Why Your Title Company Matters

Title companies and attorney offices are essential parts of a real estate investor's team. Selecting the right title company to work with on a transaction is invaluable. Before you turn over a contract to a title company, it is crucial to vet them thoroughly to ensure they understand your goals, are flexible, and can handle different exit strategies. This becomes even more important if you anticipate using transactional funding.

By asking the right questions, you can eliminate title companies that are not investor-friendly. The right title company should have experience working with investors and be willing and able to close transactions efficiently, regardless of the structure.

The Role of a Transactional Funder

Your transactional funder or lender is also a vital part of your team. If looking for a new title company verify whether your funder has recommendations for reliable title companies. A supportive, knowledgeable, and resourceful team will significantly increase your chances of success.

Another option is asking fellow investors who use similar strategies for recommendations on title companies in the area where you are conducting business. Generally, large national title companies, such as First American, are not ideal because they primarily cater to homeowners and commercial buyers. Many of these companies are unfamiliar with the needs of small real estate investors and can make closing difficult.

A Real-Life Example of a Bad Title Company Experience

Recently, we encountered an issue in California where an investor approached us for transactional funding. Nationwide, we ask title companies a simple set of questions to gather the necessary information for our promissory note and deed of trust. In deals that span multiple days, securing capital requires a deed of trust. However, in this case, the title company falsely claimed that using transactional funding violated the contract’s "cash purchase" clause.

The title company insisted on an addendum stating that the purchase was no longer cash but financed by a private lender. This had several negative implications:

• It could delay the transaction.

• The seller might get nervous and back out of the deal.

• The seller could use it as an excuse to accept a higher offer from another buyer.

Experienced investor-friendly title companies understand that transactional funding does not mean the purchase isn't cash-based. Whether the money comes from a bank, a private lender, or the investor, the seller is still receiving cash. Unlike traditional financing with a mortgage and amortization schedule, transactional funding does not alter the nature of the purchase.

The Consequences of Working with the Wrong Title Company

In this particular transaction, the title company was unresponsive and unprofessional. They ignored emails for three days and refused to communicate directly with us as, the lender. Instead, they insisted on passing information only through the investor. As the title company, they are legally bound to provide the lender with accurate closing amounts, which can fluctuate especially due to taxes and probations of different payments involved.

Furthermore, they refused to provide basic information such as:

• Closing amount

• Closing date

• Escrow number

• Wire instructions

Without wire instructions, we could not transfer funds to the title company’s escrow. Their inflexibility and unwillingness to cooperate ultimately forced us to back out of the transaction, as we could not risk our capital with an unreliable title company.

Key Lessons Learned

1. Vet Your Title Company – Ensure they are investor-friendly, responsive, and understand creative financing structures like transactional funding.

2. Leverage Your Transactional Funder's Experience – Your lender may have recommendations for reliable title companies in the area.

3. Work with a Solid Team – Make sure to create a supportive team that is willing and resourceful.

4. Avoid Large, Inflexible Title Companies – Smaller, investor-focused firms often provide better service and flexibility.

5. Ensure Communication is Clear and Direct – A title company must be responsive and provide necessary documentation promptly.

By taking these steps upfront, you can prevent unnecessary delays, frustration, and financial risk. Choosing the right title company is not just a formality—it’s a crucial step in ensuring a smooth and successful transaction.