How to Handle Title Issues in Wholesale Deals: Common Problems and Fixes
Title issues are the silent deal killers in wholesaling. You find a motivated seller, negotiate a great price, line up a buyer, and then the title search reveals a problem that delays or destroys the deal. Understanding common title issues and how to handle them separates professional wholesalers from amateurs.
Why title matters in wholesaling
Clear title means the seller has the legal right to sell the property and there are no outstanding claims against it. Your buyer (and their title insurance company) will not close on a property with title defects. Even in an assignment, the end buyer needs clear title to take ownership.
The title search is usually performed by the title company after you open escrow. But by the time the title search reveals problems, you may have already spent time and money marketing the deal. Learning to identify potential title issues early saves you from wasted effort.
Common title issues and solutions
Tax liens
Unpaid property taxes create a lien that must be satisfied at closing. This is one of the most common issues and usually the easiest to resolve. The back taxes are paid from the seller's proceeds at closing. If the back taxes exceed the seller's equity, the deal may not work.
Solution: Check tax records before contracting. Know the amount owed and factor it into your offer.
Mortgage liens
Outstanding mortgages are paid at closing from the seller's proceeds. The issue arises when the mortgage balance exceeds your purchase price (the property is underwater) or when there are multiple mortgages that together exceed the property's value.
Solution: Ask the seller about their mortgage balance during initial conversations. Verify through the title search. If the property is underwater, a short sale (with lender approval) may be necessary.
Judgment liens
Court judgments against the property owner (credit card debt, lawsuit settlements, child support) can attach to the property as liens. These must be satisfied or negotiated before closing.
Solution: The title search will reveal judgment liens. Negotiate with the creditor for a reduced payoff (many will accept 50-70% of the judgment amount to get paid quickly). The settlement is paid from seller proceeds at closing.
IRS tax liens
Federal tax liens from unpaid income taxes attach to all of the taxpayer's property. The IRS has a right of redemption (120 days) after sale, which complicates title insurance.
Solution: The IRS can subordinate or discharge liens under certain circumstances. Work with the title company and a tax attorney. This process takes 30-60 days, so build extra time into your closing timeline.
Mechanics liens
Contractors who performed work on the property but were not paid can file a mechanic's lien. These are common on properties with incomplete renovations.
Solution: Identify any recent work on the property during your due diligence. Check for permits that were pulled but not closed. The lien must be released by the contractor or paid at closing.
Boundary and survey disputes
Fences, driveways, or structures that encroach on neighboring properties (or vice versa) create title issues. Title insurance companies may exclude coverage for known boundary disputes.
Solution: A new survey resolves most boundary questions. If there is a genuine encroachment, the parties may need a boundary line agreement or the encroaching structure may need to be removed.
Missing heirs or unknown owners
When a property owner dies without a will, or when heirs cannot be located, title becomes clouded. All potential heirs must be identified and must agree to the sale (or their interests must be addressed through probate).
Solution: The property must go through probate to clear title. This can take 3-12 months depending on the state and complexity. If the seller is an heir, verify that probate has been completed and they have legal authority to sell.
Forged or fraudulent deeds
Rare but serious. If a previous deed in the chain of title was forged, the entire chain is compromised. Title insurance exists partly to protect against this risk.
Solution: This is a title insurance company problem. If discovered during the title search, the deal may not be closable until the fraud is resolved through legal action.
How to spot title issues early
Before putting a property under contract, do basic due diligence:
- Check tax records: Are taxes current? How much is owed?
- Ask about mortgages: How many? Approximate balances?
- Ask about liens: Any known judgments, IRS issues, or contractor disputes?
- Check ownership: Is the seller the actual owner on record? Multiple owners?
- Review deed history: Any recent transfers that look unusual (between family members, for $1, etc.)?
These questions cost nothing to ask and can save you weeks of wasted effort on a deal that cannot close.
Working with title companies on problem titles
Experienced investor-friendly title companies deal with title issues routinely. They have relationships with lien holders, know the processes for clearing common defects, and can advise you on whether an issue is fixable or a deal-breaker. Build a relationship with a title officer who specializes in investor transactions.
Related guides
- How to Pull a Title Report
- Investor-Friendly Title Companies
- Wholesale Contracts Explained
- How to Read Property Tax Records
- Closing Costs by State