Deeds

Ok, I know this is a little off topic, but I have received a request for information regarding deeds, specifically quit claim deeds. Well this is exactly what I was hoping for……not deeds specifically, but requests for specific topics to be discussed on my blog. I could very easily be a drone about what I got going on or even what I want everyone to hear about, but I like the idea of this blog being more about educating the member of flipitbig on the topics that they are interested in hearing about. Although I could tell you about what is going on in my life or business and it would probably be interesting, but that is not the point, it would be better served for it to be an educational thing about real estate than any of the other things. On to the deeds. The first thing that I advise all investors to do when wanting to get into this business is don’t worry about the sexy stuff and learn the basics. There is nothing more basic for a real estate investor than the deed. This how interest in a property is conveyed. So I will cover most of the deeds that are out there, some may not be in your particular state, but bear with me. The Warranty Deed, the bread and butter of our business(may also be called a General Warranty Deed). This is the way that you want to receive a property when you buy one. This is also the type of deed that most lenders want to see at a closing that they are funding. The basis of a Warranty Deed is that you are warranting the title of the property to the person that you are selling the house to. This is where title insurance comes in. The big boys in the title insurance game such as Chicago Title, and Fidelity write insurance policies much like what you are used to with property insurance. They insure the title of the property against encumbrances or liens that may arise against the property once they have issued the title policy. Of course for this to happen they have some requirements, which include a title opinion which normally will have to be signed off on by a title attorney. A title opinion is just what it sounds like the opinion of a attorney regarding the state of the title on the property. So you as the owner purchase a policy that insures the title on the property against any thing that may come up with the title of the property. All of that being said it is the language of the deed that actually carries the warranty, the title insurance policy just makes you capable of actually doing it. All of your warranty deeds will contain “TO HAVE AND TO HOLD the above described property unto the said Grantees, as tenants in common during their lives and upon the death of either of them, then to the survivor, in fee simple, FOREVER” this is the general warranty language that goes into the deeds. A Special Warranty Deed is when you convey title and only warrant the time that you had the property. This is how you should always convey property if at all possible. There is nothing good that can happen when you WARRANT the title to a property even though you only owned it for a short time, which in our business is anything under 5 years or so. The only barrier to being able to do this is the underwriter for the title insurance company that will be insuring the title. If they will allow it you should do it every time that way, especially if you are fixing and flipping properties. The Quit Claim Deed is just what it sounds like, someone is “quitting” their claim to the property. Basically, this means whatever I have I am giving to you, bad or good. In most states this is how title is conveyed between siblings in probate issues, and between spouses upon divorce. There are other ways as well, but this is the main way that they are used. So what does that mean to us as investors? In most states you can do a search by Quit Claim Deed and see who has recently went through or is going through divorce or probate, which should mean a possible deal. You will also, from time to time see Tax Deeds as well. This means that a property is delinquent on taxes. In some states this is a absolute sale and in others you must have three years of taxes bought in order to get a full deed. In other states there is also a confirmation or quiet title action that then needs to go on in order to receive marketable title. Understand that anyone can convey anything to anyone, but the status of the title subject to that conveyance is where the possession of the property comes in at. So I can give you a deed to the Golden Gate Bridge if I want to and you will pay me for it, but it wouldn’t be worth the paper it was written on. In fact the deed stamp or transfer tax or whatever you have to put on a deed in that area to file it would cost much more than the deed was worth. Tax deeds are tricky, so please get educated on the tax deed situation in your particular state before you buy them. My state has a Vendor’s Lien Deed, which is a deed where a “vendor” or seller finances a property to the buyer and the terms of the financing are in the body of the deed. This avoids a mortgage and note type of situation. This is not better or worse, just different, and you may have some state specific deeds to learn about as well. You will also need to learn about Trust Deeds and Fiduciary Deeds for your investing career. Trust deeds are given to secure an obligation to a property such as a promissory note or mortgage. In many states they use a Trust Deed when a mortgage is created instead of a mortgage. This doesn’t mean that you can’t get a mortgage in that state, that just means that even though they say you get a mortgage it is not recorded that way technically. One point that I like to make is that deeds and mortgages are separate from each other, oftentimes new investors do not understand or grasp the fact that even though title changes hands the mortgage can stay just like it is from a vesting stand point. This happen in a “subject to” meaning that you take title to the property subject to an existing mortgage. A Fiduciary deed is given when the grantor is a trustee, guardian, conservator, or executor. This will take place when you do land trusts, which are great for asset protection purposes, mainly for anonymity. These are the basics of our business, there a few other things, but you cannot be prepared to be in our business without educating yourself on the basics. Doctors need biology, and we need paperwork, so get to learning the basics to get into gear in this business.