Recommendations for SFR Investors in Choosing a Title Company
September 7, 2023
Clear title, or “clean title,” refers to the rights someone has over a piece of property, and it’s an important part of most real estate transactions. Let’s say you’re an investor and you have a property in your rental pool that has been bought and sold three times in the last 30 years. You renovate the house and are ready to sell. Then you learn that the prior owner of the house is deceased and left the house to their three sons who can now legally lay claim to it. Other complicated legal issues can arise when property is held by a trust or some other form of legal entity. Obtaining clear title can become quite a quandary.
In addition to issues of clear title, mortgage closing scams have cost over $1 billion in funds diverted from legitimate real estate transactions. Therefore, working with a title company that knows how to do more than just thoroughly perform searches regarding ownership is crucial. In other words, a title company should also know how to prevent scams. Here, we will discuss ways to find a good title company and what red flags to watch out for.
How to find a good title company
With more than 6,200 title companies in the U.S. alone, it can be hard to figure out which providers are at the top of their game. Selecting the wrong title company not only can delay closings, but it can cost buyers and investors tens, if not hundreds, of thousands of dollars if they become victims of fraud.
Finding out who holds the rights over a property is important, but it’s just one of the many important services a good title agent provides. In fact, investors need top-tier agents who know the ins and outs of handling a large number of properties in bulk rather than transactions involving single homes. This means working with title companies that provide highly automated systems to issue title policies, close multiple single-family rental homes in one bulk deal, handle large refinance transactions and securitizations.
Investors will also want to work with highly experienced agents. For example, if you are an investor in the single-family rental market and a prospective title company has only completed two of these kinds of transactions in the last year, you’re probably better off going with a title company that has handled 200 or 2,000 of them.
Automation is key
Title insurance brokerages estimate there are a dizzying 2.8 million online title searches per year. Trying to wade through this virtual sea of information with just human labor is impossible, making cloud-based technology a huge boon to title companies.
Although it’s relatively easy to process a title for a single home in less than 30 days, transacting titles for multiple homes at one time—which is something investors routinely need to see happen—is more complicated. For title companies, leveraging technology helps create a smaller margin for error by using automated systems to issue title policies, close single-family rental securitizations and perform other bulk loan transactions.
In addition, title companies that have successfully leveraged technology usually offer better customer service. By leaving most of the back-end title searches and other tedious tasks to automated platforms, title agents can spend more time with their clients. In fact, some of the best title companies provide their clients with secure online portals and send automated messages—in real-time, 24 hours a day—about changes to their accounts and the status of their closing.
Watch out for red flags
According to Goldman Sachs, about 30 percent of property titles have issues. Hiring the best title company and associated agent to ensure you receive clean title will not only save you time and money, but it will help you close real estate deals faster and more efficiently. After you have received great recommendations about title companies from other trusted professionals in the real estate business, then it’s time to get down to the nitty-gritty of choosing the one who best will suit your needs. Make a list of questions to ask potential providers, including how do they retrieve documents during their title search? Remember, automation is important. Can they provide daily reporting as to the progress of obtaining and examining title, issuing commitments or pro forma policies, clearing title, obtaining HOA payoffs, etc. Does the potential title company have a clear process? Do they take time to answer all of your questions?
If there is even one inkling that a title company may be sluggish responding to you, or if you feel a lack of transparency about their process, move on. People skills matter, particularly when dealing with something as complicated and time sensitive as the bulk closing process. In our modern world, there is no excuse not to look up reviews about title companies online. A stack of complaints is always a red flag.