00:01

Welcome to Episode 2 of Season 14 of the Growing Empire Show. Today I'm here with my special guests Rick Hecker. He is the Senior Vice President and General Counsel to Conestoga Title Insurance Company and we're going to discuss estate sales as well as foreclosures. So make sure you
stay tuned.

00:20

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.

00:41

So welcome, Rick 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 your background and the work that you're doing now.

00:50

All right. Hey. Well, thank you, Jen. Thank you for inviting me to be on the show. I'm looking forward to seeing what we can chat about here. Background wise, I am currently the senior vice president and general counsel for Conestoga Title Insurance Company, which is a regional underwriter, servicing Pennsylvania and a couple of the surrounding states. Background lies though prior to joining Conestoga. I've been in this capacity for about the last five years. And prior to joining Conestoga. I was in private
practice focused solely on real estate and was a partner in a firm in Lancaster Pennsylvania. While there I did investor work. All kinds of investor work. Showed up at foreclosure sales, tax sales, helped investors and guide my clients through all kinds of different transactions. One of my favorite ways to describe this is if you were in Lancaster County at that time, and you saw a “we buy any house” sign on a flagpole somewhere along the way, they probably one of my clients, I probably knew who they were, and knew what they were about. So

01:53

Wonderful. So today we're going to talk about the title issues that investors experience. And I've asked her to join me to share his wealth of knowledge he's gained throughout the years on the subjects. We're going to jump into conversations about the state's foreclosures, tax sales, wholesales, and so on and so forth. So let's just jump right in. My first question for you, Rick is what exactly are estates? And why are they attractive assets to purchase amongst investors?

02:20

Yeah. So estates are one of those things that I truly believe that an investor that knows how to handle property coming out of an estate is going to really distinguish themselves amongst their competitors in about the next seven to 10 years. And the reason why I say that is we have the largest generation in
the United States is the baby boomers. And by 2030, all of them, the entire Baby Boomer generation will have hit 65. Which means the older ones are at that point right now, where they're passing on their property. They are transferring their wealth from the form of the real estate that they currently hold into liquid funds for medical expenses for care or to pass on to their children in some some particular way. And so if you are, if you are familiar with the estate process, if you're familiar with those individuals that are looking to move a house out of an estate, I think you're going to have a real, really big leg up. Because in in reality, especially when it comes to estate, obviously, maybe I should just back up. An estate is obviously something that is created at the time that somebody passes away, and it passes on
their assets in accordance with a will, sometimes without a will. But it passes on their assets to their heirs. A lot of times the heirs are the children of the decedent. Sometimes they're not related to the decedent. And the long and the short of it is, it can be a very cumbersome process. Sometimes a death
is untimely. Sometimes the property wasn't particularly well cared for at that time. And for an executor or administrator of an estate, it's a burden to move on real property. It's probably one of the hardest things that they have to do, because it's not like a regular sale that you and I may have where we have
a chance to put our repairs into the property to get it looking spiffy and to get it onto the market. It is where it is, how it is. And that can be really hard to find a buyer unless you have a buyer that has an appetite to repair and fix those things up. And that's where real estate investors can come in. They can offer an easy seamless way to get the property off of the estates hands with money quickly so they can fund the other needs of the estate. Because a lot of times the estate has problems with liquidity. When the individual died, they may not have had the money that they needed for the funeral expenses. So there may be family members that are fronting funeral expenses. It may all be tied up in that single asset. And so getting it out and getting it off of the estate's hand. fantastic opportunity. I think you're gonna see a huge growth in that in the next seven to 10 years.

05:01

Interesting. So what questions should an investor be asking when, you know, potentially of their title agent, when they are looking to buy estate transactions?

05:12

Yeah, so estate transactions are tricky. And there are some really important questions at the outset. And one of the very first ones, the hardest thing about it is identifying who is the seller. Because especially if you're dealing with maybe an unsophisticated party, they may not realize that an estate
typically needs to be open, not all the time, maybe the deeds set up in such a way that the individual inherited it by virtue of language in the deed. But a lot of times, that's not the case. And if you're in Pennsylvania, nine times out of 10, that's not the case. There's usually an estate that needs to be open.
And so you may have an heir of a property that's coming to you saying, Hey, I own X, Y house down on Main Street, and I'd like to sell it to you. So the very first thing you have to do is identify who's the actual seller here. An experienced title agent is going to be able to work miracles for you. And in that realm, because they're going to be able to pull the deed and tell you Alright, here's who title is really. And, and that's, that's not a bad thing. If you have somebody that that may be an heir to an estate that's approached you, just because you have to go back and say, Hey, let me help you set up the estate so you can actually sell this property. Now you've invested a little bit of work, they're gonna feel a little bit of obligation to you. And you're showing your value as the as the investor. So again, not a bad thing. But it's a big, big piece of this is identifying who actually has the legal authority to sell. Outside the legal authority to sell, other things that you need to be worried about inheritance taxes come in, in a big way here. Pennsylvania has inheritance taxes, there's also a state taxes. I'm going to set that to the side generally with the statement that unless you're dealing with a very large estate, the federal government has stepped out of the estate taxes. So we don't worry about those too much in the investment world. Occasionally, they come up but not not heavily. The big place is the inheritance taxes and the
inheritance taxes are something that needs to be paid. Because the long and the short of it is it's a lien against the real property even if it's not recorded. So unlike a mortgage, where there's something on record that we can look at and say, Hey, we need to pay this debt. Inheritance taxes are what are called “Inchoate”, which means that they the lien exists just by the virtue of the fact that they're that they are due and payable. So again, an experienced title agent will help work through what do we do about
inheritance taxes. The Department of Revenue is fairly slow in handling inheritance taxes. So a lot of times, even after an inheritance tax return is filed and the debt is paid. It may be nine months or more, until the Department of Revenue says hey, we're satisfied. This was appropriately paid. There are lots of options to work around that. But finding a title agent that understands what those options are, they can be escrows. Sometimes if there is an attorney in the estate, they might be able to take letters of
indemnity, things along those lines. But having an agent that knows what can I do to get this through to get this to settlement, because obviously, if you're on the investor side, you can't have your money tied up for nine months while you haven't done repairs, because you can't put the property back on the market. So knowing an agent that can say, hey, we get it, we have a way forward, we're gonna get this property moving. So that way you can get in there, do the repairs you need and get it back on the market without carrying carrying costs. Big deal. So inheritance taxes can be a problem. The other thing that can be a big problem, too, is although maybe less of a problem. DHS, Department of Health and Human Services can also have a lien if the individual received assistance. When they medical
assistance, that is when they passed away. Now thankfully, as long as something close to fair market value is being paid, they will essentially cram down or eat their lien, meaning they will only take the amount of money that's available in the property. So that is a lien that is clearable. Just because there might be a large medical lien from Department of Health and Human Services, they will wipe out the vast majority of it as long as the property is selling for fair market value. And, and to be honest with you,
we've I've done this with a few of my clients back when I was in private practice, where we went out and got an as is appraisal of the property right there just to be able to show DHS that hey, like we really are paying fair market value. I realized this doesn't look like a lot. But this property is not in good condition. And even though we're only paying what would look like a fraction of the value of the property, really, truly the amount that we're paying here is fair market value for this property in its current condition. And that's a good way to kind of help clear those liens. But again, you're looking for an experienced title agent to be able to help guide you to be like, Hey, this is one of those times you want to think about connecting with an appraiser. I think we're gonna see this theme as we go through here a little bit more. And that is, the connections that you have in the real estate investment world are super key. So finding, finding your group of people, your realtor, your title, agent, and if you're having an attorney, you're your attorney, because you need their connections to kind of get through some of
these properties that are going to open doors for you. So for example, we just talked about an appraisal that might need done to be able to produce the DA, the Department of Health and Human Services lien, knowing who to go to like, Who's that appraiser, that's going to help you appraise this as is, in its current market condition? That's a big question. That's not every appraiser out there is open to doing that. And not every appraiser out there is willing to deal with what is maybe a property in very poor condition for which there aren't a lot of comparables out there to make. So those are probably the three biggest areas when it comes to estates as your party, your inheritance taxes, and your Department of Health and Human Services letters. There are a variety of other things, one of the big pieces, especially
if you're down closer to Philadelphia that you need to keep in the back of your mind, estate fraud is is a very real thing. There are individuals that fake estate documents or fake relationships to decedents and things along those lines and experience title agent can help you ferret those things out. So make sure that that you're considering that. It's something that's very frequent down in, in Philadelphia, you know. And on the title, insurance agent side, you know, being with the underwriter, we do see that quite a bit
in a paid out a couple of claims due to fraud in the Philadelphia market. So just be aware of it. There are plenty of good transactions down there. So I don't want that to turn you away. But having an experienced person on your side is going to help a lot.

11:44

Sure, a lot of good points. Is there any other legal issues that an investor could face when buying an estate property?

11:52

So legal wise, I think we covered a lot of the a lot of the big ones, which is the Department Health and Human Services, as well as the inheritance tax. But aside from that, the authority of the representative I think we talked about that. And then outside of the authority of the representative, which when I say authority of the representative of course I'm referring to the executor having the authority to convey the real property.

12:20

You kept mentioning that experience, title agent, right. So how would you know, how would an investor know if their title agent is truly experienced in estates?

12:33

Yeah, that is a fantastic question. One of the biggest places that I would turn to is I would assume that if you're an investor, you have a relationship with a real estate agent or a realtor, ask them. They know the market, they know who's doing these transactions, and who's closing these transactions. If you don't have a real estate agent that you're that you're working with, hopefully you are attending maybe real estate, investment groups, meetings, things along those lines, the title agents that are sitting in that room or presenting at those particular events, they probably do a lot of this work. That's why they're there. Especially if they do you see them chatting with their clients quite a bit, that's probably the one you want to talk to. They probably have done this more than a handful of times. You’re raising a really good question. Because by and large, there's going to be a lot of title agents that say, Oh, yes, we can do this. But you're going to find that as you go down the road, they're less comfortable with handling estates or they're, they're less comfortable with evaluating the liens that are that exist within a state. Especially if they need to go through the process of opening up in a state, they may want to be very hands off and say, Hey, we're not touching this until everything's in in the in the place that it needs to be. An experienced title agent may be willing to, to say, hey, we're gonna be here. When you have
questions, we'll we'll be willing to help out with answering some of those questions. They of course, can't give legal advice, you're still going to need to talk to an attorney along the lines. But somebody that's willing to stand there and impart their knowledge will make a big difference. And those are the
people that that your realtor is definitely going to know. If you don't have a realtor, and you're showing up those groups, talk to people there, they're going to know who's handling these transactions.

14:20

Okay, great point.

14:23

The episode will continue in just a moment.

14:27

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15:25

Now we're gonna jump into foreclosures. So why are foreclosures attractive investments amongst investors?

15:33

Yeah, so a few years ago, foreclosures were fantastic. And I do think that in the future, they're going to also be pretty good. Right now, they may be less of an attractive option. But the long and the short it is, a foreclosure property is of course, one that's been foreclosed on. Meaning that it had a mortgage lien against it, in most cases, and that they stopped paying the debt that's associated with that lien. Sometimes it could be a purchase money mortgage, sometimes there's a reverse mortgage. But the long and the short is always that you have a debt that's not being paid that was secured by the real property. And ultimately, there's a little bit of a lengthy process, typically 9 to 12 months that a lender will go through, which is the foreclosure process to essentially remove title from the name of the individual that originally had the property and offer it at what's called a sheriff sale. Which means the sheriff will holds an auction and quite literally auctions the property off. As I mentioned, the past couple of years, it has not been as attractive of an option. Largely due to the fact that there's a lot less
foreclosures occurring right now. And there are a lot of people that are trying to pick those properties up. So the sale price on those with the sheriff sales has been pretty close to market value. There's not been a lot of equity left in the property, especially if you need to invest money into fixing and flipping it.
So they're a pretty tight market at the moment a few years ago, before COVID occurred, it was a really nice market to be in. And then as COVID occurred, there were moratoriums that went into place that essentially said lenders were not allowed to foreclose on properties if there was issues with COVID that an individual has, or if they were residing in that house. And really all they needed to do was say that they had a COVID related hardship, and they could continue to reside there. So there was a lot less foreclosures occurring, which means that those people that had gotten used to seeing a lot of these at the sheriff's sales, there's just more bidding action on the few properties that were coming through at that time. I do anticipate that foreclosures are going to pick up here in the next couple of years. There's still a little bit of a lag occurring there. I think part of that is probably related to the fact that the real estate market got so hot that there's a lot of equity in these houses. And so you can just scoop out the equity to pay your your old payments. But as that equity starts to dwindle and disappear, you're
gonna have more places where the house is upside down, more foreclosures. So you're gonna start to see that come back in the next couple of years, and will be very attractive at that point. The long the short of it is, as far as purchasing a property, it's a great place to go because you're not, you're not going to be competing against the general market at large. You're competing against real estate investors and the lenders. And that's really it. That's who you're bidding against. Now you're getting the property as is that's the downside. But as an investor, I find that you're not too worried about that. You're willing to do the additional work that's necessary to essentially get this property on the market on the MLS and get it listed and get it sold. So it's a great place to find those bargains when there's more properties available. Right now, I might be hesitant, although I know that there are people that have still have some stories from time to time about, hey, just a couple of months ago, I got this fantastic deal and they are out there. It's just a harder place to find them right now.

18:48

Sure. So what advice would you give investors that want to purchase foreclosures?

18:53

Yeah, purchasing foreclosures is is a tricky thing. Generally speaking, a foreclosure should come free and clear of all liens and encumbrances and should be clean title, it's delivered to you. The caveat to that is that the legal process and the foreclosure needs to have been done correctly. So there are two places that you're going to want to refer to. One as an experienced title agent, we were going to touch on that time and time as we go through here that can help you evaluate the title to the property. The other one though, is a lot of times when you go into the sheriff sale, you're going to be bidding without the ability to immediately get title insurance on the property. So having an attorney that you've talked with that can kind of guide you through that process is going to be huge. It's really going to make or break transactions. And I I don't say this as a lightly because a lot of transactions go through very, very successfully. But because I did work in private practice for a number of years and because of the nature of my current job, there are some horror stories that come out of foreclosures that you need to be careful about and need to need to recognize that they can be an issue. I'll give you an example of one that that we had a claim on just two years ago, very briefly to kind of shows you the scope and magnitude of what can occur. Foreclosures and takes kind of back to what's occurring in a foreclosure, a lot of times foreclosures are handled by lenders counsel and lenders counsel can be a large legal group that processes a lot of foreclosures. So they're not always paying the most close attention to the documents that are flowing through. And in this particular case, we had a property where they have left off the the legal description for the property was all one parcel number, but the legal description, meaning the metes and bounds description, the piece that kind of connects the entirety of the property, it was made up of four different pieces. So there were four pieces, it was very unique parcel that came together to create what was one parcel ID. And when you drove by the house, you probably only thought it was one legal description. Because it really was only about a half acre in size, with one single home on it. But because of how it all came together, there was four separate legal descriptions. So four pieces that made up the one property. The lender, during the course of the foreclosure dropped, three of
the legal descriptions left only one. And what made it particularly problematic is the legal descriptions that they dropped, were the ones for the house and the garage, they kept the driveway. So the deed that came out of that foreclosure was quite literally for the driveway to the property. The investor that purchased it at that time, thankfully, I wasn't their attorney. But the investor that purchased at that time, thought he got the entire property. Because that's how it was listed in the foreclosure sale. That's how he believed. But the actual deed and the legal descriptions that were attached to the foreclosure complaint and followed the case all the way through, were just for the driveway. Long and the short of it was, it costs about $20,000 to get the heirs to sign off on it, because this was also an estate property
that was being foreclosed on. So there are four heirs scattered all throughout the United States, it was about $20,000 in payments and search fees and all of that to finally locate everybody, get them to quit their quit quit claim their interest back to the investor. And that doesn't sound that bad. And honestly, I think that was a big win for the for the investor. Hopefully he had $20,000 in his margins to be able to fix it in that manner. But it's one of those things that, because the legal description wasn't paid attention to
in the foreclosure. And it wasn't it wasn't the investors fault. It truly was councils fault. But those sales are as is they essentially come with the legal issues that the foreclosure could possibly create. Now, that's a horror story that's that's in the small minority. A lot of these are very good, very clean
foreclosure council has gotten very good at at processing these in a timely and efficient manner. So I don't I don't put this out there to cause major concerns. But just to let you know that there is risk there. So you're going to want experienced title agents and experienced attorneys to talk with about what is my bid look like? Is this is the foreclosure process that's here. Did it go through appropriately? Did they include all of the people that needed notice in the foreclosure, those types of things? So yes, there are definitely risks to it and certainly having experienced folks on your side will help a lot.

23:14

So talk to me a little bit more about this legal description. What can an investor learn from a legal description? I mean, and should they even be looking at it? Because they know that they trust their attorney or their title agent to kind of make sure that the legal descriptions are correct. But could an investor or should this investor have been able to look at the legal description and know that there was a potential problem?

23:39

Yeah, so with when that particular situation, when they're looking at the legal description, it was apparent on the face. So what ended up happening and the reason why it came across my desk was a diligent agent who was ensuring the transaction immediately after the foreclosure, took a look and said, Whoa, I've got I've got four pieces that make up this property. And when I looked at the deed that went into the investor, there's only one that's present here. And then I chained it back through the foreclosure docks and realize that they only ever used one, which means they only ever foreclosed on on the single parcel. And that was quite literally just a title agent doing their job. One that knew what he was looking for. Just completing, completing his his work on on the transaction, and it jumps off the page, if you know what you're looking at, and you have an appropriate search that comes back. But it's pretty easy to miss if it's part of a larger just kind of volume shot, which some of these foreclosure attorneys run. They're just trying to push these foreclosures through and a cheap and efficient manner. And so it may not jump off the page, that they're that they're quite literally missing pieces.

24:50

Is there any way that a general consumer or investor would be able to look at a legal description and know that there could potentially be a problem or is that Something that really only experienced title agents and attorneys can really pick apart.

25:05

I, you know, I say this because we can all learn to do things and learn about things long the short of it is, it requires experience though. This is one of those areas that is not easy to take a look at. Metes and bounds descriptions are not the easiest thing in the world to read. Maybe if you have a little bit of like survey background or something along those lines, it would be helpful. But even the manner in which they're written is confusing. And then to take those and do what's called making a plotting of them, which is essentially taking the written description that is there and laying it out in such a way to see what that looks like in comparison to the property that you think you're buying, requires some specialized knowledge. I'm not going to say that you can't do it, because there are people that are very motivated that could probably figure this out. It's not It's not rocket science, but it is definitely well outside the scope of the average knowledge that an individual would hold. And given the the size of the investment you're making. I would I would strongly encourage seeking, seeking an experienced title agent or attorney to chat with about these.

26:19

Okay, fair enough. I hope you enjoyed our conversation today regarding estates as well as foreclosures, and make sure you stay tuned because we're going to go much further into foreclosures and the tax sale processes in our next episode, and until next time, take care.

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