When purchasing a mortgage note, part of the due diligence process requires researching the property itself. Many times, it’s easy, oftentimes it’s not. Pulling a report makes things so much easier.
I recommend ordering a title report called an “O&E report.” This stands for “ownership and encumbrances.” I check all liens, mortgages, judgments, and the tax status on the property from the last property purchase to the current date. I also review a copy of the vesting deed. An O&E title search is ideal for foreclosure auctions, pretax auctions, short sales, tax sales, tax certificate purchases, nonperforming note transactions, by-owner transactions, and refinances and to check for a clear title.
You will receive a title report on all outstanding mortgages, liens, and judgments recorded against the property and its current owner(s). This report can cost anywhere from $49 to $200, depending on the county.
Once I receive the title report (typically takes twenty-four to forty-eight hours), I review it closely. Don’t take shortcuts with this step. Title reports are complex, and it’s safe to say you will see a variety of information you may not understand. Items to look at closely include the current vested owners and how many and what type of liens are on the property. This includes what position your note may be in (first, second, third, etc.). There can be multiple mortgages and other liens, such as HOA liens, tax liens, city municipal liens, and so on. All of these are important to know about before closing the deal with your note seller.
Why Spend the Money?
While everything may look good on the surface, oftentimes a title report will reveal things nothing else can.
Things like:
- unpaid property taxes
- multiple liens or other judgments
- HOA or super liens which have priority over your lien
- Incorrect lien position (loan may be a 4th position lien)
- and most importantly, if the lien is secured on title. This term secured means it’s enforceable if the lender needs to foreclose due to borrower default
I will not cover these in depth, as they could fill a book by themselves. I strongly suggest you have someone familiar with title review look over your first few transactions. He or she may catch something important you might have missed.
Learn About Title
For an excellent read on title and how to protect your investments, I recommend Bulletproof Title, by Alex Goldovsky at www.ProtitleUSA.com
Alex is a friend and I make no money from recommending his book.
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