Good questions:
How get the owners to give me the deed?
What kind of deed should I request (a “Warranty Deed” or a “Quit Claim Deed”)
Before these two questions are answered, there is another more basic question, whose answer provides a foundation for answering the other questions:
What does it mean to “get the deed”?
In the context of your investing, to “get the deed” means to “get control of the property so you can bring buyers to the closing and make a profit”.
Getting the deed does NOT mean you actually “own the property.” It is a good beginning. But, certain steps have to be followed to complete the process for ownership: 1) the deed must be a “valid” deed, meaning each seller who is a legal owner of the property is competent and has signed the deed, 2) the correct legal description must be written on the deed, 3) the signature of each of the “grantors” (sellers) must be notarized, 4) that all the recorded right (easements, and liens, etc.) have been properly acknowledged, and 5) usually, this deed must be recorded at the county recorder’s office.
NOTE: Technically speaking, there are several elements or steps that make a deed “valid”, depending on the state. But this is a simple, practical overview. All these steps are required because ownership of property is a sacred right in America, and certain steps must be taken to preserve and protect those rights. Your name will NOT be “on the title” until you record your VALID deed. A property deed does NOT work the same as the title or “pink slip” to a car. It’s the same in principle, but there is a whole different methodology here. Any other technical aspects of “ownership” that may be required are resolved when a “policy of title insurance” is written to you with you as the beneficiary. And when you have “title insurance”, you know that any technical problems (the ones I’ve mention and any others that might be present) are resolved.
Simply speaking, when you as an investor “get the deed”, it means that the sellers have given the property to you for you to own or sell or do with as you please. Your rights are limited as to how valid the deed is, and what kinds of liens are recorded against the title as explained in the small print above.
Sometimes literally “getting the deed” is NOT the best way to make your profit – as you will see here. At the boot camp, Matt and I presented 7 techniques for constructing your offers (getting control). Here they are:
1. A classic “ugly house” that is “free and clear” (has no mortgage): “Get the deed”. If the property is an “ugly house” (meaning it is abandon and forgotten), and you are talking to owners who want to walk away from the property (meaning they don’t want to cope with the problems the property has AND they have NO financial liability associated with the property -- or are not aware of any financial liabilities), then “get the deed” (more on this below).
2. A classic “pretty house” with a high balance mortgage: “Get the deed”. If the property is a “pretty house” and the sellers are in trouble and want to walk away for the property (meaning they don’t want to cope with the problems the property has AND they have NO financial liability associated with the property -- or are not aware of any financial liabilities), then, again, it’s time to “get the deed” (also, see below);
In both of these cases, “getting the deed” is evidence that the sellers have put you in control so that YOU can solve the problems and make a profit. However, if the sellers on a property are NOT willing to walk away from the property (if the sellers have equity and want to be paid for that equity, or if the sellers have some potential liability – like “liens” on the property, taxes, etc., and default could hurt the sellers’ credit), to “get the deed” is an oversimplification, and therefore may not be practical. You can’t just “get the deed” without creating some way to 1) pay the sellers for their equity or 2) protect the sellers from any liabilities of default.
So, in the Mentoring boot camp, we outlined 5 other ways to get “control of the property” – or, in other words, maintain enough control in this property, so you can bring buyers to the closing table and, ultimately, make your profit.
3. A not-so-classic “ugly house” or “pretty house” that HAS a mortgage and/or equity (profits for the sellers) and/or HAS potential liabilities for the sellers: “Get the deed WITH Seller Financing.” In these cases, you will usually get ownership of the property in a closing at a title company (or escrow company or, in states that require a real estate attorney, a real estate attorney) and there is some kind of cash and/or note(s) (or mortgage[s] or land contract[s]) to the sellers for their equity, and/or some other mechanism(s) in place to protect the sellers from potential liabilities following their sale of the property to you.
4. The same “not-so-classic ugly house or pretty house” as #3 AND where the sellers won’t accept your offer with seller financing (#3): Get “control of deed” by using the Lease Option. A “Lease Option” is really another kind of seller financing where the seller keeps the title and ownership, but you get total control of the property in terms of occupancy (who lives in the property now) and future ownership, almost as though you owned it! In these cases, you get “control without ownership.” You get to bring in a monthly tenant (by virtue of the terms on your lease), and you get to bring in buyers (by virtue of the terms of your option). When the option is “exercised” (or closed), there may also be some combination of cash, and/or a note(s) to the sellers for their equity, and/or some other mechanism(s) which will be put in place at the time of the closing to protect the seller from potential liabilities. But you don’t have to worry about all this until closing. When you “close” is when you “exercise your option” and “get the deed” to the property, or pass the deed along to your buyers.
5. The same “not-so-classic ugly house or pretty house” as #3 AND where the sellers won’t accept your offer with seller financing or with a Lease Option (#4): Get “control of deed” by using the Option. (Or, “get the option”.) An “Option” is half of what you have in #4 – the terms on your option give you the right to purchase the property at a set price (and/or terms), as though you owned it but you don’t. However, you don’t have the right to bring in a tenant to occupy the property until after you exercise the option. In these cases, you get “limited control without ownership.” With the option, you will agree to some combination of cash and/or note(s) to the sellers for their equity, and/or some other mechanism(s) to protect the seller from potential liabilities. With the option, you must get the sellers to agree to give you some rights to inspect the property and to show the property to your prospective buyers. In such cases, it is best if the sellers do not live in the property, so you have free access. (If you are a beginner, don’t do the option, unless the property is vacant and you have the right to show and inspect the property without the seller(s) being present.)
6. The same “not-so-classic ugly house or pretty house” as #3 AND where the sellers won’t accept your offer with seller financing (#3), or with a Lease Option (#4), or with an Option (#5): Get “temporary control” by using a purchase agreement or “letter of intent” with REFUNDABLE earnest money. REFUNDABLE earnest money is a way to gain a different kind of control that gives you the right to inspect and show the property, on the basis that you will bring a set price (and/or terms) to the closing in a set number of days. (This is almost exactly like an option, except it is much less formal, and much easier to negotiate and sign.) You don’t own the property until you “close”. In these cases, you get “a kind of limited control without ownership” – just enough control to sell the property and make your profit. In your purchase agreement or letter of intent, you will agree to some combination of cash and/or note(s) to the sellers for their equity, and/or some other mechanism(s) to protect the seller from potential liabilities. IMPORTANT: Like with the option, you don’t get to show and/or inspect the property UNLESS you agree to some rights to inspection in your purchase agreement. And, the right of REFUNDABLE earnest money is also “negotiable”. This means that the sellers may demand that the earnest money is NON-refundable. Further, they may NOT allow you to inspect or show the property. You have a little negotiating to get this approach to be workable, however THIS IS A RELATIVELY SIMPLE PROCESS AND IS HIGHLY RECOMMENDED because it is the FIRST step in any of the processes above.
7. In the event you cannot get the sellers to agree to any of the above, there is a last ditch effort to maintain a minor element of control – enough control to avoid a broker’s fee (or real estate agent’s fees): Use the “one-name reserved” technique. You cannot use this technique if the property is already listed with a real estate agent. But if the sellers have NOT listed the property with a real estate agent, you may be able to get the sellers to agree that, if they DO list with an agent, they will “reserve your name from the listing.” If this clause is written in the listing agreement between the sellers and the sellers’ agent/broker, you or your sellers will NOT have to pay the fees associated with the listing: the agent does NOT work with you or the sellers on the sale you bring to closing and the real estate people do NOT get their fees. (This reduces the amount of cash at closing, to the tune of what the real estate agent would be charging, because the agent’s commission is usually paid in cash.)
Now, about “Which Deed?”
There are 3 kinds of deeds that you can use in most states:
The Warranty Deed (sometimes called a “Grant Deed”)
The Quit Claim Deed
And in some states: there is s “Special Warranty Deed” (or a “Special Grant Deed”)
The “Quit Claim Deed” is often promoted, because it is the easiest and fastest to use. However, the Quit Claim Deed gives you no title warranties, so most sellers are willing to sign it. The Quit Claim Deed says: “Whatever my rights to this property are, you have them.” So, if the people who sign the Quit Claim Deed are the legal owners of the property, you are now the owner of the property.
There are problems with the Quit Claim Deed in that if the those who signed the deed have NO rights to the property or only have a partial rights in the property, you now have only what they previous had. So, until you do a title search, you have to trust that the “signees” actually own the property.
Once you get the Quit Claim Deed signed, take that Quit Claim Deed to a title company so they can research the title and determine 1) that those who signed the deed actually have the right to transfer ownership of the property, 2) that those who signed the deed are the ONLY people needed to give you all the rights to the property (there may be a spouse or a sibling that also has a deeded interest), 3) that the sellers have signed the deed EXACTLY the way it was deeded to them (exact spelling of names, for example – if not exact, the deed is invalid), and 4) that there are no liens or judgments (tax liens, IRS liens, etc.) that must be paid before you can make a profit. (Too many “surviving liens” and you may not be able to make as much money on this property as you thought!) Another detail here: In most states, with a Quit Claim Deed, you cannot get “Title Insurance” – so you have no insured guarantees as to the validity of the title. However, the Quit Claim Deed is fast, and there is no way to tell how helpful a title policy is; getting title insurance is debatably a valuable custom – overhead you should get on any transaction.
A “Warranty Deed” can also be used to transfer title to your name. But, because a Warranty Deed has some “warranties” or guarantees, it is assumed that some sellers may hesitate signing it at “your office” in McDonalds or over your car hood. I’m not sure this is a concern. One consideration is that, while the Warranty Deed needs to site the sellers and the liens on the property exactly in order to be valid, the properly executed Warranty Deed gives you “insurable title”, so generally, research to prepare the deed is requisite. You can do this research yourself, but your best operating plan should include have a relationship with a title company (or closing company – or attorney, if your state requires it) to take many of the unexpected surprises out of your profit plan.
Talk to your title company about a “Special Warranty (or Grant) Deed”. Use them when you transfer title to you buyer.
Along with this Helpful Hint… you should also read:
- Helps and Hints #1: Earnest money – Refundable
- Helps and Hints #2: Getting the deed, simultaneous closing, and non assignable purchase agreements...
- Helps and Hints #3: Is an attorney required for a simultaneous closing? How do I choose a company to close my transaction? And what about the agent?
- Helps and Hints #4: On land trusts
The current versions of these "Helps and Hints" are shown in the navigation bar on the left. Just click on the link.
