Self-Close vs Escrow Close (LA 1381)
Self-Close vs Escrow Close (LA 1381)
Transcript:
Steven Jack Butala:
Steve and Jill here.
Jill DeWit:
Hi.
Steven Jack Butala:
Welcome to The Land Academy show, entertaining land investment talk. I’m Steven Jack Butala.
Jill DeWit:
And I’m Jill DeWit broadcasting from sunny Southern California.
Steven Jack Butala:
And I’m sitting in sunny Central Scottsdale, Arizona. Today, Jill and I talk about self close versus escrow close. Actually, a couple of days ago, Jill, we hit on this a little bit because of that title company question that, I think Thomas asked, but you know what? Let’s take a question before we actually talk about it by one of our members on the landinvestors.com online community. It’s free.
Jill DeWit:
Eraldo wrote, Hey guys. Before I joined Land Academy, I had a signed agreement to buy an infill lot. Before I knew about Land Academy pricing, I was buying it for $12,500 and selling it at full market value for $30,000. So here’s the seller’s story. Gloria is the owner/seller. The county shows her name, mailing address, and she’s made a few payments of taxes. Oh my goodness. She’s 30 years behind, but making payments on that. Okay. Since she didn’t even know that she still owned it. That’s hilarious.
Steven Jack Butala:
You’re usually good things, by the way.
Jill DeWit:
The story went on that her mom bought it back in around 1969, 1972, and then put it in Gloria’s name who was about eight or 10. Nothing showed up. So the county says the documents before 1989 would need a physical search. Called the county and they searched and found nothing. Previously, the first search was in the 80s, wasn’t right. The search, they did it again. They couldn’t tell me how they put the property in her name. Isn’t this shocking? Our records show it’s owned by her, but we don’t know how it got there. That’s the craziest thing. She’s getting the tax bills and she’s been paying the current ones, but not the very, very old back ones. I gave him Gloria’s mom’s name and her maiden name, father’s name, brother’s name just in case, and still nothing. The title examiner at the tile insurance company couldn’t find anything online or physically at the courthouse. So this is a first for me. I’m at a loss. What do you think can be done?
Steven Jack Butala:
Jill, what do you think?
Jill DeWit:
What do you think, Steven?
Steven Jack Butala:
I’d run away.
Jill DeWit:
That’s what I was going to say. Even typing this, typing this question to me and to us and the online community, it tells me he’s got, okay, let’s just say, if we’re lucky, five hours into it, maybe more like 10 hours into it. At this point, I don’t know what to say, other than I kind of would move on and I’m concerned. I’m concerned about somebody taking [inaudible 00:03:18] back.
Steven Jack Butala:
In the beginning that, he didn’t price it right. Situations happen like this once in a while. If you’re brand new at this, I’m trying to give you the real… how it really works in the real world. Once in a while, something like this happens. Most of the time, [inaudible 00:03:40] But once in a while you get a property where it’s like, you know what? I can buy this thing for five grand and it’s worth $500,000 if I solve these problems. That is in a situation where you figure it out. It might be even worth you to go to the courthouse, but if you’ve got a title examiner… Title examiners, if you’ve ever been in a county building, there’s usually a big type of conference room, and there’s 20 people sitting at the conference table.
None of them work for the same company. One works for First American, one works for a mom and pop title company, and they’re all having a blast. They’re laughing with each other and drinking coffee and asking each other questions and working together. Those people are title examiners and they know that county. They live there. If they’re sitting there in the county building, they know where all the books are, the pages, and if they can’t find anything, it’s over. No lawyer’s going to find it. Those are the people that know everything and it sounds like, this is over to me. What do you think?
Jill DeWit:
Yeah, I was going to add, here’s the thing, too, an infill lot is usually something that someone’s going to build on. So there’s no way to get around this. You need to go this path. We could buy it without title insurance and kind of trust, catch up all the taxes, but I personally wouldn’t do that because then the other note I was going to say was, I personally think that really, the only way to undo this would be get an attorney involved, and they’re going to have to probably, I’m sure there’s a legal way, Steven, to formally post in the newspaper-
Steven Jack Butala:
Yeah, [crosstalk 00:05:19].
Jill DeWit:
Right.
Steven Jack Butala:
Whatever the adverse possession rules are for this location, that’s what it’s required. That’s going to take about six to eight months on average, and it’s going to cost… just budget 5,000 bucks total.
Jill DeWit:
Right.
Steven Jack Butala:
That’s why I’m saying. There’s people that walk around this country, some of them have been, or are in our group, that this is what they do. And there’s nothing wrong with that. They’re solving a huge problem for this person.
Jill DeWit:
I agree. I met a guy-
Steven Jack Butala:
Today’s top- oh, go ahead.
Jill DeWit:
… the other day on the phone. I remember that? I met a guy the other day that said this exact thing, what you just described. And it shocked the heck out of me that that was his business model, but it is.
Steven Jack Butala:
Yep, and it’s a good one. For some reason, the people who focus on this are in Colorado. That’s been my recollection anyway, but you can do it anywhere, and I think it’s the adverse possession/the rules there. Today’s topic, self close versus escrow close. This is the meat of the show. Once again, Jill and I choose these topics based on the number of times they’re asked in Land Academy’s customer service department. They tell us, we got 22 questions on self close versus escrow close, so this is why we’re talking about it. You want to describe both, Jill, since you’re the expert between the two of us?
Jill DeWit:
Oh, thanks. Why am I the expert?
Steven Jack Butala:
I don’t know. You’re the expert at everything.
Jill DeWit:
Oh, thanks a lot. When do you get a topic this week?
Steven Jack Butala:
Data.
Jill DeWit:
Is there one coming up this week that’s your show, just out of curio- it’s okay.
Steven Jack Butala:
Tomorrow is the aha moment in every acquisition, which we both can talk about because that’s extremely important.
Jill DeWit:
Yeah, yeah. Okay.
Steven Jack Butala:
On Friday, it’s selling land fast and efficiently. No, it’s pretty much your week this week.
Jill DeWit:
Thanks. Well, if you just want to catch a cup of coffee real quick then, Steven, and kick your feet up, go right ahead.
Steven Jack Butala:
Way behind ya. I mean, way in front of ya. No, behind ya really but go ahead.
Jill DeWit:
Perfect. Okay. Self close and escrow close. I’ll describe what they are and then you ask me questions, please. Self close is when you are buying a property, traditionally without tile insurance, and you’re doing a self close. What this means is you’re making your own deed. You’re lining up your own notary. You’re writing out your own payment, figure out your own payment, collecting your own cashier’s check, usually what we do. You’re setting up a notary to go directly to the seller. The notar is going to get the deed signed, hand in the payment, send the notarized deed back to you. You’re going to send it in to the county yourself for recording. It’s going to come back to you and be done. Now the property is in your name. That’s it.
The escrow close is calling a larger company, or even just calling a formal escrow/title agent and having them do the legwork of the deed, getting it signed, you give them the money. They make sure the money gets to the seller. They get it recorded and in your name. Done. And usually, most title companies will not do a close without title. So, you’re going to have to brace yourself and you’re going to pay a couple extra hundred bucks or a thousand depending on the property, to get title insurance to go with the transaction, which is basically just researching, they want to make sure, hey, if I’m facilitating this for you, I want to make sure he really is the person that can sell it kind of thing. It’s doing their due diligence for themselves, kind of thing. What questions do you have, Jack?
Steven Jack Butala:
Let me make a car analogy.
Jill DeWit:
Okay.
Steven Jack Butala:
If I buy a car out of Craigslist or offer Up, and it’s a used car, and I go to the guy’s house and decide that I want to buy it, he has a title and he signs the title. In California, you can just sign it, there’s no notary. In Arizona, it has to be notarized, so you usually go to a bank or have somebody show up. And then I would go to the DMV or maybe one of those AAA type places that have a licensed with their licensed providers for the DMV. And we would record it. We would get it recorded with the department of motor vehicles.
If I was Jill, and I wanted to spend a hundred thousand dollars on a sports car, I would go to a dealership and there’s somebody back there that magically just gets everything done, and then they ask you to sign some stuff and you sign it and it’s over. That’s the difference between self close and title close.
Jill DeWit:
Why am I the one that’s buying the sports car? Last time I checked, if we add up all of the cars in my history and your history, pretty sure you’d beat me and you would absolutely surpass me by a lot, financially.
Steven Jack Butala:
So, self close, you can do all the work yourself and it costs nothing more than the cost of getting the notary to the person’s house, the seller’s house, and the fees to record it. So, a notary costs maybe between a hundred and $200, depending on where you are, and recording the deed probably costs 25 to 35, maybe $45 max, maybe less in some rural counties. So you’re talking about $250 to close a deal. That’s on a top-top end self-close. Title escrow is closer to 2500. You get title insurance though, so the next person, the whole point to title insurance is, we looked at it, all the stuff we checked, we are going to insure the title against XYZ, and if there’s problems in the future, you can make a claim on. It’s just like an auto insurance or health insurance. Vast majority of the times, you don’t use it, when you need it, it’s there.
And so, anybody who’s going to develop the property, you got to do a title escrow close. And I use those terms interchangeably. I say title or escrow close. I say escrow close or title close, they’re all the same thing, exactly. Can you buy, Jill? Can you call a title company and just say, “You know what? I don’t believe in title insurance. I just want to use the escrow services because I don’t know how to exchange the money.”
Jill DeWit:
Legally, but no, they won’t do it because that’s where the bulk of their money comes from, I think.
Steven Jack Butala:
That’s the answer. They hate it. They make money. They’re an insurance company that provides this escrow service and they charge a little for it. They’re selling insurance policies, just like any life insurance company or anything else, so this is not the topic for this show. There’s a lot of controversy in title insurance, whether it’s actually usable, you can file a claim. Any of the claims that I’ve ever tried to file with the… and I’ve only had a few in my life, ended up pointless and…
Jill DeWit:
Same here. I’ve got one right now that we’re just talking about, but I’m like, okay, well at what point do you just walk away?
Steven Jack Butala:
But do we do it? The vast majority of the properties we buy now, if not all of them, I would say 95%, 98%, we use escrow and title.
Jill DeWit:
That’s an interesting point, I think for two reasons. One is, it just makes people feel better. It’s kind of silly, but okay, so this is a good question. Why would you do one over the other? Ready?
Steven Jack Butala:
Rice.
Jill DeWit:
Here’s why.
Steven Jack Butala:
Oh, I thought you were asking me.
Jill DeWit:
But even then-
Steven Jack Butala:
Sorry.
Jill DeWit:
But that doesn’t even matter because… so here’s a question, let me probably ask you another question. Steven, can you buy a $500,000 property and close the deal yourself?
Steven Jack Butala:
Yes.
Jill DeWit:
Thank you.
Steven Jack Butala:
Would you ever do that?
Jill DeWit:
Some people don’t-
Steven Jack Butala:
No. You would never do that.
Jill DeWit:
I wouldn’t.
Steven Jack Butala:
The person that you sell it to is going to say, “What kind of malarkey business is this here? What are you trying to pull?” So, it’s… go ahead.
Jill DeWit:
That’s the only reason which is, it doesn’t make any sense, but it is, it’s just a perception. And like you said, I love it. You and I could talk for hours at how the many flaws that are in title insurance, and if you’re ever really bored one day, sit down and read one and see what’s covered and what’s not covered, and your head will explode. Maybe you shouldn’t read it because your head will explode, when you realize basically what they’re insuring is, everything that they found. If they missed something, they’re not insuring it. So I argue, what’s the point of insurance then? I don’t understand. They’re insuring that, that guy spelled his name right, and even then you got to fight for it. It’s hilarious.
Steven Jack Butala:
They’re called schedule B exceptions. So, if you read a title insurance policy, not that preliminary, but the whole thing, all the stuff that they are specifically not insuring is in the schedule B exceptions. The first one on every deal we do, is access, physical and legal access. On its own, I can live with that because that’s kind of our responsibility anyway. Very specifically, the next one is, they don’t insure any claims that anyone that hasn’t been on the recorded chain of title, or any clouds, they don’t insure against that because they couldn’t find it or didn’t go. Well, that’s-
Jill DeWit:
Exactly.
Steven Jack Butala:
… ensure yourself against the unknown or the unpredictable. So, they truly have from a marketing standpoint, escrow and title have you buy the private parts when it comes to this stuff. You have to use them.
Jill DeWit:
That’s interesting. So a lot of it is like you said, why are we even talking about what this? What’s the point? For me, and I’ll end on this, it’s perception-
Steven Jack Butala:
It’s perception.
Jill DeWit:
And depending what your end user is going to do with the property, it’s needed. They’re going to build on it. They’re going to want that. And there’s times it just, again, it comes back to perception. It makes the property look more valuable. I celebrate it. Hey, I bought it with tile insurance. Here’s a copy of the policy. We put- and some people can go, okay. And that’s it. So don’t think about it. Don’t stress about it. Don’t try to make sense of it.
I think it’s here to stay, but now you know what the two things are, and if you’re in a pinch, because I still do this to this day, if you’re in a pinch and you got to lock in a deal, maybe you have a really great deal, especially now we’re coming up on the end of the year, and there’s a lot of people that say, “God, I got to get this off my books in 2020. I can’t have it in 2021. And I will accept your price of X, if you can get this done.” I would and I still do, close and then get title insurance after the fact. I want you to be smart. You’re so smart if you are listening to this and you know this, that this is a possibility, you’re going to get more deals out of it, too.
Steven Jack Butala:
That’s only for real advanced people who know what they’re doing.
Jill DeWit:
Right, right. Happy you could join us today. Five days a week, you can find us right here on The Land Academy Show.
Steven Jack Butala:
Tomorrow the episode on The Land Academy Show is called the Aha Moment That Every Acquisition Should Have. You are not alone in your real estate ambition.
Jill DeWit:
I like shows like this. I think that there’s a lot of confusion. And so, when we can just say, this is what this is, and this is what that is, and here’s why, and here’s why, now everybody goes, got it. I think that this episode is going to be really popular and I would myself listen to it a couple of times, and know, okay, I got it.
Steven Jack Butala:
If you can’t stand topics like this, as a listener, all you really want to do is just analyze data, choose markets, price it correctly, and send the mailer out. You don’t want to do the deal at all, call us. That’s what deal funding’s for. You don’t ever have to learn this if you don’t want to.
Jill DeWit:
Land Academy deal. Today’s episode brought to you by Land Academy Deal Funding.
Steven Jack Butala:
Perfect.
Jill DeWit:
I love it. Thank you for tuning in, and we hope you find our content valuable. We really appreciate your support. If you haven’t already please zip on over to our YouTube channel and hit the subscribe button
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Jill DeWit:
We are Steve and Jill, information and inspiration to buy undervalued property.
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