coverage if they're not owned in an LLC if they own the property in their own name?

19:29

Yeah. Okay, yeah. As long as you're not in an LLC,

19:33

As long as you're not in an LLC, okay. So what is not covered by Title Insurance?

19:40

Well, like fire, theft, pest infestation mold. If one member leaves the LLC, it was void policy.

19:56

Void the title policy. Yeah. So in other words, if you You own a property and you dissolve the partnership. It voids your title policy.

20:07

Remember, I think it was Pawnee Street that you guys bought? Yeah. And then seller, one of his partners left the LLC, we ended up open mortgage, his policy was void. That's why we can get a letter of indemnity.

20:26

Okay, that's good to know. And title insurance is for the the ownership of the property for your ownership of the property. Correct?

20:34

Okay, so who pays for title insurance?

20:41

It would usually be the buyer unless it's disclosed otherwise.

20:47

Okay. How can an investor save money on closing costs when purchasing a property?

20:52

Well, if it's over a million dollars, they could save money that way. If we're, if you're buying cash, and we're holding open the policy for them to refinance out within 12 months, that would save them money. If they buy it in their personal name, and or if they're wanting to transfer it over to an LLC to buy in the LLC, so they don't get hit with the 2% transfer tax again.

21:25

Okay. Very,, good. Those are all good, helpful tips. So how do LLC is play a role in the title process?

21:32

Well, they can be the buyer, they can be the seller. They can also be multiple LLCs in an LLC.

21:41

So if you're going to purchase in an LLC, what are some of the important docs that you're going to need to produce?

21:48

The operating agreement, your federal ID number. The Pennsylvania, I can't think of the name of the form, but definitely the operating agreement. If there's multiple LLCs and that LLC, you need all of the LLC documents for each LLC. And then you need a good standing letter and making sure that taxes have been paid to the IRS.

22:23

Okay, that's on the good standing letter, right?

22:25

That's a different form.

22:27

Okay. Okay. So what's the good standing letter? What's that? Just says that you don't have any, you don't have any, like judgments or anything against you.

22:35

Yeah, that you're in good standings with the state. Okay. The tax form shows that there's no outstanding taxes. That all of your taxes have been paid.

22:48

Okay. And then I would assume you also need the Certificate of Organization.

22:53

That was the form I was looking for.

22:56

Okay. That was the name you couldn't that you were having trouble is a Certificate of Organization. So you need the operating agreement or Certificate of Organization, your good standing letter and your tax ID number form. Okay. How does an investor avoid double transfer tax when using an LLC to purchase? We you mentioned this a little bit earlier, but I want to just kind of elaborate on it a little bit.

23:20

How do they avoid it?

23:22

Yeah, how do they avoid paying double transfer tax when they want to buy in an LLC.

23:29

Okay, so if they want to buy in an LLC, they should have the name and they want to buy it under right away. Because if if they use the word assigned, that triggers double transfer tax on the agreement. They should also not purchase it under their personal name and change it to an LLC because then
they're going to get hit with 2% transfer tax.

23:55

Okay. So in other words, you're saying that if you're buying in an LLC, number one, you don't want to close in your own name and then transfer it to an LLC, because that's going to trigger transfer tax. You're also saying you should avoid assignments, assignment clauses in agreements a sale? So in other
words, what I'm understanding is that if you're buying in an LLC, you should be setting up the LLC before you enter into a purchase contract and the purchase contract should have the name of the LLC buying the property

24:27

You should. Or use that Novastation letter.

24:29

Okay, or you can use the Novastation letter to avoid avoid the transfer. Okay, so do you feel that all title companies are the same? No. Tell me why.

24:44

Well, the procedures the same. But the relationships with their clients aren't the same. Some aren't the very friendliest people, and some are not so prepared, I guess. I hear about people waiting to three hours that settlement or settlement should take no more than an hour, tops. Unless there's things going on with the walkthrough, and that would be out of the control of the title. Okay. Do you think all title companies are the same?

25:22

No, I do not. I love how you turn my questions around on me, though. But I'm not afraid to answer your questions. No, they are not all created equal. Definitely experienced, you had mentioned this earlier. And that that is such an incredible amount of difference between one title company to another, it's almost like, you know, right? You know who just got out of kindergarten, you know, who is a, you know, a person with multiple master's degrees, right? There's, there's definitely a difference between the experience level of title agents. And, you know, my opinion is that real estate is everyone's single largest transaction of their life. It's where they spend the most money. Whether it's the home that you live in, or the investments that you're buying, this is everybody's most valuable asset. So to trust that piece of your financial health, right? Even if it's the home that you live in, to somebody that doesn't have experience, or is not truly like a partner to you. It's just, it's crazy. To me, it is really crazy. To me, it's almost like allowing your child to be watched by, you know, wolves, right. It's just, it's just crazy. I've definitely seen a lot of things over the years. Probably the most frustrating to me, from the real estate side is title agents that just don't want to work hard for the clients that are actually paying them, right. They don't want to accommodate them with closings, they don't want to try to accommodate them when they're at a state buyers, right? It's not always feasible for people to fly from California to Pennsylvania to have a settlement. Right. So if the title company is not willing to figure out how to accommodate, you know, that client, I find that to be issues. You know, and I've just, I've just seen a lot of things over the years I've seen, you know, you know, there's title agents, like yourself and Steel Abstract, which I'm very proud of. Because you guys, by far go out of your way to make sure that every client is satisfied. It's why you consistently maintain a five star rating, you know. But you just you literally do absolutely anything for the clients that you represent. And that's just not the same in every title business. It's just, it's just not. You guys will help them with their good standing letters, you'll help them with any challenges on the agreement of sale, you'll try to sort things out, you'll be resourceful, you'll come up with different ways to satisfy issues. And most importantly, I feel like you talk through it with the client, so that they understand what's happening. And I just think that that's a really critical piece of a partnership. Especially when people are buying their, you know, their life investments here. So, but thank you for that. That was tricky, but I like it. But last question for you guys. What questions should an investor be asking before they pick a title company?

28:34

Well, like you said, with a deal with outside investors? What their turnaround time is, if they do mail away packages? Have they worked with LLC and investors? What underwriters do they use? Do they hold policies open? A lot of title companies don't hold open policies at.

28:58

All good points. All really good points. Well, I really appreciate you ladies. In the time that you took to answer some of the questions for our our investors for our listeners, it was very, very helpful. And this just goes to show why, why you guys are just cream of the crop, you guys are really top notch in this title business for sure. And why I'm so proud to be a part of it with you guys. So thank you both for all that you do. And I really appreciate your time today.

29:28

Sure. Thank you.

29:30

Bye bye. I hope you've enjoyed the conversation with Michelle and Audrey from Steel Abstract, as we discussed understanding the title process. And until next time, take care.

29:44

For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio visit growingempires.com