What if a hard money lender sees an unrecorded deed?

Why an unrecorded deed is a problem for lenders

An unrecorded deed means the public record does not reflect the current ownership of the property. Lenders rely on clear, recorded title to secure their investment with a lien.

Without a recorded deed, proving who legally owns the property becomes difficult. This creates a significant risk for the lender because he or she cannot establish a valid first lien position.

No lender, hard money or otherwise, will fund a deal where the title is not clear and properly recorded. It's a fundamental requirement for securing any loan against real estate.

How to discover an unrecorded deed early

Perform a thorough title search as early as possible in your due diligence process. A title company or attorney will research public records to identify any discrepancies in ownership history.

Do not assume a deed is recorded just because a sale supposedly happened. Always verify the recorded status through official county or state channels.

Asking the seller directly about the deed's recording status can also provide clues, though you must always verify the information independently.

Steps to resolve an unrecorded deed

The first step is to locate the original unrecorded deed. The seller should have a copy, or the previous closing attorney or title company involved might still have it.

Once found, the deed needs to be submitted to the appropriate county recorder's office for recording. This process typically involves paying a recording fee and ensuring all necessary signatures and notarizations are present.

If the original deed cannot be found, or if there are issues with its validity, you might need to pursue more complex legal actions. This could include a quiet title action, which is a court proceeding to establish clear ownership, but that takes time and money.

Disclaimer: This is not legal advice. Always consult with a qualified real estate attorney regarding title issues and how to resolve them in your specific jurisdiction.

Communicating title issues with your lender

Be transparent with your hard money lender if you discover an unrecorded deed. Hiding the issue will only lead to delays and a loss of trust when he or she inevitably finds it.

Present your plan for resolving the unrecorded deed, including timelines and who will be responsible for the legal work and costs. Show that you are actively working to fix the problem.

A hard money lender may be willing to wait for a clear title if the resolution process is straightforward and has a clear end date. He or she appreciates your honesty and proactive approach.

Alternatives if the deed cannot be quickly resolved

If the unrecorded deed cannot be resolved quickly, your hard money loan will not close. You may need to reassess the deal or seek alternative financing if feasible.

Some investors might consider a subject-to deal if the seller is willing, but this requires a thorough understanding of the risks and legalities involved, especially with an unclear title. This is not legal or financial advice; seek counsel.

In some rare cases, a private lender who is very familiar with you and the situation might consider a secured loan against other assets. This is highly uncommon for an unrecorded deed issue, as the underlying property is the primary collateral.