Title and Escrow for Fix and Flip Transactions
Quick Answer
Title companies verify property ownership and ensure clear title before closing. Escrow manages the funds and documents during the transaction. Title issues like liens, judgments, or boundary disputes can delay or kill a fix and flip deal.
Table of Contents
The Role of Title Companies
Title companies serve two critical functions in fix and flip transactions:
Title Search and Examination
The title company researches the property's ownership history to verify:
- Current legal owner
- Outstanding liens or mortgages
- Tax liens or unpaid assessments
- Judgments against the property or owner
- Easements and restrictions
- Boundary issues
Title Insurance
Title insurance protects the buyer and lender against defects in the title that were not discovered during the title search. Two types of policies exist:
- Owner's policy: Protects the buyer
- Lender's policy: Protects the lender (required for financed purchases)
The Role of Escrow
Escrow is a neutral third party that manages the closing process by:
- Holding earnest money deposits
- Collecting and disbursing funds at closing
- Ensuring all conditions are met before releasing funds
- Recording the deed and mortgage with the county
- Distributing closing documents to all parties
Common Title Issues in Flip Transactions
Tax Liens
Properties in distress often have unpaid property taxes. These must be satisfied before or at closing.
Mechanic's Liens
Previous contractors who were not paid may have filed liens against the property. These must be resolved before clear title can be issued.
Judgment Liens
Court judgments against the property owner can attach to the property. These must be paid off or negotiated.
Probate Issues
Properties sold from an estate may have complications if probate is not complete or if heirs dispute the sale.
Chain of Title Gaps
Missing documents or unclear transfers in the property's ownership history can create title defects that must be resolved.
Tips for Smooth Closings
- Order title early: Start the title search as soon as you have a contract
- Review the commitment: Read the title commitment carefully for exceptions
- Resolve issues promptly: Address any title defects immediately
- Use investor-friendly companies: Work with title companies experienced in fix and flip transactions
- Budget for title costs: Include title insurance and closing fees in your project budget
Related Reading
Key Takeaways
- ✓Always order title search early in the process
- ✓Title issues can delay or kill a deal
- ✓Lender's title insurance is required for all financed purchases
- ✓Work with a title company experienced in investor transactions