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Red flags for investors that can hold up a closing

by | Oct 17, 2021 | Real Estate Practice, Settlement Services

If you are investing in real estate properties, it is essential that your closings go off without a hitch. Otherwise, your funds could wind up tied up for weeks or even months. That could mean that you miss out on other lucrative real estate purchases.

While many things can cause a real estate deal to go south in a hurry, below are some common red flags that might indicate there are problems ahead.

There are problems with the title

This can be one of the biggest headaches an investor can face. Problems with the title to the property can result in litigation that can drag on for years with the former owners and any lienholders or others with a share in the property.

If you aren’t relying on outside financing for your purchase, you could be tempted to forgo title insurance. This is a universally bad idea, however. Title insurance is your protection against any future problems with the title to the property. Of course, you still must do your own due diligence and read the preliminary title report to note any red flags that would cause you to back out of the deal before you go to close. For closings through our settlement company, I receive and review every title report/title commitment we receive from our underwriter, Fidelity National Tile. I make notes on a paper copy of the report, and have it scanned to our clients.

Getting a title search and title insurance only covers you for items not found in the search and excluded in the policy. Understanding what is found and excluded requires experienced help. As lawyers who handle title issues, we can often help to clear those problems found in the search as well.  

Your walk-through goes wrong

Before closing on the property, you will do a walk-through to make sure all is as it’s supposed to be. This is the point where you might discover the previous owner or a tenant damaged the property or removed items of value from it. Even if you are buying a property as a tear-down, there could be valuable copper pipes or antique features you intend to recycle, reuse or sell outright. If these are missing or damaged, the deal could be off. We can help to negotiate changes to your agreement of sale, or even escrow agreements for repairs of those problems found during walk-throughs. Many times, this can happen even at the closing table when a lawyer is conducting the closing.  

Where to turn when something goes wrong

You don’t have to fight your battles alone. You can learn more about your legal options under Pennsylvania law from a trusted advocate with experience in real estate law. But remember, don’t close on your problem transaction and wait to fix the problem later. The Doctrine of Merger in PA provides that many representations in an agreement for the sale of PA real estate merge into and are extinguished by the buyer’s acceptance of the deed at closing. If you take the deed and hope to fix the problem later, your ship may have sailed.