Should One Record The Warranty Deed
Hello All,
I am working my first sub-to and am being told by the scout I'm working with that there is no need to record the warranty deed once it is signed and notarized because this would trigger the due-on-sale clause.
I am not sure about this 'cos I am worried about how best to protect my own interests. I am planning to take title in the name of my LLC. If i don't record the deed, couldn't the sellers possibly sell the same property to someone else, or later refi and leave me out in the cold somewhere down the line?
What pitfalls should I be aware of here? Your insight is much appreciated.
Thanks,
JS.
smith,
First, you definitely need to get a warranty deed, as you've done. Don't ever get anything else.
Second, if you don't record the deed, then you don't own the property. So if you want to own the property, you record the deed.
Nothing "triggers" the DOS clause except the lender holder. The property could change hands half a dozen times via Subto with the lenders full knowledge and the DOS won't be triggered unless the lender so desires it.
The best advice on the DOS clause is not to worry about it, but have a plan of action (ie the ability to quickly refinance) should the DOS ever be called.
Roger
[quote]
On 2004-07-20 15:28, rajwarrior wrote:
smith,
First, you definitely need to get a warranty deed, as you've done. Don't ever get anything else.
Second, if you don't record the deed, then you don't own the property. So if you want to own the property, you record the deed.
[end quote]
Its not true that "if you don't record the deed, then you don't own the property"
Here's a good paragraph that explains it: (NOTE: counties and states differ)
Generally, deeds should be recorded in the county in which the real estate is located. Although generally a deed does not have to be recorded to be a valid conveyance, there are practical reasons for recording a deed. Deeds usually do not take effect as to creditors and subsequent purchasers without notice until the instrument is recorded. Thus, unrecorded deeds may be void as to all subsequent creditors and subsequent purchasers without notice until they are filed for record. Recording a deed places subsequent purchasers on constructive notice in that subsequent purchasers are deemed to have actual knowledge of any recorded instrument. Some states are "race-notice" states, which means that the first grantee without notice to record a deed to property will be protected against the interests of other grantees with unrecorded deeds to the same property.
Well, Jeff, I hate to "burEst" YOUR bubble, but ownership law is very clear...the first part to GET the deed is the new owner, NOT the first to record.
Now, granted, the new owner to protect himself should record immediately, but again law is very clear...First to get deed is the owner.
While you probably are right Mr. Merchant, being the first to record will definately be the lease expensive way to gain uncontested ownership. Sorry about the typo (burest) It should have read "burst".
Nice day to all,
Jeff
Thanks for the great input. I spoke with the experienced Sub-to investor I am working with and he is very adamant about not recording the deed because of the DOS Clause. He says that to protect his interests, he usually gets an option to buy and records that instead.
According to him, the option gives him right of first refusal and this will protect him if somebody else tried to acquire the property from under him.
Does this sound feasible as a good alternative to recording the deed? I also asked him about seasoning issuses when it comes time to take the loan out of the sellers' names and he said that most lenders will accept the recorded option and the signed (but not recorded) warranty deed as proof of seasoning. Does anyone agree with this?
His argument seems to make sense but I also have the feeling that there is something that is missing. Your input would be much appreciated.
Thanks,
JS
ALWAYS record the deed. I can not tell you how many cases we read in property law that resulted from people not recording their deeds right away. Even if you can eventually prove that you were the rightful owner it can be a very expensive and time consuming task.
Protect yourself against unnecessary litigation and record the deed.
PS> That was not legal advice but if you have any more questions about why to record the deed ask your attny.
Good luck
If you don't record the deed, it's useless for you to get one. Granted, you "own" the property, but because the world doesn't know about, it thinks that the previous owner does. So, if the owner that deeded you the property incurrs any liens, BK, or any other "fun" stuff and it gets recorded before you record your deeed, no title company will waive that lien if it was recorded before your deed. I learned that the hard way myself a little over a year ago.
Hurray! This is the correct post. Not recording the Deed will result in a Cloud on Title and liens could be recorded against the property and the owner of record. If you are not "of record" then they will go against the seller. You will have a very messy situation on your hands and possibly litigation. I worked in the title industry for many years. This is exaclt how it works. Thanks for your final input, you are 100% accurate.
Quote:
On 2004-07-21 16:52, compwhiz wrote:
If you don't record the deed, it's useless for you to get one. Granted, you "own" the property, but because the world doesn't know about, it thinks that the previous owner does. So, if the owner that deeded you the property incurrs any liens, BK, or any other "fun" stuff and it gets recorded before you record your deeed, no title company will waive that lien if it was recorded before your deed. I learned that the hard way myself a little over a year ago.
Try recording a different type of deed, like a Bargain and Sale Deed which transfers warranties. A Quitclaim would not transfer warranties. I don't know if you have a B&S Deed in your state, it might be called something else.
Quote:
On 2004-07-20 15:12, smithj2 wrote:
Hello All,
I am working my first sub-to and am being told by the scout I'm working with that there is no need to record the warranty deed once it is signed and notarized because this would trigger the due-on-sale clause.
I am not sure about this 'cos I am worried about how best to protect my own interests. I am planning to take title in the name of my LLC. If i don't record the deed, couldn't the sellers possibly sell the same property to someone else, or later refi and leave me out in the cold somewhere down the line?
What pitfalls should I be aware of here? Your insight is much appreciated.
Thanks,
JS.
Do either of you have some case law you would like to quote to support your statements?
Jeff or John???
_________________
[ Edited by kurtmg1 on Date 06/02/2005 ]
Everybody is a LITTLE correct in their replies.
Read what Bill Bronchick has to say:http://www.legalwiz.com/articles/bonafide.htm
[addsig]
Fisrt of all using a land trust would avoid all this hassle and worry about DOS.
Second just recording the deed would not necessarily trigger the DOS.
Third in many states a "race rule" is followed. First to record is first in line on title.
[addsig]
Stockpro is right. The Landtrust will protect you. If the bank calls a DOS clause, just send a copy of the landtrust which will clearly show the seller as the beneficiary. Even if you record deed, YOU ARE NOT RESPONSIBLE FOR ANY MONIES. Remember, your name is not on the loan.
Ibuyhouses, How would not recording the deed resolve a seasoning issue? It would have to be recorded sometime right.
Not recording the deed leaves it in the sellers name therefore there isn’t a seasoning issue.. Most title companies will allow funds to be disbursed to you thru an escrow between the seller and NEW buyer.
The key is never have your name on the contract or escrow therefore the lender doesn’t have an issue conforming to Freddie Mac.
Now if you’re worried that the seller will take your profits have the sellers give you a power of attorney and record that document.
I NEVER buy on a subject to without the seller giving me a limited power of attorney.
We get too many checks on loan payoff over payments made out to the original sellers not to have full control of the property.
James
In California we have a transfer tax and if that is what youre speaking about the rule is 1.10 per thousand of the purchase price minus any subject to loan. and on the resale the total amount of the purchase.
Now and I am not suggesting to anyone that you do this...
However you may want to inflate the purchase price to be close to the resale price when you fill out the transfer tax statement.. The tax is more but who cares.
Idea being that the lenders will not have an issue on a resale where there inst a large price difference and they all go buy the county transfer amount
This will also help with your appraisals as they use the same infomation.
Again not suggesting anyone do this.[ Edited by IBuyHousesInc on Date 06/27/2005 ]
Ibuyhouses,
You are full of all kind of good ideas. How long have you been investing??
TheREIkid
long enough to know that I dont know everything.. and really good at what I know..
It is according to the last 3 title companies I have used
Check out the lenders tab or talk to a broker. With 20k you should be able to get a loan.
Do yo uplan to do the work, or hire it out? Will you be staying in the home, or resell it when it is done? what % of the construction is complete?
One benefit fo hiring a general contractor is that you should be able to get him (or her of course) to fully finance the project, then you should be able to get a SISA loan.
Basically who is doing the work and your long term plans for the property are significat factors.
I plan to resell the place. I would hire out a contractor to do the work. The house is about 25% complete, all the framing, and piping, still needs some electrical work and such, before the drywall and roofing. This house is enormous little over 20k sq. ft. I am just trying to figure out how to come up with the financing.
so for sub to investing an S corp would put more money in your pocket. but an LLC offers more protection. i guess you just pick one and go.
where do you feel extra protection comes from?
Okay who cares what the tax is... Solution do more deals make more money pay more taxes.. I would agree a Sub S is the best of all of the worlds but you may ALSO want a C corp to funnel income to on a fiscal year which ends in July .
If the first is foreclosing, the second may be willing to settle for pennies on the dollar, as they stand to be eliminated by the foreclosure. Get an "Authorization to Release" read up the process, and start making inquiries. Getting a good discount on the second could make this deal work.
thanks for all the replys.
to clear something up, all though i estimate the house will apraise at $110,000 in present condition. I could easily sell CFD for around $130,000.
sorry i forgot to mention that. I think the best thing to do is to follow both paths (refi, or not) and gather as much info until one or the other pays off.
feltman, any advise you have on a lender would be great.
Nothing ventured, nothing gained! Why not ask a Mortgage Broker what they can do for you! An interest only loan may be a cheap alternative until you can sell it or rent it.
You may take the loan Sub2 and then refinance as soon as you can. (May take 6 mos to a yr to season the loan in your name. It may not though.)
Again talk to mortgage brokers, not banks.
Good-Luck!
Ray