Why I’ll Never Buy Real Estate Again
Forward
The American economy was derailed by the 2008 real-estate
market-crash, and the recovery has limped along since then. Unfortunately the root-causes are still in
place and the damage continues. Don’t
expect the real-estate market to recover anytime soon. Until then – buyer beware!
Summary
After my “fire baptism” in the world of real-estate I’ve
decided I’ll never buy again because I can’t accept the risk of a title that’s
perfectly legal but not worth defending.
The chain-of-real-estate-title is tainted by a combination of irresponsible-borrowers
and reckless-lenders (mainly the mega-banks) that won’t do a thorough title-search
before lending their money. Lending-standards
have tightened since 2009 but the fundamental problems remain.
Introduction
In 2012 I
wanted to start a tree-nursery operation in the state of Kentucky by purchasing
1 acre of rural-property near the Cumberland National Forest. It was
well-situated for my purpose at a cost of $3,500. I hired a real-estate attorney. His title-search at the county-courthouse
showed the current-owner/seller did not have a clear-title to the land though
his legal-deed showed rightful-ownership.
The property’s history explains why.
Incomplete Title Work in 2001
In 2001 the 1-acre
property was subdivided from a tract of land that was originally more than 100
acres. Out of ignorance the
large-tract-owner did not revise his deed for the piece that was subdivided, and
he saved a trivial sum of money. The
1-acre property-owner recorded his deed at the county-courthouse.
Defective Loan in 2001
After the sub-division-transaction the 100-acre owner borrowed
money from Countrywide Real Estate with a “liar loan.” He submitted his original “unrevised” property
deed that included the subdivided-property as collateral and he borrowed more money
than the property was worth.
Due Diligence Failures 2001 - 2006
Countrywide did a title-search from their location in
another state -- meaning they did not go to the county-courthouse. Countrywide folded in a national real estate
scandal and Bank of America took over the loan.
They did their title search from Dallas, Texas. They didn’t hire anyone to research the
county-records at the courthouse. Their
title-information was no better than Countrywide’s, and they used the “unrevised”
deed as collateral for the loan.
Property Foreclosure in 2009
In 2009 the 100-acre-land-owner
foreclosed on his property including the house that he lived in. He ceased making his payments.
Mega-Banks don’t do “Real” Title Searches
I entered the picture in April of 2012. Posing as a potential customer for a mortgage
loan on the property, I discussed the title-history with a BAC loan-officer. I asked why they didn’t hire an attorney to
review records at the county-courthouse before they made loans. He explained -- BAC has an umbrella title-insurance-policy
that covers all the good along with the bad real estate properties, and they
pay a fortune for it. As long as the
customer makes payments they don’t really care.
Bankruptcy Proceeding in July 2012
In July 2012 BAC launched a lawsuit against the100-acre
property-owner. The entire property will go up for auction including the 1-acre
tract rightfully owned by the third party who offered it to me. It will cost more than $10,000 to defend a
piece of property worth $3,500 – obviously a loss. I lost
about $1,000 on the surveying costs and legal fees. The third party will lose his one-acre
property. The 100-acre landowner loses his property and residence. The land is worth less with poor title-work –
hence the county will lose on property-taxes.
The state and federal government lose tax-revenue on a small-business
start-up that never happened. Even the
bank loses – they won’t fully recover the loan.
In short - everybody loses.
Conclusion
A small real estate buyer can’t afford the risks that
banks routinely absorb, and title insurance does not solve the problem. This drives down property values. It’s little wonder that the real-estate
market is feeble and that our local, state, and federal governments are having money problems.
