Can “Short Title” Problems Kill Your Deal?

I got a question into my hotline recently, and I’d like to share the details with you, here in my blog.

The caller asked:

“What’s your advice on the easiest way to get a property under contract? I have a ‘ready’ buyer who’s pre-approved but has been having trouble getting a property under contract.”

Ok, let’s iron out a few details first…

First, I’m assuming the “ready” buyer who’s pre-approved is a retail buyer.


Because the client used the term pre-approved, which means the buyer is engaged with a lender — presumably, a conventional lender, and they’re looking to find a bank-financeable, move-in-ready house. 

Now that that’s cleared up, let me share my thoughts. 

First up — while there are some exceptions, a conventional lender is generally going to take issue with what’s called a “short title”.

For example, let’s say you find a house for this buyer, you put it under contract, and you look to line up a back-to-back closing using my funding to sell the house to your retail buyer who’s working with a conventional lender. 

Well, that conventional lender then looks at the title prior to closing and says, “Whoa, hold on a minute here. Mr./Mrs. Investor isn’t the title holder.” 

To which you respond: “No, I’m not. But I have the property under contract. I have an equitable interest in the property, providing me the right to resell it and I will hold title on the day of closing” 

The lender says, “OK understood, but we don’t finance short title transactions.” (sigh)

See, most conventional lenders are going to take that stance, which is why we really don’t talk about wholesaling houses to retail buyers. 

Now, if your buyer is a rehabber/investor/landlord, and they’re pre-approved with a private lender or a hard money lender — not a conventional lender — well, that’s a completely different story. Everything I just said has no bearing whatsoever.

As we move on to dive into the original question, I’m going to give you both sides of the coin …

Let’s assume that your buyer is not a retail buyer and is not talking to a conventional lender, and you’re having trouble finding a property.

In that case, my thought is that you’re either talking to sellers who are not motivated enough or not motivated at all… or, the properties you’re making offers on are in too good of condition.

Sidebar: I regularly answer questions like this and much more during my LIVE 3-Day Real Estate Summit. If you haven’t joined me for this before, grab a seat for free here now and take your investing game to a whole new level!

That’s the common challenge that we see when folks are making offers, and they’re not getting accepted. 

There are really 3 primary challenges: 

  1. The seller is not motivated.
    And there’s nothing we can say that will motivate them. However, time does motivate sellers, which is why we follow up repeatedly when they say no to us. 
  1. You’re making a wholesale offer on a house that’s not in wholesale condition.
    That can get your offer rejected very readily and in reality, you’re competing with retail buyers.
  1. You’re in a hypercompetitive market, and you’re being outbid because you’re being too conservative with your numbers.
    This is also a common mistake. For example, you come up with an ARV of $340,000 and you think, ‘I’m going to go with $300k just to be conservative.’ Then you come up with an estimate of repairs that are $40k, and think, ‘I’m going to call it $80k just to be conservative.’ But then you end up knocking down your offer way below your competitors. 

So again, if you’ve got a retail buyer who’s talking to a conventional lender, you’re going to have a short title problem. 

On the other side of the coin, though, is that nothing changes with regard to you having an equitable interest. Put the house under contract, and sell it to your buyer… 

You’re not acting as an agent without a license, because you had an equitable interest in the property. 

You’re not being paid on commission… you’re being paid a wholesaling fee or an assignment fee for a profit margin based on buying it at one price and selling it for more. 

You’re not acting as an agent without a license. 

However, I think the argument remains… 

The issue will always be there as long as there’s such a thing as real estate agents because they look at some of what we do as investors as competition. And, they’ve even won the argument in a handful of states with regard to an assignment.

So, and this is important, if you’re trying to find a retail house and sell it to a retail buyer, you’re still using the right steps, but it starts to feed their argument. 

Now, you might do an assignment of contract to a retail buyer with a conventional lender. I think conventional lenders are more apt to go along with an assignment than they are with a short title because then the title is passing from the seller to their borrower and not passing from the seller to you to the borrower. 

See, lenders don’t like short title deals. But with an assignment, there is no short title because your buyer becomes the buyer who receives the title from the seller. 

And there you have it. Hope that helps!

Cam Dunlap

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2 thoughts on “Can “Short Title” Problems Kill Your Deal?

So if I understand correctly what your saying. If I as an investor do a double close on a property and then try to sell to a retail buyer their bank will consider that a short title situation and have a problem with it.

But if I just assign my interest in the home to the retail buyer their bank won’t have a problem with it?
So it’s just double closing that creates the problem when selling to a retail buyer?

In general my opinion is yes, but I’ll further clarify that if you’re doing an assignment of contract to a retail buyer using a conventional lender, that lender MAY not have a problem with it. I’ve done it, but every lender is different and in the case of entry level properties typically answers to an insurer like HUD, VA and USDA.

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