Today we welcome April, from Title Assurance and Escrow, to discuss the crucial role of a reputable title company in real estate transactions. April highlights the significance of ensuring clear titles to avoid complications and surprises, as she discusses the complexities of tax sales, quiet title actions, and potential pitfalls associated with properties obtained through these processes. There is an emphasis on meticulously examining each property, providing clarity on ownership, encumbrances, and drawing attention to potential risks. What are the potential challenges related to heirs? and how could addressing these issues contribute to marketable titles and confident real estate transactions? Whether you’re a builder, investor, or homeowner, listen in to learn why marketable titles empower you to buy, hold, or sell with confidence.
Jeff
0:00:43 – Welcome back to another It’s a 5 O’Clock Somewhere real estate investment podcast. My name is Jeff. I’m here with Jerry. I’m here with our newest member Nick Gibson and our fearless leader Brett Bernard. We can be reached at 901-692-7401 or MyMemphisInvestmentProperties.com.
Brett
0:01:00 – And we’re also sponsored by Title Assurance and Escrow, and April from Title Assurance is with us today. I brought April in today because we’re dealing with some unique situations. We have builders that are building brand new 4-2 rental properties that are meeting the 1%. You’re buying them from $155 up to $180 and they’re renting from $1,500 up to $1,900 a month. One-year builder warranty. So what we’ve discovered is some of these builders that are buying their lots to the land bank. The land bank is a government organization here in Memphis that takes properties and lots in tax sale and eventually resells those out on the open market to help clean up blight or what is that what they call the areas that are run down.
April
0:01:39 – It’s blighted property.
Brett
0:01:40 – Blighted property. So, as we started moving through this, we sold a round of new construction last year and into this year and we had some that we had title issues with because those lots were previous tax sales. Tax sales meaning the people that owned it didn’t pay their taxes. The county auctioned them off to the highest bidder and I guess no one bought them, the land bank got them and they put them out on the market. So because they were taken in tax sale, they don’t have a clear title. So April, what I want to do is put this out there so people understand, you need to have a good title company regardless of what you’re buying because I’ve seen people where they didn’t get title insurance or the title policy was flawed and six years later they go sell the property and it turns out there was a lien from 1948 that was never released and now there’s title issues with transferring that title to someone else and insuring it. So I wanted to go through that with you today, like on specific on these lots that were previous tax sales. The builder has no problem buying the property and building on it, but then the problem comes in when he goes to resell that property to a new buyer.
April
0:02:40 – Correct. So everybody wants to get in and buy these properties that are available. So we want to get the neighborhoods cleaned up. We want everything to look good and you go to a title company and the first thing we want to know when a builder comes in and wants to buy properties out of tax sale is what are they going to do with those properties. If they’re going to hold the properties for 10 years, we are normally good on providing the policy. Why 10 years? So with the tax sales, you have a window of opportunity and it actually is 20 years for the full state of Tennessee, but the underwriters have shortened it to 10 years for Shelby County because we have so many property tax sales. And so the tax sale will start with the delinquent taxpayer not paying their taxes, and then the tax sale is going to happen through the Chancery Court, where Shelby County will obtain the property. Now, when they do that, they send out a notice to whoever is on title of that property, whoever the delinquent property taxpayer was. But when they send those notices out, they are doing their due diligence, but as far as title is concerned, they’re not doing a full property search, they’re not clearing the property. So they’ll send out the notice to the delinquent taxpayer, but whoever signs that tax card may not necessarily be the correct person on title. So then they’ll do their proof of publication and then it’s ready on their end to send for tax sales. So the court will transfer the property over to Shelby County. When your builder comes in and gets ready to purchase that property, they do not give your builder a warranty deed for that property. So they are not warranting that your builder is getting a clear property or whoever’s buying it.
Brett
0:04:23 – Because of the cloud is from the previous tax sale that has not been correctly quieted, I guess, quiet title.
April
0:04:32 – Right, so the Shelby County trustee and tax collector, they’re doing their due diligence, but they’re not doing due diligence as far as title is concerned because they’re not giving you a warranty deed. Right. So they’re not warranting that this property is clear. They’re not giving you title insurance. So now the Shelby County property, you know, the Shelby County has transferred it to the person who bought it at a tax sale. Say that’s a builder and they go in and they knock down whatever’s there and build something great and wonderful and now they’re ready to resell it to the next person. Well, firstly, when they purchase it in tax sale, they can choose to get title insurance or not, it’s up to them. They’re only getting a quick claim deed from Shelby County. But when they get ready to transfer it to the next person, that person is going to want proper conveyance and an insured title. Sure. Well, in order to do that, you would have to go back and confirm that everyone that could have possibly had interest in this property was cleared. Everyone knew.
Brett
0:05:27 – Let me play as devil’s advocate. Let’s say I’m buying a property and you tell me, well, Brett, we have a tax sale from six years ago. We can’t insure the title. What are the concerns for a title company not willing to insure that title? What would happen? What are some of the scenarios that could happen which causes the title insurance company to say, no, we’re not insuring this title because it hasn’t been 10 years or longer?
April
0:05:50 – Okay, well, I’m not going to tell you no. Firstly, I’m going to want to get a list of those properties or I’m going to want to get that address and I’m going to want to thoroughly look at it because we all want to do the same thing. We want your builders and your investors to be able to get these properties cleaned up, to provide safer housing for people that are renting properties, to get our neighborhoods looking good. So we’re not going to say no, within the 10 years we’re not doing it. That’s what we used to say, not us necessarily, but underwriters in general. But we want to get all of these properties sold. So I would want to see the address and want to look at it and see. Now the problem is not necessarily that there’s a high risk of something happening. What it is is we can’t say to you this chain of title is clear and that’s what a title insurance policy says. A title insurance policy will say John Doe owns this property for this amount and there are no liens, no encumbrances, no issues in the back chain of title. He owns it free and clear. So if somebody comes along and says, hey, my grandma has rights to this property, you’ve got your title insurance policy.
Brett
0:06:58 – Now, at that point, the title insurance policy would go into effect to defend the title against whatever claims are coming in.
April
0:07:04 – Right. So if there’s a tax sale in the chain of title, we can’t really provide that.
Brett
0:07:08 – Well, that’s why I was asking. So if, let’s say it’s a tax sale situation and it’s been six years ago, I bought the property, I built a house on it, now I want to sell this house to an investor or a homeowner, but there’s a previous tax sale. Is the concern from the underwriters that there’s an illegitimate kid out there somewhere that can always lay claim to the property? Typically it’s going to be heirs.
April
0:07:30 – Typically it’s going to be heirs or that the person that was a delinquent did not receive proper notice. However, the reason I’m telling you that we want to look at this is because I do my little part of research and I pass this on to my underwriter and he looks, he does a risk assessment of what the possibilities are. Now there are title companies that will provide a policy that has an exception for the tax sale on the policy.
Brett
0:07:54 – What’s that exception?
April
0:07:56 – So it says there’s a tax sale here. So basically when we give you this policy, it’s showing that you own this property free and clear. There aren’t any other encumbrances, like if you took out a loan to purchase it. And then it describes the property, et cetera, and then it’ll have a list of exceptions. Well, typically those exceptions might be easements in plat, book, and page or driveway or something like that. But on these, it’ll have an exception for that tax sale. Meaning, yeah, you’re completely insured except for this.
Brett
0:08:22 – Except for the tax sale.
April
0:08:24 – And then they’ll provide.
Brett
0:08:25 – Does that mean that if I choose that title policy with that exception.
April
0:08:30 – Which also is a large fee for that.
Brett
0:08:33 – Yeah, like 800 bucks.
April
0:08:34 – Right. 800 to 1200 depending.
Brett
0:08:37 – For that type of policy with the exception of the tax sale. Four years from now, someone goes file suit in chancery court claiming they have rights to this property because his grandfather slept with this woman in the Navy and had his dad and now an illegitimate family member now shows up and says I have a claim. Let’s say the kid can prove it. Does he have a claim to the property now?
April
0:09:00 – Right, he does and there would be a court action to get whatever he would have to pay of course any improvement.
Brett
0:09:05 – So the new owner would be responsible for…
April
0:09:08 – Because he didn’t get clear title.
Brett
0:09:09 – Right, that’s what I’m getting to. This is why it’s so important. The new owner now who bought this new construction rental property now has to pay this guy if he wins, $40,000 or whatever his share of that estate property would have been during that tax sale.
April
0:09:26 – Yeah, it’s a court action taken and there’s a process to figure out who owes who what for that. So it’s not necessarily they could come back and get the full property but the point is that we can’t provide…
Brett
0:09:34 – They would be owed something for their ownership of that property.
April
0:09:39 – Exactly.
Brett
0:09:40 – Correct? Yeah. So whatever they determined the value was at that time and it was purchased at whatever three or four thousand dollar lot, then that person would be due some kind of monetary compensation.
April
0:09:51 – Right. You know, so we’ve kind of gone into the negatives about if you were to purchase. Now I wanted to just say that that other policy that some other title companies provide, it has the exception and then it has an endorsement and the endorsement says if something happens with this exception We’ll fix it for you. Okay, so you get this endorsement with that now…
Jeff
0:10:13 – But your underwriters… You don’t do that, right?
April
0:10:15 – My underwriter is not know because it’s not really providing a clear policy and then your next buyer Would also have to accept this same type of policy. So for instance, if you had a builder that came in and my underwriter looked at it, it’s not a super high risk. And just say your builder did want to obtain that type of policy. If he’s not holding it for 10 years before that period of that risk is over, then his next buyer is also gonna have to get that type of policy. And not only his owner’s policy, but his lender’s policy could reflect that type of exception and endorsement as well and the lender is not going to accept that. They’re not going to want title insurance on their loan that says except for this. Yeah, you know, they could jeopardize a loan altogether somewhere to go to court. Right, so what we want to do is when we get that list we’re going to go to the Shelby County Registers website. We’re going to look at the tax sale, then I’m going to order the tax card and when I order the tax card I can see who signed saying that they’re aware that it went into tax sale. If it’s not the exact same person as a delinquent taxpayer, then I will see maybe they were in error. Maybe that person had died so it would take some research. Are these delinquent taxpayers, are they difficult to find, locate? You know, they’re not always. So that gives us another avenue because there are processes you can take court actions and a lot of people call this quiet title action but quiet title is kind of a generic just a broad term and it means you’re quieting the title but basically you would have an order for these people to sign whatever they needed to sign off to release their rights from the property.
Brett
0:11:58 – Now in order to quiet the title you’ve got to have all previous heirs prior to the tax sale agree to that correct?
April
0:12:02 – Yes that would be the way they quiet a title, but you have another avenue here because you can also, without going through courts, you can also determine who those heirs are and reach out to them, get with us, we’ll create affidavits of heirship, we’ll have them signed by the right people, proving that these people are the heirs. And this is in the instance if the delinquent taxpayer were deceased, because that’s a lot of the time that’s what happens. And so then you would go to them and you could even offer them compensation to sign the quick claim deed just to release their rights to the property. Because the chances are that people are gonna come back are very, very slim. Sure.
Brett
0:12:40 – But there is a chance. We had a particular situation, one of my investors paid cash for the house. Right. He chose to move forward because had four years left on the tenure. We explained it to him and he chose to move forward because he’s not planning on selling the property. So to him, he didn’t care. He knew going into it that yeah, there’s somebody that could come back out of the blue and lay claims to this property. But I mean, it’s probably as minuscule as a 100th of a % that that would happen.
April
0:13:06 – Right, most of the people that are like saying, hey, I wanna buy 30 lots that are all in the land bank and not everything in the land bank is tax sale. Different properties that have been obtained by the county through different means but a lot of it is tax sale. Most of the time you have someone that’s like, ooh new idea I’m gonna go buy properties and flip them and sell them or build or whatever. But the idea in the 50s. But the idea is to get things cleaned up you know so they’re doing something positive so we want to be able to provide policy for them, but it just takes a little bit more. So you don’t want to just immediately be discouraging to an investor, but you want them to have a marketable title.
Brett
0:13:46 – Correct. And that’s the main reason why I want to talk about this, because Jeff’s going through this right now. Jeff and I talked last week, and I think I was talking to you, and it hit me, and I called Jeff and said, hey, can you get those lots over to April and let them check them in advance? I explained why, because your builder could get hung with these houses not being able to sell them because of the title issue. Right. So I’ve been working with title assurance and escrow since 2008. Mm-hmm. Crap, it’s been that long.
April
0:14:12 – Worse than that, I was here like seven years before you.
Brett
0:14:14 – So, so yeah, if you have title question, you need a title company, you’re gonna invest in Memphis, give me a call at 901-692-7401 and me or one of the team members will be happy to talk to you and work with you. Any issues that come up in your purchase, regardless of what it is, we deal with title insurance and escrow only. I preach all the time that it’s good to find a good title company, but I literally believe, and I did this two weeks ago, I text you and Chris on a Saturday about a particular situation. And y’all both responded and you said, I’ll be in there Monday, I’ll take care of it, this is what we’ll do. For me as an agent, that gives me peace of mind. For my investors, it gives them complete peace of mind knowing that you’re not just writing a policy to close a deal and get paid. You’re actually looking out for their best interest. And these tax sale issues, to me, can be very detrimental to an investor if he buys a bunch of properties and doesn’t really truly understand what he’s buying. They have tax sales on them, but the title company gives them some… I mean, nobody reads a title policy. He might not even know their are exceptions.
April
0:15:14 – Exactly, and you’re just going to run into the issue when the new buyer uses a lender to purchase it and their lender is going to say, no way.
Brett
0:15:23 – So it lends credence to our buy and hold philosophy, right Jeff?
Jeff
0:15:26 – Yeah.
Brett
0:15:27 – As long as you buy and hold for 10 years, it doesn’t really make a difference.
April
0:15:30 – Yeah, in that case, that kind of policy is different.
Jeff
0:15:32 – 10 years, not 2 years now.
April
0:15:34 – Yeah. But, you know, I also want to reiterate that there was a list for a different builder that Brett had that you sent over to me. It was like 10 to 12 properties and we closed eight of them. Yeah. So don’t let this completely cause your builders and investors to shy away from tax sales. They just need to be aware of the possibility and they need to know if they do end up sliding over to another title company, they really need to understand what type of policy they’re going to get and that it’s not really a policy.
Brett
0:16:03 – You know, instead of…
April
0:16:04 – And then their new buyer would have to accept that policy as well.
Jeff
0:16:07 – Look, April, if they slide over to another title company, there’s still a risk there. Explain that risk to me again.
April
0:16:13 – Well, if they go to a different title company and pay $745 or $1,200 for this policy that has the tax sale exception and then also the endorsement on the policy, then their next buyer would have to also accept that same policy. That policy would have to be the same type of policy. And if that buyer happens to use a lender, that lender is absolutely never going to accept a policy with a cloud-on-title like that.
Brett
0:16:42 – So basically that endorsement is a “Oh Shit” clause.
April
0:16:45 – It really is.
Brett
0:16:46 – If something happens, we’ll do our best to take care of it. But there’s no guarantee they can take care of it. You still think the buyer…
April
0:16:51 – They would do that quiet title action.
Jeff
0:16:53 – It seems a little misleading to me what the other title companies would do, the endorsement. It seems a little misleading to me.
April
0:16:59 – Well, I mean, I agree.
Brett
0:17:01 – Okay, let me ask you this. Would the quieting of the title be an expense that the title company takes on, or is that something the current owner had to pay additional for?
April
0:17:08 – Oh, no, that owner would have to… They’re not going to quiet the title for you. I don’t think. I mean, I would not.
Brett
0:17:14 – The title insurance company who put the exception in there with an endorsement would not pay the client’s title. They would do it for you but didn’t charge you to do it.
April
0:17:21 – Right. I’d have to read their policy again to make sure.
Brett
0:17:25 – Here’s it in a nutshell. Just pick up the phone and call Title Assurance and Escrow. Check out the property you’re buying before you buy it because listen there’s a ton of title companies out there. They’re not all bad but there’s some ones that are out there pretty shady and they’ll just write a policy just to get a deal closed and they really are not concerned with what happens to you as an owner after you close. I can say without a doubt I’ve dealt with title insurance escrow since 2008. Actually I started off working here, believe it or not.
April
0:17:49 – Yeah, and we’ve had no claims. No. I mean these other title companies get claims regularly. You know, send me the list and give me two weeks to really thoroughly examine that, get it over to my underwriter and everything. For researching, two weeks just to get an idea.
Brett
0:18:05 – I know you’re creating all this great social presence for Title Assurance. Give everybody the contact information, website, Facebook, Twitter.
April
0:18:14 – So on Facebook we’re Title Assurance and our website is taeclosings.com and our phone number number 901-737-3332 and we use the same email for everyone here in the office so you will get responded to immediately.
Brett
0:18:36 – Yeah, so if anybody’s got any questions, any of our listeners have questions about something you’re exploring or an idea you might have, I encourage you greatly. A lot of investors start off with calling management companies. I would start off with calling a title company first with the property you’re looking at buying and having them just take a glance at it and just let you know if there are any alligators in the water that you’re not seeing and that you won’t see until you’re ready to close and title comes up and now you’ve got issues. By then you’ve expensed money on earnest money, you’ve put money into inspections, you’ve put money into appraisals and all this stuff. So it wouldn’t do you harm to get somebody to pre-look at some of that stuff for you, just so you have that comfort level of knowing what you’re going into before you start expending money.
April
0:19:18 – Right.
Brett
0:19:19 – All right. Well, April, thank you much for coming in. Okay, thanks for having me. I really appreciate it. We appreciate you all listening today. If you have any questions, remember to give us a call at 901-692-7401. Please reach out to us. We’d love to talk to you. Thanks a lot.
The 5’Clock Somewhere Real Estate Investing Podcast is sponsored by Title Assurance & Escrow. Call April at 901-737-3332