Basically, title insurance is an extremely important part of any real estate transaction. It helps indentify title issues when taking a listing and before closing the deal. Greg Ives of First American Title joins Jeffrey Rutkowski to dive deeper into this topic. Together, they discuss the importance of aligning with a reliable title company, how to carefully review a title report for the first time, and the best approach to Covenants, Conditions, and Restrictions (CC&Rs). Greg also talks about the advantages of executing a binder on your title insurance, specifically in saving a huge amount of money.
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Why Title Insurance Is The Most Important Part Of A Real Estate Deal With Greg Ives
I’m excited to be here. We’ve got a great guest Greg Ives with the First American Title insurance company. Title insurance is involved or should be involved in every single real estate transaction that happens. In my opinion and the opinion of others, it’s one of the most important parts of the transaction. You should never buy a property without title insurance. We are going to talk about why and what that means. The word of the week is a good one. It’s a binder. I know what a binder is. Not the binder that you have used to hide your homework and or not do your homework in.
A binder, as it relates to title insurance, is a way for you when you buy a property to save money each and every time you go to sell that property within a certain time if you execute a binder on your title insurance. You can save hundreds, if not thousands, of dollars over the life of your business if you execute and you get a binder policy on your title insurance. We are going to talk about that in more detail. Again, Greg Ives, with First American Title. We are super excited to have him on the show. Let’s go ahead and get into it.
Greg, it’s great to have you here. The one and only Greg Ives, how are you doing?
I’m good, JD. Thanks for having me. I’m super excited to be here.
It’s good to see you. This is an important topic that I know we talk about a lot but it’s good to bring this information and this content to the people that are reading because it is one of the most important parts of a transaction, which I don’t have to tell you that. Why don’t you describe a little bit about your background in history and, in general, what title is in regards to a transaction?
Thanks for recognizing that Title insurance is a very important part of the transaction because it does sometimes get lost in the shuffle. We appreciate people that appreciate the value. My background is I have been in the business for nearly several years, and all here in San Diego. Essentially, Title insurance is here to help you identify title issues when you take a listing and when you close the transaction.
I remember starting out in Connecticut, where we started our business. We relied a lot on the attorneys that closed transactions in Connecticut to make sure that the title was appropriate, free and clear. When we moved to California, like many states that don’t use attorneys, it falls on now the buyer or the seller to make sure that certain things are, and we will get into that. Like, “What to look for,” and things like that. One of the things that we always talk about is you should never buy a property without a free and clear title, which is what your company and companies like yours handle.
That’s a huge liability and is not advisable to buy any property without title insurance because you, as a buyer, want to know what’s attached to the property before you own it.
We will dive into the details but big picture, what is title insurance do when you are buying something, then obviously, how does that transfer over to the sales side? Talk in a big picture title insurance, and then we will get into some details.
I like to mimic it to the DNA of real estate. Basically, we produce a title report that tells you what the ownership is on the property and everything that is recorded against it, good and bad. It’s basically a disclosure document. You want to know if there are restrictions, access, and easement issues. If there’s money, loans are attached to the property. The seller has financial issues, child support, liens, IRS, tax liens, things like that.
Those things will come up on the title report. In a normal transaction, those things will either get cleared up, removed or handled so that when the new owner buys the property, those things are removed and that new owner now has a free and clear title with whatever new liens alone, etc., that they may have when they are buying the property. In essence, that is what title insurance does.
There are items that will stay with the property forever that never get cleared off. That’s part of the knowledge of understanding the title report and why you do want to get title insurance.
We will get into that. Stepping back because we have a lot of audiences that are experienced investors and are starting out in the investing field. Why do you think it’s important for a real estate investor to align themselves with, let’s say, one or a couple of good title companies or title reps in their local markets that they are investing in?
Number one is that title reps have a huge network. At least, our job is to have a huge network in town. Sourcing deals is an important thing for real estate investors. One of the value propositions I provide is I’m listening to what my clients have in their pocket or what they have listed and making that connection. That’s a great deal. That’s a great value for people, especially when there’s tight inventory like there is now.
Bringing opportunities like maybe off-market, properties that you hear of through other real estate agents or other people that you know in the marketplace.
Number two is helping you guide the transaction to closing, being educated, and understanding what potential pitfalls you might be facing as an investor. Pointing those things out to you and making sure you are aware of what’s on the property.
I’m going to share from my perspective what I look for in a good title rep but why don’t you share from your lens, working with a good investor, what does that look like? What do you look for in a good client? Someone that works well with title to facilitate a smoother transaction.
Not every investor is cut from the same cloth. From my perspective, it’s super important to be with investors who have a good process of the backend system. It’s repetitive. It’s systematized. Frankly, from my perspective, if I have an investor who is fighting to get me on the transaction when they are buying the property, that provides loyalty to me.
In turn, I’m going to provide loyalty to them by either showing them the opportunities I hear about or having that rapport with underwriting internally. There might be transactions where there are additional items that are needed that if we have a good long-standing relationship, we are able to navigate through those a little bit better if we didn’t have a relationship with that investor.
Case in point, I called you on that stormwater easement situation. We are trying to sell a home, and we knew this. It has a stormwater easement in front. We sold that property. I knew that, and we had it plotted from the title report but I needed some more details for the potential new buyer. I called you. I asked how quickly you could potentially get me a better-detailed survey, and because we have a relationship, you moved a little faster. I would probably imagine a lot faster than you might have for someone that was calling you out of the blue. I appreciate that as an investor. That goes to what you said. You are willing to do that because we do a lot of business together but it’s value for me or the investor on the other end, too.
I called in a favor on that one, and that was a bit tricky based on the location of the easement.
It was a big easement, too.
Fortunately, we were able to get you what you were looking for, and we’ve got it closed for you.
From my perspective, it’s interesting how we met because it goes into what I look for, anyone good to work with but it has been many years. We decided that before we started. You walked in. We were newer to San Diego. We had moved our business back to California after from Connecticut. You were prospecting calling on potential clients. How did you find out about our company being in town that prompted you to walk into the door and cold call, in essence?
We had a deal that you were buying.
Were you doing the title?
Yes, and one of the prospecting activities that I do is I always check out the buyers and the buy-side. I noticed that CT Homes was buying a property, and so I dug in and found out where your office was. It happened to be in a building where I had a mortgage broker as a client. It was killing two birds with one stone.
That building was right on Cast Street. That was our first office.
Part of my job is to walk in cold into offices and try to charm people.
You did. You were persistent because we were working with someone else at that point. I like to meet new contacts. We were happy with who we had but you were persistent and you earned our business, which is something that I look for someone that’s persistent can earn our business but then maintain our business through the quality of the relationship and the work that they do. You have done that.
As an investor, personally and it’s good for people to know. When you are looking for someone to work with, even though you already have maybe someone good in this activity or a good rep that you are already working with, someone that is willing to go above and beyond is something that we personally always looked for. It’s good. Someone that is persistent in their pursuit of you as a customer and is competent in what they do, which you definitely are.
Obviously, you were less years in the business then because of the timing of it but you had a lot of experience. You were personable. You communicated other things that you were willing to offer. What some good title reps do is they will do prospecting as well for their investor like getting data so that we can market to, or tracking down addresses or owners if we are door knocking, driving for dollars or sending out mailers. You offered that service.
We’ve got along initially. I appreciated that we are of similar age, and you were on a trajectory in your life and still are, where you are growing, working hard. That was something that I knew that we could grow over time. Those are the things that attracted me to your services. Ultimately, I have played into a strong relationship over time. Now, what people will discover here, there can be other benefits of this relationship. For example, you have lent on transactions over time into CT Homes, which is a benefit both ways.
We were talking about a larger commercial opportunity that you are participating in as a select group of friends and family. It’s interesting. I share that because we work with someone in business, and I would imagine you can share if you feel the same way. You look for other opportunities to help, to make money together, to provide value, and those things happen over time. For example, we are closing on that $28 million apartment building here in PB that you are participating in.
Sitting back and watching you operate as a business, you have separated yourselves from all the other investors in town because you do have a breadth of knowledge but you are also actively investing yourselves. You are looking for bigger and greater opportunities, and it has been awesome to be part of that. From my perspective, it’s about trust, professionalism, the ability to perform and do what you say.
Let’s talk a little about the title report because, at the end of the day, that’s the nuts and bolts of what title insurance handles in terms of what they may need to remove or take care of. For a lot of our readers, they may not have dove into a title report yet. They can be very daunting. I know that was for me when we started looking at them. What are some of the top 3, 4, maybe 5 things that someone should look at when they are reviewing a title report for the first time? What are the major points to look at, look for that can guide someone when you have a 15, 20, 25-page title report of stuff that some is important, some things aren’t?
My number one piece of advice is don’t rely on your realtor to review the title for you. You need to be educated and understand what’s encumbering the property. Learn the report. The number one most important thing is the vesting and the ownership of the property. Believe it or not, we get into transactions where an agent might think that they have a listing signed by the person who has the authority to sell the home. In fact, they don’t.
The person who’s legally on the title is different than the person that they signed paperwork with.
Usually, that occurs when there is a trust that owns the property, and the trustees have passed away. Now that property is in the hands of the successor trustee, which sometimes is a child. Sometimes it’s independent.
That’s vesting, and that’s typically on page one. It’s where the vesting is.
It’s item two on First American’s Preliminary Title Report.
It says who the county or legally has on record to be able to sign on behalf of the property.
I know it sounds basic.
It’s usually a combination or one of, either an individual or there might be a company or a trust. Are those the three main vesting that you will see?
It could be an individual person, a husband and wife. I would say the second most common is a trust. The trustee of the trust. The third would be some entity like an LLC corporation or limited partnership.
As an investor, you get the title report. You are in contract to buy the home from ABC LLC. You would basically want to hopefully see that same name on the vesting on the title insurance or on the title report. If not, then we need to verify and ask some questions around. Does the person we are in contract with to buy the property have the ability to sign on behalf?
Part of what the title company that is engaged in the transaction should be doing is reviewing, in this instance, an operating agreement for the LLC. One reason why you as a buyer should request your title companies is that once you are under contract, your title rep is going to verify the ownership and the correct information.
We had Justen from Alliance here, which I know you know well because we worked together a lot. That’s our A team of the group. You on the title, Justen and Josh on the escrow side. In California and other states, we close with escrow. Some states close with attorneys, as you know but whoever that third-party intermediary is that’s handling the transaction, you work closely with them first to get them the title report, then working with them to get all the other documents that need to happen like verifying the LLC and operating agreement. If there are things that need to be removed, you are working either with the attorney or in California, obviously, you are working with escrow.
There are a lot of parts of a transaction, as we know. There are a lot of moving parts but you are working in our State of California, escrow, to get all those things handled. When we started a transaction, you pull a preliminary title report, and that is what we are talking about here to review. Throughout the course of the transaction, you are verifying things, correct me if I’m wrong. You are getting things cleaned up or remove that either shouldn’t be on there or need to be on there for the new transaction.
It’s called a preliminary title report because we basically will report everything that’s open and needs to be addressed or looked at. Sometimes people will transfer property from their personal name to an LLC, and they will do it on their own. They will go down to the County Recorder’s Office and record the document. There is no title company involved in that. We will see that title transfer, and we will go, and we will verify that there was no fraud involved that the person who signed that grantee taking their interest off.
By pulling the recorded documents, we will look into all that.
We would pull the recording documents then we would require the person who signed their interest off to verify that they did do that because the title company’s job, in one of our largest census, is to prevent fraud or to identify fraud.
What are some other things that you go down the preliminary title report that is important for an investor to look at when they are buying a property?
The number two would be easements or encumbrances. We call those encumbrances.
Which usually come right after the vesting. Those will be listed, however many there may be.
The title report goes in chronological order of items that were recorded. The very first thing is going to be the property taxes because that’s the senior item always.
They always get the first position.
Don’t rely on your realtor to review the title for you. You need to be educated to understand what’s encumbering the property.
They always get the first position, the property taxes, but then the report will go down the line as far as what has been recorded. A big thing is called CC&Rs, Covenants, Conditions and Restrictions. That’s an important piece for an investor to look at if they are buying a property, and maybe they have the intention of going up a second story, adding square footage or adding an ADU.
You said covenants, conditions and restrictions but big picture, what are CC&Rs do or say about a property?
There are guidelines and rules that you as an owner have to follow for the neighborhood or the subdivision or the track of homes. A lot of people get mistaken that CC&Rs are only applicable to condos. They are not. There are plenty of single-family homes that have CC&Rs, and we live in a coastal community, so views and height restrictions are a big deal. Inside of those CC&Rs, they will spell out if there’s a specific height restriction or if there are things that you can’t do.
Certain types of material you have to use on the outside because of the community or certain colors you have to use.
The old purple house syndrome. Some places don’t want you to paint your house purple.
Some CC&Rs are old and outdated and not being followed anymore. This is a good question. How do you identify or how does someone identify besides them being old and reading them saying, “There’s no way this would be followed?” I will give some examples. Now, we have looked at CC&Rs that specifically said that you could have farm animals excluding, it was like an elephant or a giraffe.
It was literally written in the CC&Rs, and this is in the middle of town, which we know isn’t going to be followed. Unfortunately, some of the CC&Rs have been written with the person that can buy the home or the ethnicity of the person, which is wrong. We don’t do that now but how does someone determine with those CC&Rs, if they are valid, current, and need to be followed?
There are two ways. One, sometimes there’s an expiration language in there a lot of times. Sometimes they expire after.
It says in there they are done after this date.
In that case, we will take it out of the report, and that won’t be affecting the property. In other scenarios, those things run with the land, and those don’t ever go away. However, if they violate some Fair Housing Rule or some current Federal guidelines, then those items are not enforceable. That’s how you’ve got to operate on those. Obviously, the ethnicity, the alcohol consumption, the farm animals, those types of things are not enforceable anymore.
I have done it both ways. I have gone to you and asked you first what your opinion was or thought. You go up the ladder, if you will, to confirm. I have also confirmed with architects too on certain things of what they thought in terms of building restrictions. What’s the order of operations if you are reading the CC&Rs? Maybe half of them you can’t even read because it was written so long ago. Should someone start with you or the title company and say, “Are these still enforceable?”
That’s another valuable relationship item. Some title companies are more liberal in removing items than others. There are going to be scenarios where we will read the document, see that expiration language, and we will take it out. You, as an investor, want as few of those exceptions on the title report as possible. If you can get that removed from your title company, that’s a win for you because they are saying, “You don’t need to worry about these.”
Start with you or your title rep, then from there, you might advise who else that investor should ask, whether it’s an architect, etc., or the city.
Architects, the Municipal Code, the Zoning Code architects, and finally, the old real estate attorney.
We have had to do that, too. That’s why and we have talked a little bit about it. It’s important to work with a good title rep and also part of a good title company as well. You are with First American, which is one of the biggest or is it?
We are number one in market share in San Diego County, and we have been for a very long time. We are super proud of that. We are a national company but there are other companies that are out there.
I’m with you at First American now. You were at other places when I met you but I work with you regardless of where you are at. It’s good that you are at a great company now because there are other advantages to that. It’s good to note as we are talking and teaching that there’s a range not only in title reps or what title companies can and can’t do. The bigger companies, the First Americans, what are some other ones that you think, I’m not saying they are better, would fit into the category of being very reputable if they are national?
Fidelity has seven brands, at least, like Fidelity National Title but it’s the Fidelity National Financial Group. They have a variety of title companies.
Those are the big ones. It’s not that those are the only ones to work with other brands but at the end of the day, they have abilities to do things that can be beneficial to a real estate investor that maybe smaller mom-and-pop title companies aren’t able to do.
As you are talking, I wanted to bring up something that’s new and breaking news.
Are you doing it for the first time?
Yes. This has been a battle now with a lot of the real estate investors locally. Many investors use hard money or private money financing, borrowed money. A lot of times, those lenders are requiring title insurance that’s 125% of the coverage, which is above and beyond the actual insured amount.
Normally, you do 100%.
Hard money lenders primarily require 125%. That extra 25% is in there, so they potentially would have coverage if they needed to foreclose on the borrower. They want the title company to basically cover that. Over the past months or so, the title companies’ industry-wide have been very strict on whether or not they are offering the 125%. Many companies have flat out said no.
I’m not saying that First American is always going to do that. Again, it goes back to relationships. If we have relationships with hard money lenders that have a good track record, they don’t foreclose on people, and they have certain documentation that we require like an appraisal. It’s amazing to me that lenders are giving loans, and they are not getting appraisals.
It’s starting to happen again.
That’s one thing that we require. We are able to issue that coverage for the lender. That’s a benefit for the investor because hard money or private money is the primary source of financing. Sometimes lenders are going to say, “I’m only going to go with a title company that’s going to give me that extra coverage.”
It’s good to note because people may not realize that there are standards and guidelines that title companies have to have to work within. There’s also a certain thing that can be discretionary to the title company like what you are talking about with regards to ensuring higher than 100% of the value. What you are saying, if I’m hearing you right, breaking news is that First American is doing that if they have an established relationship with the investor and have a good rapport. Is that basically what you are saying?
Yes, and if it’s a new customer, having their ducks in a row with all of the items that we need.
Having the systems down, having everything documented, and getting the appraisal and things like that. That’s good to know. Another reason to work with a reputable company is also working with someone over again because there are benefits to that, one of which you mentioned. We talked about vesting, anything that may be recorded like CC&Rs, and potentially easements. What else should we keep our eyes on when looking at the title report beyond that that is important to note?
They are called money matters but the items that can derail a transaction are anything like a lis pendens, filed litigation, and mechanics liens.
Contractor or something along those lines.
Those are the ones that typically can derail a transaction but usually are harder to solve.
Sometimes they can be a surprise.
Give me an example of a money matter that you were like, “I had never seen that before or that was crazy.”
We had a deal where the seller had been in an active divorce since 1996.
Had it not been finalized?
No, and there were multiple recorded attorney liens like divorce liens. They were called performance liens that were recorded on the property that were tied to the ex-wife. It was this massive negotiation.
What was the total of those money matters liens that were recorded on the property? Just ballpark.
Regarding those items? It was over $2 million.
Do you remember the purchase price of the home?
It was around $3 or $3.5 million.
There was a lot of money that was recorded that needed to be negotiated in these money matters.
The binder is the single most valuable title item that an investor can ask for in a real estate transaction It is a huge money saver for the investor.
Obviously, being that it was pending since ‘96, it wasn’t an easy feat but we’ve got it done surprisingly.
Who steps in? This is good for everyone to hear when money matters come up and those things. Maybe not that much but common ones like things in terms of litigation around a divorce, mechanics liens, or things that pop up that maybe the seller or the buyer didn’t know about. Who takes the lead on negotiating those? I know when we started in Connecticut, normally, the attorneys would be there to take the lead but a lot of states don’t close with attorneys. Where does someone go to get that process started?
Escrow is the one that reaches out to the lien holders and requests what’s called a payoff demand. If they see a child support lien that’s on there, the escrow’s responsibility is to contact the county where the lien is filed, get a demand for payment from them. There will be a number that’s attached with that.
Contact that individual, that entity, and get that payoff.
In the instance, I was talking about, escrow reached out to the attorneys. They had a very thick file about what was owed.
What did that even get negotiated down to? What was the number?
There was $2.5 million that was paid off at the end.
Did the buyer know that there was that much involved or was it in a retail transaction, or was it an investment transaction?
No, it was an investor deal.
Did he or she know that there was that much that needed to be negotiated on the title?
From the buyer’s perspective, honestly, they didn’t care as long as the deal closed. It was coming out of the seller’s side, and all they were worried about was closing.
Another good reason to work with a good title company and have a good team, escrow title, attorney. I know from personal experience that lots of times, sometimes the buyer will step in to help facilitate that information faster too because as an investor if I’m buying a property or we are buying a property, and there are other things that pop up, and you want to close that transaction. At the end of the day, as long as it gets resolved, you don’t care but if you want the transaction to go through, sometimes you’ve got to step in and make it happen.
Either by getting to the seller or their contractor that attached to the lien to the property and sometimes step in. As you said, normally, escrow or the attorney will reach out to the individuals and get that payoff. Sometimes that pays off. Maybe there are some discrepancies on if that is accurate or not. That’s where other things have to pop up. There’s a lot that goes into the title and clearing things on the title, getting title insurance. Sometimes there are very few things on the title but as you know, that isn’t always the case.
Fortunately, we are in a market where there’s a lot of equity out there. In that scenario that we discussed, if this was a different time, either the ex-wife has to take a haircut on what she’s getting or the deal doesn’t go through. The seller is stuck with a dilapidated home that he can’t do anything with.
It can make or break a transaction. We are in a transaction now. We didn’t select title when we were buying it because the seller did, so you weren’t involved on that one but the day or two, after we closed, someone I will leave the information out of names but they recorded a lis pendens against on the property that we now own. This individual claimed that they have rights to the property, which we weren’t given that information or disclosed that information. We knew that there were difficulties with some of those living in the home.
We didn’t know that they had or claims to rights to the property, which we don’t believe they do but this happened after the closing. We already own the property with free and clear title. When that happens now, then there’s a host of things. Someone buys a property, something comes up after, someone raises their hand after title insurance has been issued and says, “I have rights to this property.” There are a series of things that can happen as well. Like the title company’s attorney gets involved, which is what is happening in this transaction.
I’m going to thank you for not getting me on this train.
You are welcome because while I love talking to you, we would be talking a lot more now, and one of the First American’s attorneys we would be working with now but it happens.
That’s why you need title insurance.
I will say it again. We should never buy a property without title insurance or a very clear, detailed understanding of why we don’t have insurance and a clear path to getting that resolved. Although, I still wouldn’t recommend that. In that scenario, what I’m talking about now or in general in that scenario is you buy a property, has title insurance. After all the transaction’s done, you’ve got title insurance on your property. Someone or something pops up that claims that it isn’t the case, that they have a right to the property. What should someone do? In general, what’s the process that gets started to try to get that result?
It is filing a claim with the title company, and it’s as simple or painful as filling out a form explaining what’s happening, all the details of the transaction, and what the claim is. Unfortunately, it does go into the claims department that is full of attorneys, and they are going to dig into the transaction. They are going to interview everybody that is involved.
Get speed on what’s going on, read any documents that have been recorded, and talk to any attorneys that are involved.
They are going to talk to the agents. They are going to talk to the principals. They are going to find out who knew what. You, as the insured, are the clients of the title company, and so their duty is to defend the title and your ownership.
Ultimately, if it’s determined that it’s something that falls on the title insurance company’s shoulders, then there will be a payment or some resolution financially that the title insurance company would be responsible for.
A title claim can sort out in different ways. Worst case scenario for the title company is that they have to unwind the transaction or pay back the investor or the owner, which is a pain. Nobody wants to go down that road, I’m sure.
The best-case scenario is that they determine that it’s erroneous and there’s nothing to be done. There’s usually probably some middle ground where there’s some validity to it. There’s some mediation or discussion, and some amount of resolution or financial payment is made to the person that’s claiming something.
This is, again, another very important reason why as an investor or some of the buyers of property, we get title insurance because you have another set of resources at your disposal if something pops up that you are unaware of. Anything else on a title report that we should be wary of or look at? We have covered some big ones the vesting, any recorded encumbrances or easements, and as you call them, money matters. Beyond that, is there anything else that we should focus on? The map or any plotted easement map that comes with it.
On the easement note, many times, they are available with legal descriptions. You can get a map that will draw out the locations of the easements. That is very important to understand. The deal we were talking about was, “Where the storm drain was going through most of the property.” That’s an important thing to know and be aware of that if you are buying the property. Most of the time, the easements are along the sides of the lot lines. They are not big issues but you do want to be aware of that, and getting the plot easement map is very important.
I would put it on everyone’s list. If you are reading this, when you get a title report, I would suggest you also ask at the same time for a plotted easement map. Correct me if I’m wrong, it isn’t a common thing that a title company will produce unless it’s asked for. Am I right in that statement?
Some companies produce them automatically like First American, and some don’t, so you have to specifically ask for it.
Greg, before we get into the next question, I wanted to share with everyone about a couple of our upcoming classes. We’ve got some great training coming up, our top trainers within the company, whether you are new, experienced, starting your business or growing your business, if you are reading this, on Facebook or the other channels, go to FortuneBuildersShow.com to get more information.
Not only do we love investing but we love teaching investing, almost if not more than we love investing. Within those classes, you will learn a lot more. Not about title insurance like we are talking about on the show but about sourcing deals, funding deals, repositioning transactions, and commercial education. Greg, let’s get back into it. One thing I learned about, I will say not long ago but more along the line, specifically when we moved back to California with our business, is something called a binder. Talk about what a binder on an insurance policy does. How does it help? What it save? What it does and save?
I would say that the binder is the single most valuable title item that an investor can ask for in a transaction because it’s a huge money saver for the investor. Basically, what a binder is it’s a promise to ensure the property in the future. When you are closing on a transaction, and you are requesting a binder, you are telling the title company, “I will pay for future insurance.”
I will pay you a little bit more now, basically when I buy the home but I’m saying, “Greg, I’m going to guarantee. I’m going to go use you when we go to sell the home in 4, 5 months and etc.”
A typical binder is good for two years, and it can be extended for a third year for an extra 10% of the price.
That’s also good to know for everyone to pay attention because I have called Greg maybe it was right after or right before the two-year mark needing to extend. We made it happen but you are right. Is every binder the same in terms of it’s usually a two-year window of when the binder is available to you?
It’s industry standard that is two years, then you have a third-year extension.
That’s good to note. Ask if it’s a two-year if there’s some difference of that. If you plan on owning the property beyond that, make sure you extend it. Talk about averages. What can be saved when you get a binder policy because it can be a little confusing to hear? We pay more upfront but we save money when we go to sell it. That doesn’t seem to make sense but explain how that works.
The math is slightly confusing but what you need to know as a buyer is that the upfront cost is 10% of the seller’s fee. Usually, the seller’s fee is quite a bit more expensive than the buyers. An example is if the seller’s fee is $2,000 and you want a binder, you as a buyer are going to pay $200. Let’s say that the $2,000 fee is for $500,000 value on a home, and you buy the property. You increase the value and increase it to $750,000 through renovation, adding square footage, and all that stuff.
Now, you put the property on the market at $750,000. Let’s say that the title fee normally would be $3,000 because of the new value. If you didn’t have a binder, the seller would be paying $3,000. Since you have a binder, you are only going to be paying the difference between the $2,000 and the $3,000, so you are going to be paying $1,000 plus the $200 that you paid when you acquired the property. Your total fee is about $1,200 versus $3,000 in that example.
That’s a significant savings. I realized over the years that a lot of people don’t know that’s an option or available to them. A lot of our readers are in the quick turn real estate game, buy, fix and sell. You can save a significant amount of money over the course of months, a year or the life of your business by doing that. Is there anything different that an investor needs to do to get a binder beyond asking their title insurance company or their rep that we want to binder?
No. You only need to request it. The other thing that you need to keep in mind is that the binder is not a policy. Technically, you do not have a title policy that is enacted while you own the property but should there be a claim on the title like we discussed, you have the option to convert the binder to a policy. It’s not like you are not going to be covered. It’s only that the title company has not issued the policy because they expect you to bring it back to them in a few months. If you do get that issue, then you can convert it then you do have coverage.
That’s a very good point. I will restate it because I did not know that the first time that we started investing in binders. Technically, when you get a binder, the title insurance policy is not activated because of what you said. It means that we are going to come back to you to execute that policy once we go to sell it but it does not mean that you, as an investor and you get a binder, don’t have coverage. What would happen is that the policy would get activated. You would convert it from a binder to a regular policy. You would basically pay that money at that time when you converted it.
No, there’s no conversion fee. You do get issued a binder. That’s a certificate. The process is you have to send back the certificates to the title company and write a formal letter saying, “I would like to convert the title with binder number blah-blah into a policy.” Usually, you are doing that because you are about to file a claim, then you go through the claims process.
You are not in jeopardy of having something come up that you are not going to be covered for because you can execute the binder or convert it to a policy. As an example, the scenario I told you is we have a binder on that transaction that we had something pop up after we closed. We converted the binder to the policy, then everything took place, started in terms of the discovery, getting information, and making sure we were covered.
The important thing is when you get a binder, it doesn’t mean that you are not covered properly for items that could come up. It means that you have to convert the binder to a regular policy if something comes up and move forward with the policy. Is that correct? Is there any liability from an investor standpoint at all of getting a binder and doing it that way?
No liability but you do need to keep the title the same. Don’t close on the transaction in your personal name, and then move it into an LLC, limited partnership or something like that. The vesting has to remain the same. You could potentially void your binder and policy if you change the title post-closing.
We are going to be wrapping up here in a little bit. I’ve got a couple more things to ask but the binder, not only will it save you a lot of money but it’s one of the most important things that you can execute on your transactions for a variety of reasons. Primarily, it does save you money. Basically, you have the same coverage. We do over a hundred transactions. I haven’t done the exact math but in the example that you described, it was a $1,800 savings. You can do the math on that. That adds up pretty quickly.
We talked about binders. As we are getting ready to wrap up and again, thanks for being on. We have covered a lot of great information. We talked about the common things to look at on the title report. What are some of the 2 or 3 regular things that you have seen come up in terms that we have to deal with on the title side, either getting removed or handled? Common things that typically have to get taken care of on any transaction with regards to the title.
It has been what we call these uninsured transfers. Properties are held for a long time amongst family members, and they decide to add somebody to the title or they take somebody off or move it into the trust. The trustee changes the title again. There’s a chain of events that we have to go through and verify. I mentioned it a while ago, fraud is a big issue.
It’s part of what you are trying to make sure isn’t happening.
We have had issues where maybe we can’t track down the person who signed off on the deed or we have a trust that has gone missing like an old trust.
No one can produce a document.
That has been happening.
Is there anything an investor can do on there when they are buying a property to try to prevent that, avoid that or get ahead of that situation? I’m thinking, though, there isn’t really.
Not from the buyer’s side. You are going to have to be patient.
It’s another reason to work with a good title company and a title rep.
If you have somebody on your team that you know is going to be able to navigate it or it comes back to being not inside the box necessarily and having logic or solutions to get around it.
It is being creative and within the guidelines and the ethical, legal requirements that are available to us.
I will share as far as what we do with trusts. Lots of times, the property might have a trust from the 1980s where it’s the parents’ trust, and the parents passed away, and now the kid has been sitting on the property for twenty years. They want to sell the home, and we go back to them and say, “We need you to produce the parents’ trust from 1988.” They say, “Sorry, I have no idea where it’s at.” In certain scenarios, we will consult with their estate planning attorney.
Hopefully, the family has an attorney that’s representing the estate in the sale of that property. In certain scenarios, we will get it from the attorney that says, “We verified that he’s an only child. His parents were leaving the property to him via a will. I’m administrating the trust, and I have confirmed this is a legit seller and he’s entitled.”
You are okay with issuing the title insurance policy. The interesting thing, as we are getting ready to wrap up, is that there is some subjectivity, if you will, in regards to what the title company does. Not meaning that they work in gray areas by any means but you are looking at the information that is either obtained in writing or that you obtained from parties and making certain decisions if it’s valid or not, getting the attorneys involved.
From my perspective and for those people reading, there’s a tremendous value in working not only with a good title rep but a reputable company like the First Americans and the Fidelitys of the world. We have covered a lot of information, Greg. We could even figure out, if you are okay with it, to get you back on subsequent shows to dive into some of these things deeper. Maybe even pull up an actual title report and look at it. It’s one thing to talk about it, it is another thing to see it. Are you open to that?
Yes, I love reviewing title reports. I do it every single day.
I appreciate you being on the show, and as importantly, I appreciate the work that we do together. It has been fun to get to know you over the years and become friends. Correct me if I’m wrong, do you owe me to lunch on any bets or did we settle all those up?
No. All football bets are off now because the Seahawks are not playing well. Unfortunately, we haven’t played the Raiders.
It’s a tough season for you guys and us, too, but thanks for being on. Thanks for dropping a ton of knowledge. I would like to get you on to maybe dissect an actual title report and talk about some more information. Thanks for being here, Greg.
Thanks, JD, for having me.
I want to thank everyone for reading. We appreciate you. If you know someone else that can benefit from the content and what we share on this show, please share, subscribe, and like what we are doing here on the show. If you want to get more information about the training I talked about, you can go to FortuneBuildersShow.com. We are on a mission here on the show to empower your purpose through financial education. We take that very seriously. Thanks again, everyone. We will see you at the next show.
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- Justen Brown – previous episode
About Greg Ives
Hard working, self-motivated, highly successful title insurance sales representative with over 20 years of business to business sales experience including the real estate industry, film and media, mobile content and corporate events. Recognized for excellent ability to penetrate new markets and establish and maintain long lasting business relationships through short and long sales cycles. Accustomed to working directly with decision makers and high level management. Is a quick learner, easily adaptable, with excellent closing, communication, and problem-solving skills.
Specialties: real estate, title insurance, business to business, advertising, b2b, business strategy, ceo, conferences, content management, contract management, crm, customer relations, email, film production, financial, insurance, management, marketing, marketing collateral, meeting facilitation, office, microsoft outlook, microsoft powerpoint, microsoft publisher, excel, negotiation, networking, personnel, presentation skills, production, radio, recording, retail, sales, scheduling, telecommunications, television, video, escrow