By Jeffrey S. Watson

Recently, I spoke to a group of real estate investors about buying properties using a creative financing method. Some of the questions asked reminded me how crucial it is that real estate investors have cash reserves to deal with the unexpected. I consider cash reserves to be “Murphy’s Law repellant” (anything that can go wrong will go wrong). Those who have cash reserves won’t be nearly as stressed as those who have no cash reserves.

I will admit that I have found myself, at times, in both situations. I had a devastating casualty event occur at a commercial property. Thankfully, at that time, I was sitting on $50,000 in cash which made it a whole lot easier to handle. I’ve also found myself, however, as the broke rehabber trying to squeeze out another $1,000 line of credit from Home Depot to finish a rehab that was already losing money. Let me tell you, having cash reserves is far better.

Some of you may say, “But Jeff, inflation is going to eat away at the purchasing power of that money.” I realize that, but I’m not talking about having large amounts of cash. I’m talking about having cash reserves of maybe 10-15% of your active investment portfolio. This is especially important if you are engaged in the business of private lending. You need to have cash reserves of maybe 10% to back up the outstanding loans in case one of them goes bad.

Does the money have to be sitting in a savings account making little to no interest? No, but you should be able to put the money into a demand account, such as a money market account, and make close to 5% on it. You might want to put that reserve money into something else that can quickly be made liquid. My reserves are not all in cash, but they can be turned into cash in three business days or less. Having those reserves has allowed me to sleep much better at night and be prepared to take advantage of a good opportunity when it shows up.

Let me tell you a story about a man who had cash reserves at the right time that enabled him to seize a good opportunity. In the Old Testament book of Ruth, we read about a mighty man of wealth named Boaz. In the final chapter, we see that Boaz, who had recently sold his harvested barley and wheat, had the cash necessary to buy back a piece of valuable, income-producing real estate. In so doing, he secured a bride for himself, and his future heirs would inherit the land he had bought back for an extended family member. Boaz was able to take advantage of an important opportunity at a critical time because he had the necessary cash on hand.

Cash reserves are a good safety net for handling things when they go wrong, and they will. It’s also a wonderful tool to use when good opportunities must be acted upon quickly.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  His articles are also regularly featured the RE Journal.  Read more of his viewpoints at WatsonInvested.com.

By Jeffrey S. Watson

A little over a week ago (in early March, 2024), small businesses across the United States were rejoicing upon hearing the news that a federal judge in the Northern District of Alabama, in a case brought by the National Small Business Association and Isaac Winkles, a member of the NSBA, had ruled that the Corporate Transparency Act (CTA), which became effective January 1, 2024, was unconstitutional. A few days later, the judge clarified his decision saying that his decision only applied to the parties in the case before him. If you were a member of the NSBA as of March 2024, then you were free from the burdens of filing under the CTA. If you were not a member of that organization at the time the lawsuit was filed, then it does not apply to you.

The Department of Justice issued a warning stating that they believe the law is constitutional, and we anticipate that they will appeal the decision to the 11th District Court of Appeals. I think it will then make its way to the Supreme Court where it will be decided in a 6-3 or 5-4 decision that it is unconstitutional. That is speculation on my part, however.

 In the meantime, small business owners who are not members of the NSBA need to comply with the CTA, particularly for entities that are formed in 2024. The 90-day rule applies. If you are like me and have formed some entities this year, you need to make sure you file within that 90-day period from when you were approved to do business by the Secretary of State or tribal authority.

I see this as something similar to the covid eviction moratorium which was initially enacted by the CDC with congressional approval and later extended by executive order. I believe we will see multiple decisions across this nation in which other organizations copy and paste the brilliant arguments from the norther district of Alabama and seek to get the same result, creating a wave of cases that will ultimately have to be decided by the U.S. Supreme Court.

While waiting for all this to play out, I expect the Department of Justice and FinCEN to be very strict with how they interpret the holding in that case and any subsequent cases and how they hold small businesses to this overreaching information grab. If you have any questions about what is required, I suggest you seek counsel from your local business attorney regarding what you need to do to comply with the CTA.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  His articles are also regularly featured the RE Journal.  Read more of his viewpoints at WatsonInvested.com.

By Jeffrey S. Watson

The Corporate Transparency Act (CTA) is here and now in full force and effect. In 2021, Congress passed this legislation that was signed into law by President Biden but did become official and enforceable until January 1, 2024. This is the most broad, overreaching, and invasive federal reporting statute in the history of our government that squarely and directly impacts every small business owner, entrepreneur and real estate investor you know.

If you are a real estate investor, agent, broker, operator, or anyone else who owns a business, here is what you need to know.

1. Which of your entities are considered “reporting entities” under the CTA?
2. Who are the beneficial owners of each entity?
3. What disclosure information is required?

Using that information, you are now required to timely file your disclosures with the Financial Crimes Enforcement Network (FCEN).

I realize that is a heavy load of information, so let me break this down for you into bite-sized bits of information. Let’s start by looking at what entities are considered to be “reporting” companies under the CTA. The types of entities that must report include C-corporations, Sub-S corporations, LLCs taxed as corporations or partnerships, and LLCs treated as disregarded or pass-through entities.

There is a minimum threshold for the entity of owning, possessing, or controlling $1,000 or more. This means if you have an entity, for example an LLC, that has only been filed with the Secretary of State but does not yet have a tax ID number and does not yet own or control anything, that entity is not considered to be a reporting company yet. When that entity does get a tax ID number and has control or ownership of $1,000 or more of assets, whether directly or indirectly, that entity will then need to report.

What must be reported? Any person who has either substantial control of or an ownership interest of 25% or more in an entity must be disclosed. “Ownership interest” as defined under the CTA is incredibly broad and covers all sorts of arrangements, including, but not limited to, equity, certificates, interest in joint ventures, convertible interest, and bearer shares. Any individual who owns or controls an ownership interest through various means such as trusts, beneficiaries, grantors, intermediaries, or blocker MUST be reported.

The CTA aims to ensure that reporting companies identify all individuals who have substantial control and those who own or control at least 25% of that entity. I know what some of you are thinking. “Well, Jeff, I’ll never own more than 24%, and I’ll stay under that 25% threshold.” That’s fine, as long as you don’t have any substantial control, which I’ll define in my next email. I think you’ll be disappointed to find that your 24% ownership strategy will not work.

What is meant by “substantial control”? Under the Corporate Transparency Act (CTA), the definition of substantial control is distinct from other federal statutes defining that term, such as securities laws. Under the CTA, an individual is deemed to exercise substantial control if any of the following are true:

• they serve as a senior officer or manager of the entity that must report beneficial ownership information to FinCEN,
• they have authority over senior officer appointments,
• they have authority over a majority of the board of directors, or
• they influence important decisions, including those related to business operations, asset transactions, equity issuance, borrowing money, entering into contracts, and governance documents.

In the CTA, there is a non-exhaustive list of examples wherein an individual may exercise substantial control, but the foregoing list should give you an idea as to how wide open and subject to interpretation the term “substantial control” is as it relates to business operations, asset transactions and equity issuance.

Some of you may have read my previous email thinking, “Well, Jeff, I’m going to make sure I never own more than 24% of an LLC or corporation, so I won’t have to be listed in any report.” OK, then how are you going to be able to have that entity do what you want it to do without having “substantial control”? For example, in a small LLC that buys, fixes, and resells houses, whoever makes the decisions on what houses to buy, how much to spend, how to do the rehab, what contractors to hire, where to borrow the money, and when to sell the property and for how much, would all have substantial control. I trust by now you are beginning to realize just how broad and invasive this legislation is.

I’m going to close by giving you an update to a presentation I did last month on the CTA on behalf of the Seller Finance Coalition. Between when I did that presentation and the end of 2023, the regulators at FinCEN changed and expanded the timeframe for a newly-formed 2024 company to report. They have 90 days. If a company formed in 2024 makes any changes to its ownership structure, such as adding or losing a member or someone different having substantial control, it is still a 30-day reporting window for that.

Before I get into explaining my experience using the FinCEN website to register one of my existing entities so I could get a feel for what is going on, I want to make sure you understand a recommendation I’m making that has no material benefit to me but should have a huge protection for you. If you do not already have in place good identity theft insurance, you need to get that right away because it’s more likely than ever that your identity will now be exposed. You need to make sure that identity theft insurance covers the family-owned businesses you may operate and control.

I understand that on page 21 of the 22-page bill, Congress set forth requirements regarding the cyber security for FinCEN’s website, and they are saying it has been given the highest non-classified cyber protection possible; but I also know that there is a history of even classified websites in our federal government being hacked by foreign operatives. That information will be stolen some way, somehow. I don’t know when or by whom or how, but I’m preparing for it now, and I recommend you do the same.

Now for my thoughts regarding my first attempt to use the FinCEN website. At the outset, let me say that I’m impressed by the fact that the site was up and working, but I was highly annoyed at the fact that it looks to be a complicated, multi-page process that seeks to collect far more information than was collected by the office of the Secretary of State when I established my LLCs.

What I and other practitioners I’ve talked with have yet to determine is whether certain information can be auto-populated or auto-saved if you get a FinCEN identification number or if you get an applicant identification number. I would hope, at a minimum, that the applicant ID number would apply across all the entities I have and will be forming in the future.

Given that in the latter part of December, the bureaucrats once again changed their positions on one of the regulations giving a new filer 90 days instead of 30 days in which to register an entity formed in 2024, it allows adequate time for us to figure out how this website functions and how to use it correctly before the deadline for getting things submitted for our newly-filed entities. It also gives each of us time to make sure we develop a list of all the entities we have that we believe are “reporting entities” and gather the necessary information such as drivers licenses or passports and current physical addresses for ourselves and any individual who owns the entities with us.

As of the time of this writing, I don’t know if there are any particulars that the website is requiring relative to the quality or size of the photo identification, such as your drivers license or passport. Remember, we are in the early days of this brand new, invasive, and broad legislation, so there will be a lot of learning to do going forward.

Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise and encourage your friends to go to WatsonInvested.com to sign up so they can receive my emails.

UPDATE 3/5/24:  Federal Judge Rules Corporate Transparency Act Unconstitutional

UPDATE 3/18/24:  Is It Unconstitutional or Not?

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  His articles are also regularly featured the RE Journal.  Read more of his viewpoints at WatsonInvested.com.

By Jeffrey S. Watson

None of us knows what life will bring. All of a sudden, your ability to generate income may be severely restricted by an illness or injury. In the past few months, my office has worked with several individuals in the real estate investing arena who found themselves in that situation. One of them, because of a back injury, was unable to work for four months. Another was incapacitated for well over a month from being involved in a nearly-fatal car crash. Fortunately, these individuals had an “emergency fund” from which they could draw money while getting back on their feet.

From what I’ve seen in my experience, many entrepreneurs do not have the adequate reserves needed to cover their operational cash needs and living expenses for 60, 90, or even 180 days if something adverse happened to their health or ability to work.

I understand that most of us aspire to get to the point where we have enough “passive” income so we don’t have to trade hours for dollars, but until we get there (and even after), it’s imperative that you maintain some sort of emergency fund. This is more important than ever before given the escalating cost of insurance, taxes, building materials, supplies, labor costs, etc. Those rising costs will make it more difficult to afford to hire someone to replace you on a job if you are suddenly unable to work, especially on something such as a house rehab, for example.

Reserves are also helpful in the event there is a significant economic slowdown and you experience a huge drop in pay, as many commercial real estate brokers are beginning to experience.

I want to caution you regarding relying on a line of credit in lieu of having actual cash in an emergency fund. Remember, banks can close lines of credit when you least expect it and when you need them the most.

I hope you apply this information to your business so you can sleep better at night knowing you have a cushion in case the unexpected happens.

Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise and encourage your friends to go to WatsonInvested.com to sign up so they can receive their own emails.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  His articles are also regularly featured the RE Journal.  Read more of his viewpoints at WatsonInvested.com.

By Jeffrey S. Watson

Most of you know that I’m a practicing attorney in Ohio with a history of trial work and litigation. One of the things a trial lawyer thinks about is how to get information admitted into evidence. I want to share with you the best way to get text messages between you and another party admitted into evidence. There is a right way and a wrong way to do it.

Don’t expect to show up in court, at an eviction hearing for example, and think you will just be able to read text messages between you and the other party straight from your phone. At best, that method will simply be a way to refresh your recollection. The actual text messages would not be able to be admitted into evidence.

If you want to have a chance of getting the text messages admitted into evidence, you must make screenshots of the entire text thread. Make sure the screenshots include date and time references, and be sure to show a few lines of the message at the bottom of one screenshot at the top of the next screenshot to establish the continuity of the message thread.

Once you have all the screenshots, you can email them from your phone to an email address so they can be printed. Make sure the images are large and legible. Be prepared to show up in court with a minimum of three sets of those printed screenshots. You can then lay the evidentiary foundation showing that you, the owner of that phone, engaged in those text communications and that you saved those communications by printing them, and you can authenticate the accuracy of those screenshots. Based on that information and your testimony, those screenshots could then be admitted into evidence to set forth the information of which you want the court to be aware.

If the other party vehemently denies what is in those screenshots, you will be in a situation of having better records than they do. Without having the screenshots printed and ready to be offered into evidence, it is simply your word against theirs, and I’m sure you don’t want to have your phone taken from you and put into evidence.

I’m sharing this because I recently attended an eviction hearing, the first one I’ve had to do in a couple of years. To avoid the arguments and animosity that I expected from the tenant, I wanted the court to see the conversational history and repeated attempts to resolve the situation with the tenant. In this case, when the judge asked the tenant if the text messages as shown in the screenshots were accurate, they had to concede that they were, undercutting their complaints regarding attempts to offer the rent as well as the condition of the unit.

In those situations when you have done everything you can to avoid an eviction including, in this situation, offering money for the tenant to move out (a cash-for-keys exchange) and they decline, forcing you to do an eviction, make sure you have everything organized and ready to go. The courts are becoming more sympathetic to tenants every day. When you, as a landlord, can prove you have done everything in your power to resolve the situation, including making a very reasonable cash-for-keys offer, there is no justification for the tenant to have remained in the property without paying for more than two months.

Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise and encourage your friends to go to WatsonInvested.com to sign up so they can receive my updates.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  His articles are also regularly featured the RE Journal.  Read more of his viewpoints at WatsonInvested.com.

Not long ago, I did a short series on trusts being used by real estate investors. A memo came across my desk recently from a highly-respected eviction attorney in Cleveland, Ohio. The Cleveland Municipal Housing Court is now doing something that will probably spread to other states and cities. They are now requiring additional documentation when the owner of the property is a trust and the trustee is doing the eviction. Let me remind you of a couple of things.

The trustee holds title to the property pursuant to the terms of a Trust Agreement. The Trust Agreement should be confidential, but it is good practice to always have an Affidavit or Memorandum of Trust recorded on public record at the same time the property is transferred into the trust via a Warranty Deed to Trustee. You need to be prepared to attach a copy of the recorded Affidavit or Memorandum of Trust (which should be no more than 2-3 pages long) and put it as an exhibit to your eviction documents to establish that the correct owner of the property (the trustee) is the one moving forward with the eviction. This will avoid having to show up in court with the entire Trust Agreement (which could be 10-50 pages long).

There are extra burdens of documentation being placed on attorneys and landlords seeking to do evictions as a result of bad practices by real estate investors over the years and a major shift in policy by many of the large, urban housing courts.  These extra burdens include being able to prove the one filing the eviction is the current owner of the property. To do that, you need to have a copy of the deed and either the LLC Operating Agreement or statement of good standing from the Secretary of State if the owner is an LLC, or a copy of the recorded Affidavit or Memorandum of Trust if the owner is a trust.

When you have to show up in housing court to do an eviction, it’s better to show up overprepared and over-documented, not needing half of what you bring, rather than be missing that one crucial piece of paper they want. One of the worst things you can do when it comes to an eviction is being in the right place at the right time with the wrong paperwork.

Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise and encourage your friends to go to WatsonInvested.com to sign up so they can receive my updates.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  His articles are also regularly featured the RE Journal.  Read more of his viewpoints at WatsonInvested.com.

Many real estate investors consistently use what I call a “grantor revocable title holding trust”, which is a more accurate term than “land trust”, to take and hold title to a piece of real estate they buy for investment purposes. Such trusts can be used whether the property is being held as a long-term rental or being bought as a buy, fix and resell or being resold as a quick flip. The most important component of such an arrangement is the capacity and integrity of your trustee. They not only must be a person of impeccable character, but they must have enough business acumen and diligence to be able to perform the role of a trustee.

One thing that is frequently omitted when real estate investors talk about using trusts is that the trustee of a trust has a fiduciary duty to the beneficiaries of the trust. A good definition of “fiduciary duty” is taken from Black’s Law Dictionary: “A duty to act for someone else’s benefit, while subordinating one’s personal interests to that of the other person.” I summarize it like this. When you only have time to do one of two things, you do that for which you have the fiduciary duty. For example, if the banks close in five minutes, and you have different deposits to make at two different banks, you go make the deposit for which you have the fiduciary duty rather than the deposit for yourself.

I hope this gives you some insight regarding trusts and the importance of selecting the correct trustee to be the fiduciary.

Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise and encourage your friends to go to WatsonInvested.com to sign up so they can receive my updates.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  Read more of his viewpoints at WatsonInvested.com.

The second half of 2021 real estate taxes will be due and owing either this week or the next for many of you. I want to share something I have noticed recently. I have had three similar cases come across my desk in the last five weeks, which means it’s something that deserves attention. Investors who own properties that are free and clear are sometimes not receiving their tax bills from the county because they are being sent to the wrong address. Two of those three recent cases are tax lien foreclosures filed in Cuyahoga County, Ohio because the landlord-owner was not getting the tax bills. They were being sent to the property, and the tenant was throwing them away.

It doesn’t take much imagination to figure out the results of tax bills being thrown away and not paid for a couple years, or to understand how that can happen, especially if you own multiple properties and pay your taxes in a lump payment. It’s easy to overlook one. In both of these cases, the landlords are successfully getting back their control of the properties and getting the back taxes paid. Sometimes, that isn’t an easy feat to accomplish.

Here is the ounce of prevention to avoid the pound of cure. Go to the website for the county auditor or tax assessor where your properties are located and double check the listed tax mailing address for each one. If there is a mortgage on a property, make sure the tax bill is being sent to the correct servicer. If the property is free and clear, make sure it is being sent to the correct address to make payment. If the property is held in a trust, make sure the tax bill is being mailed to the address for the trustee.

I recommend you put a reminder on your calendar every six months for you or a team member to go online and check the real estate tax status of each property just to make sure the county has accurately recorded your tax payments. We know that to err is human, but when you get computers and the government involved, you can screw things up in a hurry. Since I adopt the “belt and suspenders” philosophy of checking and double checking, these are the recommendations I am now following and am making to my clients based upon the trends I’m seeing of increased real estate taxes and bureaucratic county government apathy that has resulted from the COVID years. I know there are exceptions, and some individuals in county offices are diligent and hard working, but my experience has been that the last couple of years have allowed many government employees to “mail it in” and not be as diligent as they used to be. I’m not trying to step on toes, just being realistic.

In an upcoming post, I will talk about trustees and the importance they play when you use a grantor revocable title holding trust (a land trust) to hold title to your investment properties.

Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise and encourage your friends to go to WatsonInvested.com to sign up so they can receive my updates.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  Read more of his viewpoints at WatsonInvested.com.

In my practice of helping real estate investors, particularly self-directed IRA investors, hardly a week goes by that I don’t hear or read the phrase “investor-friendly title company.”  When I do, my head often cocks to one side, like a dog who hears or sees something he just doesn’t quite understand. Here are several thoughts I have for those who use that phrase.

Are you seeking an “investor-friendly title company” because you are attempting to do something outside the norms of commerce? The answer is probably not.  Very little that an investor does is novel.  It’s much more likely that you are seeking an investor-friendly title company because you have been told to do that or are looking for a title company that will help you understand how to close the deal you think you have.

Allow me to remind you that all title companies are not created equal. Please understand that for the sake of this article, when I use the term “title company”, I’m referring to title and escrow operations as well as law firms that perform the same functions.  Title companies can be set up and operated in different ways. Some of them are insurance agencies actually representing multiple title insurance companies, such as Fidelity, Old Republic, First American, Stewart, etc.  Some of them are direct insurer-owned companies.

My perception regarding title companies has been significantly influenced due to the long-term relationship I have with a local title company, of which I own a very small piece.  Any title company can be investor friendly when you understand what they do and how they work.

Title companies do two different but important things. First, they provide real estate title examination services to gather enough information so that a large, multi-billion-dollar company will insure that the property ownership records are valid and that marketable, insurable title is being transferred from the seller to the buyer.  That means a title search needs to be done to determine what, if any liens, encumbrances or clouds might be on title and would impair the ability of the buyer to receive what we would ideally call “fee simple absolute title” but is now usually referred to as “marketable, insurable title.”  For title companies to do this, they need to engage in an extensive search of public records relative to that specific piece of property and relative to the transaction and financial history over the past 50 or so years on public record of the previous owners.  Factors that can impact the title to a property would include things like unpaid taxes, marriages, deaths, divorces, unpaid water and sewer bills, pending lawsuits and civil judgments.

All this information is put together by the title company in something known as the “Title Commitment.”  This document indicates that once the various listed requirements and stipulations are completed (like payoff of the lien and signing the deed), they would be able to insure the passage of title from the seller to the buyer.  Those stipulations are often called “exceptions.”

When it comes to choosing a title company, it doesn’t matter how friendly or grouchy the title examiner or title clerk is.  You need to look for a title company that has the necessary resources to do the job in a timely manner.  The best way to do that is to find out for how many insurers this particular company can insure.  I like to work with title companies that have the ability to write insurance with more than one of the major national title insurance providers.  Ask your contact at the title company who their underwriters are, and which one they prefer working with and why.  You also want to ask questions regarding time frames.  Ask how long it takes for them to do the title exam and how quickly they can get the title commitment to you after it is prepared so you can review it.  If you don’t understand what is in that commitment, you need to have an attorney on your side review it and help you understand it.

The second important thing a title company does involves the escrow portion of their work.  In simple terms, the escrow portion is when they gather all the necessary documents and all money needed to complete a transaction.  This requires working with the seller, buyer, and the buyer’s lenders.  Many times, those transactions are driven and controlled by the lender(s) who are funding the buyer in the acquisition of the deal.  Remember, the lender is not going to put their money into the deal using the property as collateral unless they are satisfied that the quality of the title to the property and other things are satisfactory.  A good lender is going to make sure the property is in good condition, is properly described in all legal records, will be vested in the name of the borrower/buyer without any other liens, and that the borrower/buyer is able to make the payments on the property.

It’s my belief that most people get confused about what a title company can do because of the coordination of all the various loose ends that have to come together through the escrow process.  This can also cause confusion for the title company as well because they might be getting contradictory information from the representatives for the parties involved.  That never happens, right?!

Confusion can also occur over what the lender is willing to do and permit versus what the borrower/buyer wants to do.  When this happens, the lender will win 99.9% of the time.

The bottom line is that all title companies are “investor-friendly” if you know what you are doing and can explain to the title company how you believe the deal should go forward.  In the course of my transaction work for IRA account holders who are funding deals, I write closing instructions, a detailed 2-to-3-page letter to the title company explaining, from the lender’s perspective, how this deal is going to happen and what documents need to be signed in what order and by whom so that the identified buyer can buy from the identified seller.

Having a title company be investor-friendly is all about communication.  You must take the time to put it all in writing that others will understand.  All too often, however, we think someone else is going to do the communicating.  You may have heard me say that to be unclear is to be unkind.  On my laptop, I have a sticker that reminds me to “abundantly communicate” and make sure everybody has been informed of any changes and adjustments.  I then “backbrief,” which lets me know that communication has actually occurred.  I have lost track of how many times someone has admitted that they “forgot to tell the title company that.”

Clear communication with a title company begins with the most important, fundamental document: the purchase and sale agreement.  That document will be used by the title company to open a file and ultimately open escrow.  The purchase and sale agreement will lay out the terms of the deal including who the buyer and seller are, how much is being paid for the property, how the purchase is being funded, and, most importantly, when the sale is going to close.  I honestly believe it is a coin toss as to whether real estate agents or investors do the worse job when it comes to filling out a purchase and sale agreement or contract.  This is frustrating to a well-run title company because they have systems and processes in place for what they do when they receive a purchase and sale agreement.  If you have incomplete information as to the identity of the parties and their contact information, it makes it hard for the title company to contact people to get the necessary details regarding that transaction.

To help your title company be investor-friendly, there are two things you can do.  First, take your time and fill out the purchase and sale agreement from the perspective of someone who knows absolutely nothing about the deal.  They should be able to read that document and have all the information necessary to understand exactly who is buying, who is selling, what is being transferred, and how and when that will happen.  Secondly, write out your closing instructions.  What are your expectations and understanding of the deal?  Make that clear by overcommunicating in writing to the title company, remembering that when you overcommunicate everything you are thinking, you are being kind to them because your communication is clear.

Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  Read more of his viewpoints at WatsonInvested.com.

I’m dictating this while on my way to meet with a contractor and a tenant to collect 3 months of unpaid rent before having lunch with my oldest son. The tenant had stopped paying rent due to a COVID illness and domestic issues. When I commented in an online forum that a tenant of mine was this far behind in her rent but was current on her $625 a month car payment, it was interesting to see the reactions my comment provoked. Many said, “Evict her!” or “Throw her out!” or “Ask her if she wants to sleep in her car!”

I thought about those comments and realized that the old landlord Jeff would have done just that and would have been left with 3-4 months of unpaid back rent and a beat-up house. Instead, using some property management techniques I learned from my friend David Tilney and his lovely wife Mary (more about them in a coming email), I was able to coach my local property manager and the tenant back into line. Here are a couple of the tips I learned from David and Mary.

Be firm, but the tenant has to know that what they are saying to you is being heard, received and understood. As best you can, you need to show sympathy with their situation so you can then work with them on devising a plan for them to take responsibility for getting caught up on their rent. If they will work that plan, everything will be OK.

That is exactly what this tenant of mine did. She found resources, switched to a better paying job, and consistently communicated with me and my property manager. Adjustments were made, and payments were collected. By the time you read this email, not only will the tenant be caught up on rent for June, July and August, but she will have also paid part of September’s rent.

When reflecting on my long career as a landlord, I shake my head in frustration at myself over how much money I lost because I failed to learn how to manage properties as I should have. I’m convinced that if I had put a better property management system in place, beginning with good, quality properties being managed correctly, had screened tenants properly, and had consistently communicated with tenants to make sure they felt heard and respected, I could have avoided some of the hassle, headache and loss that I sustained during the 2007-2012 housing meltdown. I ended up selling properties at a significant loss because I couldn’t profitably manage them.

Over time, I recognized that property management was a weak element in my game. I stepped it up, attended classes taught by David and Mary Tilney on multiple occasions, and it has made a significant difference in both my bottom line and in my net worth.

Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  Read more of his viewpoints at WatsonInvested.com.