How Title Companies Work With Hard Money Lenders
If you’ve ever worked with hard money loans, you know that every step of the transaction is fast-paced. As such, it’s important to take extra steps to ensure it’s also secure, which is where title companies come in. From verifying ownership to finalizing paperwork, title companies play a huge role in protecting lenders and ensuring deals close smoothly. Today, we’re reviewing what title companies do, how they work with hard money lenders, and what to watch out for during the process.
Contents of This Article:
- What Is a Title Company and What Do They Do?
- How Do Title Companies Work With Hard Money Lenders?
- Common Issues Title Companies Help Resolve
- How to Find the Right Title Company as a Lender
What Is a Title Company and What Do They Do?
Title companies are an important part of the hard money lending process. A title company is a third-party organization that plays a key role in real estate loans in Maryland. Their primary responsibility is to ensure the property title is clear, meaning there are no outstanding legal claims, liens, or ownership disputes that could interfere with the sale or financing of the property.
- Conducts a Title Search – A title company investigates public records to verify the property’s ownership and checks for any liens, unpaid taxes, or legal issues that may interfere with a hard money loan.
- Title Insurance – They issue title insurance, which protects lenders from financial loss if an issue arises with the title after closing.
- Handles Escrow Services – Title companies collect and hold funds, such as down payments or loan disbursements, in a neutral account until all parts of the transaction are complete.
- Manage the Closing Process – Finally, they prepare the final documents, facilitate signatures, and ensure everything is recorded correctly.
How Do Title Companies Work With Hard Money Lenders?
Title companies play a crucial role in hard money transactions by ensuring the lender’s investment is protected, and the property title is clear. This step is crucial because hard money loans are usually issued quickly and backed by the property itself, so any issues with ownership or liens can negatively impact the deal. That said, here are some of the ways title companies work with hard money lenders.
- Title Search and Verification
- Issuing the Title Insurance
- Escrow and Funds Distribution
- Preparing Closing Documents
- Recording the Deed and Lien
Title Search and Verification
Before a hard money loan can close, a title company performs a title search. This involves looking through public records to confirm the seller legally owns the property and identifying any red flags, like tax liens, contractor claims, judgments, or easements. This step is crucial for hard money lenders because it helps determine whether the property is a secure collateral asset. Any issues with the title must be resolved before moving forward with the deal.
Issuing the Title Insurance
Once the title is confirmed to be clear, the title company issues a lender’s title insurance policy, which protects the hard money lender against future claims or hidden title defects. For instance, if a previous or unknown lien or ownership dispute arises after closing, title insurance covers legal costs and potential financial losses. This coverage is often non-negotiable for hard money lenders looking to protect a high-risk investment.
Escrow and Funds Distribution
Title companies may also serve as escrow agents in hard money deals, which is an important role. This means they securely hold the loan funds until all the necessary closing conditions are met. Then, they distribute the money to the appropriate parties, whether it’s a seller or a borrower. This is crucial because it ensures a smooth transaction and helps prevent fraud, miscommunication, or premature fund releases.
Prepare Closing Loan Documents
Along with handling funds, title companies also prepare and organize all the necessary closing paperwork for the hard money loan. These documents typically include the following:
- Deed of Trust
- Promissory Note
- HUD-1 Closing Statement
They also ensure that all documents are legally compliant and filled out correctly to reflect the terms of the hard money loan. This step reduces errors and legal risks for both lenders and borrowers.
Recording the Deed and Lien
After the deal is signed, the funds are distributed, and the title company records the new deed and lien with the appropriate county office. This step makes the transaction official and publicly documents the hard money lender’s legal interest in the property. That said, proper recording is crucial for establishing the lender’s first lien position, which determines priority in the event of foreclosure.
Common Issues Title Companies Help Resolve
Title companies do a lot more than just facilitate closings–they also identify and resolve any issues that may delay a real estate transaction. This is especially important in hard money deals where speed is a main factor. That said, some of the most common issues title companies help resolve include the following.
- Unreleased or Hidden Liens– Title companies identify any unpaid or improperly released liens and work to clear them before closing.
- Ownership Disputes– They help resolve any conflicts over who legally owns the property.
- Errors in Public Records– Title companies correct mistakes in public records that may interfere with a clean title.
- Unpaid Property Taxes– They ensure any outstanding property taxes are paid off at closing to avoid any legal complications.
- Fraud or Forged Documents– They also look for any signs of fraud or forgery in the chain of title and take steps to verify the legitimacy of all legal documents.
How to Find the Right Title Company as a Lender
As a hard money lender, it’s crucial to find the right title company to work with. That said, it’s important to find a company that works quickly and efficiently while still maintaining accuracy and due diligence. The best way to find the right company for you is by looking at online reviews or asking other real estate professionals for their recommendations.
Maryland Hard Money Lenders prioritizes due diligence by partnering with other real estate professionals to ensure a smooth lending experience. If you’re looking for a fast and efficient loan for your next real estate project, look no further than Maryland Hard Money Lenders. Learn more about our lending process or fill out our initial loan application today.
