The Land Geek Podcast #81

Welcome to the Land Geek Podcast, your resource for information and tips to making money by buying and selling land. Let the Land Geek show you how to make a passive income by working smart, not working hard. Learn strategies and tricks to make money buying and selling raw land today. And here is the man that's gonna help you do that. The Land Geek.

Hey, it's Mark Podolski, the Land Geek, with your favorite, favorite niche real estate website, www.thelandgeek.com. and today, of all the podcasts I've done, if you missed this podcast, you are probably going to be kicking yourself. Because my guest is an expert in due diligence. He is the owner of AFX Title, a research and marketing firm with which he started in 1995. He's also a licensed private investigator. And what he's about to share today is going to blow your mind because a lot of it I didn't even know about how you do proper title research on your properties. So without further ado, it is my great pleasure and honor to bring to the Lane Geek community Dave Pellegrinelli, the owner of AFX Title. Dave, how are you?

Mark, Great. Thanks a lot. Glad to be here. Appreciate the intro and it's an excellent start to the fall. Hope you and your listeners are having the same.

Thanks. Thanks. Yeah. Okay, so this is going to be the Thanksgiving podcast as well. So beautiful. You know, I want to just let everybody know. Hey, I'm very thankful for Dave for being on the podcast, but I'm also thankful for all the listeners, but I'll get into that later. All right, Lots to be grateful for. Let's talk about you and AFX Title. How did this company even come about? What's going on here in 95 or 94 when you started?

Yeah, it's interesting. I'm glad you asked the question. Started actually as somewhat of a marketing firm and we were doing a lot of data acquisition, finding ways to reach out to potential clients and potential customers for our clients. And we found that real estate records was a good source of demographic data. So we're buying up these large volumes of property documents and real estate records. And because we had excess documents, when we were done doing our analysis and filtering, we started to sell the documents to law firms and legal community. And people started asking us, what about a title search? So I'm thinking, well, if somebody's asking to buy something, I'm sure as heck going to figure out how to sell it. And about 20 years ago, we found that in the title research community, there was no way for a private individual, or even a company for that matter, to purchase a title search standalone by itself without going through a title agency and doing closing. For example, if you or I just wanted to buy title search in 1996 or 97, if we called up XYZ title down the street and said, hey, I want to buy a title search, the first thing they would do is say, well, are you performing a closing with us? Are you doing a sale with us? No. Okay, well, sorry. We only do title searches as part of a closing package because it's a very low margin, low markup, not a big profit product service. So nobody wanted to touch it by itself. So we got into that business and the rest is history. It's been fantastic. We appreciate all of our individual investor sale clients because that's kind of our bread and butter and we love helping them out with their due diligence and with getting properties on the market successfully.

Okay, so walk me through the process. I'm an investor. I'm looking at a piece of raw land, and now it's time for me to do my due diligence on the chain of title. I want to make sure there's a few things right. No liens, no encumbrances, no break in the chain. Am I missing anything?

No, you're on the right track. And that's really the most important reason that a title search is usually requested. To make sure that there's no defects which include liens or claims or prior gaps or jumps in the chain of title, which could create a problem upon sale. And those are the most common reasons that a title search is performed. Absolutely.

Right, right. And so, okay, so I'm going through this process and I'm thinking to myself, okay, I can go through the title company, or I can go to your company, titlesearch.com why titlesearch.com why not just go through the title company and sleep better at night knowing I've got a huge company doing the search?

You certainly can. And the reality is, when a property closing is performed at a title company, and a title company typically is an escrow company that does the closing, right? They normally don't do their own title search. They hire it out to an abstracting firm, which is what we are. And the title abstractor is the person or firm who actually goes into the records rooms, pulls these documents, pulls all these deed books, and we'll talk about that in a little while, and creates that official document of a title search, which is called the title abstract or Abstract of Title Hands that off to the escrow company. The escrow company's main job is to transact the sale, get the money in, the deed out, and everybody settled properly. And in some cases, they also sell a title insurance policy, which requires a title search to underwrite. In fact, you'll see on a closing statement, a title search is normally an item. And all of your listeners have probably seen a closing statement where it used to be called a HUD one. Now the consumer finance protection bureau has a different form for the closing statement or escrow statement. Title search is on there, listed as an item, usually 350, 400 bucks. Well, we sell that title search to an attorney or title company or closing agency for the typical search is about 150 bucks.

150 bucks?

Yeah, that's the wholesale internal cost of a title search. It's the same search. If you want to go through the title company, they may provide other services. The escrow, the closing. If you're getting a title insurance policy, they would provide that as well. If you need a title search by itself, an independent abstracting firm is the way to go. The most important thing, mark, however, to make sure, is that it has credentials.

It has credentials. So what does that mean? It has credentials?

If you or one of your listeners tomorrow wanted to open up a company and say, we do title searches, there is no license or law that is required to be a title searcher. So what we've done is made sure that there is a certification process. And there's an organization called naltia, the national association of Land Title Examiners and abstractors that provides certification for title examiners. There are only 52 in the entire country that are certified, and five of those work for our company.

Are you kidding me? There's only 52 certified.

52 certified title abstractors in the country. And Naltia, which is this national land title trade organization, is the only organization that certifies for independent abstractors. And over the years I've become very involved with them on their board of directors. And the organization is an excellent industry trade group for that segment of the real estate industry. Because everything else, if you think about it, in the transaction, is licensed. The real estate agent's license, the broker's license, the escrow company's license, the mortgage broker's license. Heck, even the gapracer bugs is licensed. But the title researcher does not have to be licensed. So this certification ensures that it's done to industry standards. There's nothing missing. There's nothing that's called a title Search in quotes. This really isn't of value to the client.

Unbelievable. So 150 is going to get me a great title search with your company.

Yeah, that's the most common type of search requested by attorneys and title companies. There's all kind of searches you can get. The most important thing, Mark, is to make sure that the search is done using the official hard copy land records, not electronic records, not data, not online records that somebody is physically looking at. Paper documents. Because title records are simply a chain of events that happened in that property's history. There was a deed from party A to B. There was a mortgage from party B to bank C. There's another deed, there's a release, there's liens. Every document or every event is documented with a piece of paper that's signed with wet ink and stamped and brought to the recorder and put in a book. The process of a title search is going through all those books, finding every document that was ever recorded on that property for whatever time period is requested, and then creating a report that outlines what the current status is. For example, if there's a mortgage on a property from 1998, but it was paid off in 2000, that mortgage will still be in that book where it was originally filed on that day. So the searcher now has to find that release document, connect the two together and say, okay, this cancels it out. That one's done. But that process has to be meticulously gone through and you have to read both pieces of paper because that release, if you just say, oh, here's a release that matches that, boom, it's gone. What if that release has a contingency or it only released part of it, or it released it with a subsequent remainder interest?

Right.

You have to read those papers one by one.

Okay, so Dave, here's a common scenario. And how would you solve this? Okay, so mom dies and property then goes. It's in joint tenants with right of survivorship. Procurement of property automatically goes to dad. Dad dies. Right. But he doesn't have. The kids don't file the probate papers with the county. So it's not clear who the next owner of record is. Are you following me on this?

Yeah, it's very common. We see that quite a bit.

So what do you do? How do you get that property conveyed to you when the kids want to sell it? Pennies on the dollar to someone like myself, an investor?

Yeah. The common strategy we see with clients first is, and this sounds self serving, but it's really important is to get the Official title status, because there may be other documents that aren't in the land records system that are in one of the other side sources, probate court, civil court, civil docket, where there may be reference to that even in some of the underlying past deeds, there may be cross references to other documents. So first you want to get what does the official title say? What is the real problem? Because if you go by that last deed or the death certificate, you might think you know what the problem is, but it might be simpler or more difficult than what you imagine. Once you determine what the actual problem is, then you can look at a solution. A common solution for an investor is to get a scope and scale of what that defect might be. Purchase the property based on the fact that there is a risk and discount that into the selling price, then go remediate that using one of three methods. One of the most common methods, and this is a legal process, is a quiet title. Yeah, if you go do a quiet title, it usually has a period of time associated with it, three or six months, statutory, depending on the state, and it has a cost associated with it. It's the simple, most direct route, especially if there may be other unknown title defects that could be potential issues for an insurer that's going to underwrite a title policy for your buyer when you go to sell it as an investor. So that's the fastest method, especially if you can get sign off from all of the known heirs, because they're the ones who's selling it. And the certified title abstract will tell you if there's any other claims, any other taxes not paid or potential liens. One of the things that's very important is since those two or three or however many heirs are selling at pennies on the dollar, they are presumed to be in that chain of title. So any liens or judgments against them are presumed to accrue to that property. So if Joe Smith dies and leaves it to Sally, Bob and Mary Smith, if during the short period of time that they were on title in quotes, even though the deed did not transfer to them, if Joe Smith has a tax lien attached to him during that time, a title insurer is going to presume, well, the IRS may come after that property because there's a relationship between their debtor and the property. So you want to identify all those and get estoppel letters and make sure all of the potential claimants are signed off on. Before you go to the quiet title or certainly before you go to title underwriting.

Is there any way to get around the legal fees on that. Because once, like some of the properties that I'm looking at, that'll eat up my margin.

It might even be more than the value of the property.

Yeah, yeah, exactly. Is there any way around that besides maybe partnering with an entrepreneurial attorney? Which, by the way, I'm looking for. By the way.

Yeah, that's a good strategy. The problem is, for many investors, they're dealing with so many different jurisdictions, they might be in their target market, but if they're in a different county, a lot of attorneys like to stay in their county or close by. It's a little bit of a risk. But since we're talking about such a low dollar amount at risk to begin with, some of our investor clients are taking their first deal through an attorney, paying the legal fees, even if it wipes out their margin, even if it's a loss, and shadowing the process. The quiet title process has been done on a do it yourself basis. I'm not saying if I would recommend that or not. It's kind of like, do you want to do do it yourself brain surgery? Who knows?

Right, right, right.

But on the other hand, it's something which I've seen done. And here's the thing. Worst case scenario, once you do that, if you get there and it's a legal process and there's. There's something defective about the filing, the court's going to kick it out anyways. And you may learn from that process. Certainly good legal advice is a great part of any investment strategy. But sometimes if you're smart and you're entrepreneurial and you're clever, you can pick up on the legal process by watching it one or two times and then clone it and duplicate it yourself after the fact.

That's genius.

And look, I mean, there's all kind of.

So anyone can do a quiet title search. You don't have to be an attorney, you don't have to go to court, and the judge will say, no, I'm sorry, we're not going to deal with you. You're not an attorney.

If you handle the filings in the correct format, which may take some time to understand. In most jurisdictions, an attorney's not required. Now, attorneys aren't going to like hearing that, but a lot of attorneys don't like those cases anyways because they're low margins. A lot of times they're not the best use of their time and they have a paralegal work on it anyways. Look, there's jailhouse attorneys that file defenses against their capital case. So you can go into court on high cases, high jurisdiction cases, on your own, whether it's going to work or not, who knows? But on the other hand, if it's an investment strategy you run into a lot, then you may want to try to learn that and go that route.

That's fantastic. Okay, so what are the typical deals that you see or typical like, you know, frequently asked questions or big mistakes that you see investors make when they're doing their due diligence and then they come to you and you're like, oh no, what is going on here? This is a mess.

Yeah, it's kind of the same question about the quiet title. You know, on the one hand I'm saying, you know, maybe look at doing yourself.

Right.

I don't recommend it because for the same reason we don't recommend doing your own title search. There's too much at risk and there's a lot of misconceptions about what a title search is in this day and age. A very common misconception and many of your listeners may already know this, but that title records are data. Kind of like you do a Carfax or you do a Google search, you put in the information on a property, hit enter, boom, it pops up on your screen. When in reality, the process of a correct title abstracting research is usually a six or seven hour process. We average about five and a half hours as professionals to do a full title search in the land records, pulling documents and reading records. So there are sources of data which will give you title information. It's not a complete title search. It won't certainly include all the records. For example, in the state of Pennsylvania they have an office called the prothonotary office. And if you don't know to search that, you can miss a tax lien.

No kidding.

Yeah. And in some states there's records at the state level, UCC documents at the Secretary of State. So if you don't know the jurisdiction and what to search, you can miss something easily. Or even if you do know the records, if you're not reading each document correctly and have that process down pat, you can miss things. And for some investors, they have a strategy. Look, I'm going to save my money on title searches, put that money in the bank and save it up for when I do have a mis lien and use it to cover that. I'm kind of insure myself. And if you do enough deals, it might be a worthwhile strategy. We have some investors that only use us as a title researcher on high risk or high value deals and do their own searches or do no searches. They fly blind.

Wow.

And that's, that's an investment strategy. It's scary. Yeah. And sometimes they come to us after they buy a deal to do the search and we find that. Well, yeah, that mortgage that they bought at a, an auction was a second mortgage. It was the first in front of it. And you know, that's just their cost of doing business when they have that kind of a loss.

Right, right. I mean, honestly, what's scary for me is that, you know, I've been using online documents this whole time.

Yeah.

Thinking that, oh well, I'm saving some money and I'm getting the full picture of that chain of title, seeing liens and encumbrances. But now you're coming to me and saying, Mark, you're missing a lot by just looking at online data.

Yeah, it might be good place to start way early in the deal evaluation process, maybe to filter out properties or to narrow it down. If you find stuff there, that's just a deal breaker, use it at that point, once you get it narrowed down to a group of properties that are more likely to be purchases, then maybe go forward with a more in depth due diligence. And I get it, it's an expense and sometimes it cuts into the margin. But we deal with investors all the time that have had that one big loss that's taken away all the fun out of the last 10 really good deals. It's a strategy. People ask us all the time, what should I do? That's just a risk versus reward decision for each individual investor. I'll lay out the facts. Either way you can fly blind, do no search, save a lot of money. You know, if you would do 50 searches a month, that would be seven, eight grand in searches. And if you just save that money and if you miss one $8,000 lien every month, well, you're break even. So that's a good idea. But if you miss a hundred thousand dollar lien, now you're backwards. But on some of these land deals, the property values are so small where it may be right on the edge of that borderline. But at least if nothing else, do a good full title search once in a while on a property to see what it looks like, see what the process is and then maybe match it up with the search you did yourself to see how well you're doing and how complete some of the research you might be doing is or your other sources electronically.

That's phenomenal advice. Phenomenal. So let's go back into the licensed private investigator arm of afx. Why would I want that service? Like what, what situations would occur or scenarios where I say, man, I could really use a licensed private investigator now?

Yeah, sometimes it helps in the title search itself, our kind of curiosity and insightful training from being an investigator helps us look at other documents. We do what's called title forensics. When we look at some documents and there's something a little bit sketchy or maybe questionable, we do some forensics on that search. For example, if we see a document that's recorded, let's say a probate document or a quit claim deed that may, or even an affidavit, sometimes a power of attorney doesn't look right. What we'll do is everybody's seen property documents that has a book and page reference on the top. That's how the documents are located. Book 125, page 82. And that, that's another good flashback to what we talked about before. Title records are actual paper documents in a book on a shelf.

Yeah, but I mean, Dave, how you guys can't really literally physically get every piece of paper, right? I mean, we do, we do, we.

Do a title search. We look at each document that goes into that chain and all the intervening documents, liens, mortgages, assignments, we pull the book off the shelf, make a copy, and we start by just pulling everything. Don't take anything.

Wait a second. You physically go to the county and do this?

Physically? County? Some counties have an access for abstractors or investigators where we can actually view their books remotely. But it's not through online or database, it's through physically where they've taken every one of their books, scanned it and indexed it the same way they do in person. If it's not an official record, we have people all over the country that go grant to the document rooms, pull the records and read them by hand. So let's say that power of attorney that we're thinking might be a little bit Sketchy is book 182, page 25. We'll also go and pull the documents on either side. Page 21, 22, 23 and page 26, 27, 28. Because here's the thing, documents are recorded not by property, meaning that all the documents for that property are not going to be right next to each other. They're going to be spread out. They're recorded chronological order. Mark, if you bring a deed for 12 Main street down to the county today and five minutes later I bring a deed down for 21 Elm street, it's going to go right next to yours. Even though they have nothing to do with each other, just whatever time order they come in is how they're put in that book. So what I'm going to do, if I see a sketchy power of attorney or quit claim deed, I'm going to find out what was recorded right before and right after it. Because a lot of times a title company or even a private individual, when they bring their paperwork down, it will give you an idea of what was happening right before and right after that. And that power of attorney may have another power of attorney for a different property, or that quitclaim deed might have a quitclaim deed for another property. It will tell you what those parties are doing other than just on this one property, and give you some insight whether or not other tax liens are there, other liens are there, you know, some real estate scam going on where somebody got a blank power of attorney and is bringing them down there. Because the county recorder is not responsible for verifying the legitimacy of a document if it meets their criteria, the right size paper signature in the right place. It's got a notary, it's got a witness, it's got a legal description. They're required by law to record it in most jurisdictions, most venues.

Very interesting. Very interesting.

They don't verify signatures. They don't verify if it's the right person. They just record it.

Okay, well, how about this scenario? Let's say that I'm going through the tax records and I notice one company or one individual is, you know, they owe back taxes on like 30 properties, right? And I want to get ahold of that person and I can't find them for whatever reason. You know, the tax records that the county has are not up to date. And that's probably the reason they're not even paying their taxes anymore, is they're not getting the tax bills. Could I go to titlesearch.com and say, hey, Dave, find this company for me. I want to send them offers on 30 properties.

Not only can we find the company, but we can find the principals. And they may be principals or executives of other companies or a subsequent firm, or even if that company is now, you know, not a viable entity anymore, we can find out where they're located individually as an investigative process as long as it fits the profile and criteria of a legitimate investigation. You know, we can. We do locates all the time. Even some of the investigations we do for fraud cases, we find people who are legitimately trying to Be fugitives and hide and we can find them. And I'll give you a little tip maybe you or your listeners can use where you won't need an investigator. Let's say if you look at a document where there's a person who signed for a company who you can't find.

Right.

Take a look at that piece of paper and see if there's witness signatures or notary on that document. Most pieces of paper, mortgages or whatnot, need one or two witnesses to the document and a notary. If you look at those names, you may find that those might be colleagues of the subject. Because think about it. If you're going to sign, let's say, a mortgage in your office, a mortgage company comes out, or you go to a closing, the witnesses don't need to be anybody in particular. They just need to be whoever's there.

Sure.

So if it's signed at your office, if you look around right now, everybody here look around who's in your office, it's going to be somebody who works with you, somebody who maybe is a relative or a friend, especially if it's got the same last name. That's one of our title forensics tricks we use, is to find out who is around that person at the same time. One of the things we've used even in advanced cases is pull every deed, lien, mortgage that Joe Schmo ever signed over the last 10 years and then look at all the witnesses and notaries on all those documents. If Joe Schmo had Sally Brown as a witness in 1996 and again in 2001, it's very likely that those two know each other. It wasn't just a random person at the title company that day.

Right, Right. That's brilliant. That's brilliant. It's so funny because Florida requires two witnesses.

Exactly.

Yeah. And when I'd always go to whomever was in my office and just have them witness it. I never even thought about that. That's great. Okay, so, Dave, it's a time in the podcast now that I love, especially with new guests. I'm going to put you on the spot. What is your tip of the week? It could be a resource or a book or a website. Doesn't matter. I just really want to make you sweat. What's your tip of the week?

Put me on the spot.

Yeah.

This will go the heart of the biggest success and advantage your listeners could have and also eliminate the biggest risk, I.e. use the official property records anytime you're doing any kind of research. Due diligence even if you're doing a title search or having somebody else do a title search, make sure that whoever that you're going with or yourself uses only official government records. Don't use online data, don't use databases, don't use even the county assessor's records because those won't be the official title chain documents or intervening records that will give you the due diligence you need. Look, if you're an investor and you're doing this for a living and you're putting food on your table and paying your bills with this, make sure that you're eliminating all of the potential risk you can by using only the official records, not databases, not online sources. Because it's so much easier to do it that way. You may save some time, a little bit of money, but in the long run, at some point you're going to get bit because there will be something missing. Or the records for that deed will only have the first name as the grantor, it will be missing the second name or it'll only have the date and amount and the grantor grantee. It won't have all the life, estate information or other information. It will be helpful for you as an investor or even to find a deal. Sometimes you can even find deals by tracking down potential sellers. Official records are your friend. The more you can be disciplined to use those diligently, that type of intel and knowledge will pay off dividends in the long run, even though it might be less convenient.

Wow, Dave, this was fantastic. I can't thank you enough. My tip of the week is going to be obvious and it's going to be go to www.titlesearch.com and I'll have a link to it in the show notes as well. And follow Dave's advice, especially on those larger deals. I mean, if you want to take risk on the smaller deals, Dave's like, okay, you know, save your money then, right?

Yeah.

But know going in what you're doing that something could come up. If you want to completely eliminate risk, go. And it's not that much money, right? Like 150 bucks.

Yeah. The most common type of search is what you and your listeners have seen on closing statements at about 350 or 400. And it's the same search that we provide to those escrow companies for about 150 bucks. We normally do business with those business enterprises, but for investors we have the same pricing. You buy one, you buy five, it doesn't matter. It's the same pricing that we would sell to. We do 100 of them for a lender or an insurer and it's about 150 bucks for that type of search, wholesale pricing.

So to sleep well at night knowing you get a professional abstractor that's physically looking at the records, go to www.titlesearch.com Dave are we good? What's going on for Thanksgiving?

It's going to be great. Our crew here at our main office, we're going to have a big Thanksgiving blowout here on Monday and then all of us are going to be with our respective families and having some fun for that weekend. And the end of the year is almost here. Mark I mean, it seemed like 2014 just started. Now we're almost cracking open a new 2015.

No, I know, it's crazy. I tell my wife it's just one long day. We're living one long day. I love that it's just one long day. So thanks so much, Land Geek Community. I want to wish everyone a happy, healthy Thanksgiving. Thanks so much for being a part of my life and listening to this podcast and of course, being involved in the community. And look, if you want to learn more, go to www.thelandgeek.com and download for free the Passive Income Blueprint. Get the e book how to Avoid the Three Fatal Land Buying Mistakes. And of course, always get this informative and engaging podcast delivered each week to your email inbox. Give me some love. Leave a comment on itunes and let us know how we're doing. Really appreciate that. And look, if you're looking for some wholesale land, go to frontierpropertiesusa.com as well. Anyways, Dave Pelganelli, thanks a lot and I appreciate you. I'm very grateful for everyone. Everyone have a happy, healthy Thanksgiving. This is Mark Podolski, the Land Geek. I'll see everybody next week. Thanks a lot.

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