Business/Finance: FIRE AND WATER

We bought Heatherwood for $150,000. It had a hidden second
mortgage for $20,000, which the owner hadn’t disclosed. Our
own agent caught it. If we hadn’t found out about it, we would
have had a problem. The owner agreed in the contract to pay
the second mortgage. We also had her replace the gas water
heater, which was dilapidated and jerry-rigged to the gas and
water mains, and looked like a disaster waiting to happen.
We recorded the contract at a title company. Anyone who
does deals on the kitchen table without checking to ensure
that the chain of title insurance has not been broken is looking
for trouble. Just because you have the deed and you’re the
legal owner does not guarantee that you can sell the property.
If you don’t have title insurance, no bank in the country will finance
the future sale of that house. Title companies won’t insure
the title if the chain is broken. It can take a minimum of
months and as much as $15,000 to do a quiet title action to restore
title integrity.
If a previous owner suddenly thinks they have a right to the
property and sues the present owner, the title company will be
liable. That is the protection you get with title insurance and
explains why a bank will not finance a property without title
insurance. Without title insurance, you may have $300,000 equity
in a house, but when you go to sell it, no bank will finance
the new owner. When you have five or six properties without title
insurance, it’s time to panic. In your mind, you have a million
dollars in cash. And then poof, you don’t.
This is an important part of investing right now, and something
we teach in our classes. The lack of title insurance can destroy
a deal. A lot of real estate investment advisors don’t know
that, because they spend more time advising than actually doing
deals.
The more protections you buy—title insurance, home inspections,
home insurance—the greater the odds that nothing
untoward will happen to you. Don’t skimp on sensible
insurances.