10 Things Every Real Estate Investor Should Know When Doing Title Due Diligence

1. Pre-Purchase Considerations for Foreclosure Sales: Before investing in a foreclosure, it’s crucial to identify any existing liens that will become the new owner’s responsibility. Understanding which entity initiated the foreclosure—be it the primary lienholder, a secondary lienholder, or an HOA—is vital. A comprehensive title search is indispensable for uncovering these details and making an informed investment decision.

2. The Value of Professional Title Searches: Though public records offer access to title documents, navigating these records can be complex and often requires payment. A professional title search company brings expertise that ensures no significant liens or documents are overlooked, potentially saving the investor from costly oversights.

3. Bankruptcy Searches for Note Investors: For those investing in notes, determining whether the property owner is undergoing bankruptcy is critical. Active bankruptcy puts a halt on foreclosure activities, making it essential to know if the note or mortgage is affected by the bankruptcy proceedings.

4. Impact of Real Estate Taxes on Property Investments: Unpaid property taxes can lead to the erasure of mortgages, representing a significant risk. Each state’s laws dictate the timeline and process for tax delinquency, sales, and deeds, including any redemption periods, making understanding these laws crucial for investors.

5. Understanding Liens in Foreclosure Scenarios: In a foreclosure, certain liens, such as property taxes, HOA dues in super lien states, and municipal liens, will transfer to the new owner. It’s essential to be aware of these potential financial obligations before purchasing a property.

6. Conducting Searches for Sheriff’s Sale Purchases: A Current Owner search, detailing the property’s title status, open mortgages, and judgments, is recommended for Sheriff’s Sale acquisitions. Additionally, investigating unrecorded liens at the local level can reveal hidden liabilities that might impact the investment.

7. Liens Persisting After a Tax Sale: Following a tax sale, most liens are eliminated except for municipal, code enforcement, and certain other liens. A thorough understanding of which liens remain is crucial for clear title acquisition.

8. The Role of Quiet Title Actions: A Quiet Title action resolves disputes or clears defects in the title, ensuring the property’s ownership is free of legal uncertainties. This legal process is essential for rectifying issues with lien positions or ownership disputes.

9. The Impact of Unrecorded Liens on Investments: Liens not listed in county records, such as code violations or municipal debts, can still attach to the property and become the investor’s responsibility. Awareness and resolution of these liens are crucial for protecting your investment.

10. The Importance of a Title Exam: A Title Exam reviews all title documents for any defects that could hinder the mortgage’s enforceability. It is particularly recommended for note investors to ensure there are no issues that could prevent foreclosure.