Dave has spent 9 years researching and working on his book Clouded Titles. He has saved investors thousands of dollars by helping them avoid properties and titles with issues. In this episode, he explains what to run from when you see it on a title, or if you’re brave how to go about working around the red flags. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Dave Krieger Background:
-Currently serves as paralegal, analyst and consultant for attorneys that handle real estate matters
-Author of Clouded Titles – MAYDAY EDITION Former major market radio news reporter and news director
-Won national and state news awards from Associated Press
-Based in Austin, Texas
-Say hi to him at http://cloudedtitles.com/
-Best Ever Book: The Big Short
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.
With us today, Dave Krieger. How are you doing?
Dave Krieger: I’m doing great, Joe. Thanks for having me on.
Joe Fairless: Nice to have you on the show.
Dave Krieger: I appreciate the invite, this is great.
Joe Fairless: Great. Well, nice to have you on the show. A little bit about Dave – he currently serves as a paralegal, an analyst and a consultant for attorneys who handle real estate matters. He is the author of four books, one of which is titled Clouded Titles. He has won national and state news awards from the Associated Press.
He’s based in Austin, Texas, and he’s a real estate investor. With that being said, Dave, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Dave Krieger: Sure, not a problem. I started investing in real estate when I was young. Back in the late ’80s I bought my first piece of property with $2,000 down. Basically, what I did was I picked up on somebody else’s mistake and what they didn’t bother to do – it was a real estate agent who didn’t bother to do his homework, and the very first time that I started getting into the listing itself, it was a 14.2 acre farm with an 1882 two-story Victorian. Do you remember The Money Pit? Shelley Long and Tom Hanks?
Joe Fairless: Oh, yeah.
Dave Krieger: Well, this was The Money Pit. 1882 two-story Victorian… We thought we were getting a great deal, and we actually did. We bought it for $2,000 down, we got a deed in lieu of foreclosure, and we took over the payments of $360/month. That means it was a heck of a deal. To us it was, anyway. That was my first foray into real estate investing, getting a deed in lieu of foreclosure.
Obviously, the bank had the sellers transfer the title to me, because the real estate agent no longer had a listing, and so he basically got cut out of the loop. That was unintentional, but it just happened that way. The funny thing about it is when I approached the real estate broker about this deal, he told me “Oh, go talk to the bank, maybe they’ll finance you.” [laughs] And I thought “Oh, this has gotta be the craziest thing. Wait till he finds about this…” Well, the real estate broker wasn’t too happy [unintelligible [00:04:29].22] his commission, but since then I’ve purchased probably over 16 actual pieces of real estate, not to mention dozens of tax deeds that I bought and sold over time, and it’s quite an experience, every investor, of course, so all your Best Ever listeners, obviously you have a great story to tell.
I basically have been spending the last nine years of my life doing research and compiling this book and working with a network of attorneys across the country in dealing with real estate issues, foreclosures, quiet title actions, chain of title assessments… And that’s why we came up with the name Cloud Titles. We have a website, CloudedTitles.com.
Joe Fairless: Yeah, that link is in the show notes page. So let’s talk about — if it’s been the last nine years of your life compiling this book, then I think we should spend a little bit of time on this interview talking about the book and what it’s all about.
Clouded Titles – I have seen the cover, and I am reading… It says “Over 70 million titles to properties are clouded. Is yours one of them? This book will help you find out.” Tell us about it.
Joe Fairless: Well, basically what happened is back in the day of what we call the Glass-Steagall era – this was when the stock market crashed in 1929 and the Securities and Exchange Commission over time came up with the act of 1934, and basically what it did, Joe, was it restricted the big banks from getting into the securities business. So over time, what ended up happening was the big banks said “There’s gotta be a better way to make money.” So what they did through some investment strategies of their own was they devised what’s called a real estate mortgage investment conduit. In order to be able to facilitate a REMIC, which is what that stands for (real estate mortgage investment conduit), they had to have something that was quicker than the regular land records process, because the American Land Title Association (who they got in bed with) basically agreed with them, that “Oh, the system of recording ownership interest and assignments and whatnot is too cumbersome.” And Joe, they had to do something to fix this!
So they came up with an electronic database called Mortgage Electronic Registration Systems Inc. Its parent at that time it was created was called MERSCORP Inc. Now, today it’s known as MERSCORP Holdings Inc. It kind of went through a metamorphosis on February 3rd of 2012. They’re both Delaware Corporations. The Mortgage Electronic Registration Systems Inc. is basically just a standalone shell that has no assets, no liabilities, no employees, no income, nothing. They’ve got nothing, it’s a shell. It has a board of directors. It’s one of the only ones I know that’s a shell with a board of directors, and MERSCORP (its parent) runs everything. They have 70 employees, they’re headquartered in Reston, Virginia.
So they come up with this database plan, and they actually patented this plan with the U.S. Patent and Trademark Office, and it was ready to launch in 1999. Now, what significant thing happened back then? In 1999 the Gramm-Leach-Bliley Act was passed. And when that bill was signed into law by then-president Clinton, they repealed the Glass-Steagall Act. And when the Glass-Steagall Act of 1934 was repealed, it let the banks in on the game. So the banks immediately started to go out and they started looking for investors and they drafted these documents called 424B5 prospectuses, and any of you investors out there obviously know what that is – it’s like their sales pitch. And these particular sales pitches were anywhere from 250-400 pages in length, and they just ran you around in circles. And when they whipped one of these on you, you just said “Yeah, yeah, we trust you. You’re the big bank, why would you screw us?” Well, unfortunately — this is why they made the movie The Big Short, and the book, by the way, is one of my favorites; it’s at the top of my best read list; for those of you Best Ever listeners who have not actually had a chance to read The Big Short, you need to get a hold of that book, because it will explain a lot of why these 70 million titles to property were clouded… Because when Mortgage Electronic Registration Systems Inc. was put into practice and they started to record the first deed of trust or mortgage in the land record, all of the subsequent assignments disappeared, which means there was no way to know who actually owned your property, and that’s where this whole thing started out.
I started doing the research, and as I started to release my research, I was contacted by attorneys who were saying “You know, I’m running into this problem and this particular issue, I’m seeing a lot of it in my court cases that I’m dealing with. We can’t explain this chain of assignments, that all of a sudden starts at the beginning and ends up at the end; it goes from a) to d), but where is b) and c)? They’re missing.” So this is why you may have some issues with your titles to property, and this is one of the investor pitfalls that I talk about when I lecture to investor groups – the first and foremost thing, if you find a piece of property that you actually love, you’ve gotta step back, take the emotion out of it, and the best advice ever I can give you there is always research the chain of title. Don’t get stuck on the deal; you can fall in love with the deal, but if the chain of title doesn’t pan out and there’s something wrong with it and MERS is in the title, there’s a problem. That’s the big issue with clouded titles – having mortgage electronic registration systems anywhere in the public land record involving the piece of property you’re dealing with.
Joe Fairless: So the takeaway is to research the chain of title, and if you see what in it exactly? You said MERS…
Dave Krieger: Yes, you’ll see on the very first page of the mortgage or deed of trust – sometimes it falls on page two, depending on the form; I’ve conducted audits for county land records, Joe, where counties have actually paid myself and my team to go in and audit their land records, and sometimes even the court records… We did one in Florida where we found criminal behavior, and we actually had an attorney go in and review our work and actually write an opinion on the document, and we basically asserted in this report and the attorney agreed with us that this MERS system is one step shy — it’s kind of like the getaway driver in criminal RICO. Everybody knows what RICO is – Racketeer Influenced and Corrupt Organizations.
This MERS system has allowed the banks to basically jump over the entire chain of title; the mortgage loan servicers are creating documents, and we know that the documents are being created and that the securities have been failing ever since they got started, because the [unintelligible [00:11:35].14] of the investor lawsuits being filed on Wall-Street now indicate the failure rate is 100%, which means that they never did the paperwork the way it was supposed to, and the sad state of affairs is – and this is the truth – that after they got done uploading the copies of the mortgage in the note into the database at MERS, they shredded the note. They didn’t need it anymore, they had an electronic copy of it.
So then people say “Wait a minute, what happens if I stop making my payments?” Well, then the Bogeyman jumps out of the closet, because once this loan is securitized, it’s like a Coke bottle – you drop a Coke bottle on the floor, it shatters into 10,000 pieces. You have no idea where your loan is. You have no idea who owns it or what piece of it might have been sold off during the Taylor Bean and Whitaker bankruptcy case… Bank of America actually came to the court and admitted to the bankruptcy judge in the Middle District of Florida and Ocala that they had multiply pledged these loans. My god, Joe, that’s scary! Because if you or I did that, Joe, we’d be in jail. But yet it’s okay for the banks to do this, and this is what’s so scary about not knowing what you’re investing in because you didn’t check the chain of titles.
Joe Fairless: Yeah, clearly the takeaway is check the chain of titles, but let me bring it just from a more practical standpoint just for an investor who’s listening… But interesting background, I appreciate you telling the story about that. From a practical standpoint, when I’m reviewing the chain of title, what words or what entity — I heard MERS, but what’s the acronym that we will see on the chain of title and that will be a red flag?
Dave Krieger: Okay, on the first page or so of your mortgage or deed of trust when you’re looking in the courthouse records (because that’s where you’re gonna find this), either under paragraph C or paragraph E of definitions, you will see the word MERS (Mortgage Electronic Registration Systems Inc.), that’s what you’ll see. When you see this, all of a sudden red flags should go up and you should question what the chain of title looks like.
Now, I know that the property might be just a wonderful thing, but you have to understand, Joe, way back when you had companies like Countrywide Home Loans, IndyMac Bank, Washington Mutual Bank, Option One Mortgage… All of these companies are just mortgage — they all were basically giving loans to anyone who could fog up the mirror. And the problem is that even though your Best Ever listeners want to go out and find these properties, we’re basically saying look at the properties that basically have been held by senior citizens, because the ones that are basically transacted or consummated back in the ’80s and early ’90s probably don’t have those chain of title issues, and those are the kinds of properties you wanna focus on, unless you’re prepared to spend gobs of money going into court and [unintelligible [00:14:27].01] title to the property.
Now, I’m not saying you can’t do that… The other backside advice to this whole thing is if you suspect there’s an issue – say you’re going out and you’re buying a Fannie Mae HomePath or Freddie Mac property… I will never ever buy a property from either one of these two GSE’s, because they’re liars. And when you look at the addendums on all of what these banks sell you as an investor, it basically says it’s your responsibility to check the chain of title out, and “We’re not responsible if the chain of title doesn’t [unintelligible [00:14:54].07]
If you find out you’ve got a clogged up chain of title and you end up like Ford Francis [unintelligible [00:14:59].29] up in Haverhill, Massachusetts, buying a piece of property and getting a quick claim deed from U.S. Bank… He goes to court, he quiets the title or tries to, the judge looks at the chain of title and says “Mr. [unintelligible [00:15:11].09] I’m so sorry, but U.S. Bank didn’t own that property when they sold it to you.” You’re like “Wait a minute, they foreclosed on the home.” He says “Yes, Mr. [unintelligible [00:15:18].28] the judge said they did. However, the problem is that U.S. Bank didn’t record the assignment until after they took the property, so therefore the entire foreclosure is a sham, and that means you don’t have [unintelligible [00:15:34].08] and then he dismissed the case with prejudice, which that’s not a good thing; you basically closed the door.
Mr. [unintelligible [00:15:41].03] got mad and appealed all the way to the Massachusetts Supreme Court, and in January 2011, Joe, it set major precedent-setting case law, and what the Massachusetts Supremes did is they sent it back down to the Land Court judge and they said “Look, dismiss this without prejudice, because he’s clearly got a suit against U.S. Bank, who sold him a piece of property they didn’t own. He’s definitely got a broad claim, he needs to get his money back.”
And I’ve saved so many investors from making mistakes, buying homes from GSEs and entities that I felt after looking at the chain of title didn’t have the right to sell the property. Remember, in the investment world it doesn’t matter who you are or what you are, you can’t sell something you don’t own.
Joe Fairless: Awesome. Can I ask you just a couple of quick-hitting questions, really short responses from you? I just wanna make sure I’m getting the process down. Does that work for you?
Dave Krieger: Sure.
Joe Fairless: Okay. When I’m buying a property, and I want to make sure that the chain of title is not clouded, then I need to go to the courthouse to look that up, correct?
Dave Krieger: Yes, go to the County Land records.
Joe Fairless: Okay, I go to the County Land records, I look it up, and then on the first page or so I look for Mortgage Electronic Registration Inc. or MERS, correct?
Dave Krieger: MERS, yes, or Mortgage Electronic Registration Systems Inc., yes. If you see either one of those, you have an issue with your title.
Joe Fairless: And if I do see either one of those and I do have an issue with my title, then what is the most appropriate next step?
Dave Krieger: Well, there’s two options. One, if you’ve got enough money to litigate the thing, and whoever you’re buying the property from, if they’re willing to give you – and this isn’t legal advice, but this is what I know that some other investors have done which I’m gonna share with your Best Ever listeners… The circumstances are you wanna get some sort of a stipulation to judgment to where they will not contest your quiet title action, because it will so eliminate the amount of money spent on a quiet title action if you can show the judge that there’s nobody else that’s claiming an interest in the property, and he will quiet the title in your name.
Now, that’s provided the fact that you get a good title. If you get a warranty deed, that’s the best kind of deed to get. If you only get a quitclaim deed, that’s pretty shaky. Bargain and sale deeds, which are very common in New York, and quitclaim deeds – basically, they pass nothing. It basically says if I give you a quitclaim deed, Joe, it say “Well, I might own it, I might not. But if I do, I’m deeding it to you.” Now, that’s not a real sound investment, is it?
Joe Fairless: Right, okay.
Dave Krieger: Another thing you have to look for in the chain of title is those quitclaim deeds; that’s shaky ground.
Joe Fairless: Okay. You said two options – first option, if they’re willing to give you a stipulation they won’t contest your quiet title action.
Dave Krieger: You wanna go ahead and quiet the title of the property, that’s the first option.
Joe Fairless: Okay.
Dave Krieger: The second option is to run like hell. Go the opposite direction and find something else.
Joe Fairless: Got it. Because if you buy it, then there’s a chance that there will be issues with you actually being the real owner of it, and you could get the property taken away.
Dave Krieger: That’s right, and it’s happened for people who had paid cash in property. We have several cases that I’ve been researching in Florida where a property was foreclosed on by two different lenders within 30 days of each other, and the judge ended up consolidating the case, because nobody could make up their mind who owned the property.
We had a couple that paid cash for a property, and six months later Bank of America is foreclosing on them.
Joe Fairless: And then as far as the quitclaim deed, that would also be in the courthouse records?
Dave Krieger: Yes, that would be in the chain of title, and you can always look these up by the grantor-grantee index. And the beauty about this, Joe, is when you go down there at these County Courthouses, you’re not alone; they have clerks, and records of deeds, registers of deeds that are actually there, the agents, deputies that are paid to help you. It’s their job to help you look up what you need to look up, and as time-consuming as it might be – and I’m hoping that when you go into some of these places, they’ve consolidated these into electronic files on a computer that makes it very easy to track. I know that there’s a lot of places you can sit in the comfort of your home, and you can go online and look this stuff up yourself. But when you have to go down to these small county courthouses, sometimes you may be spending an entire day there researching title.
Joe Fairless: Based on your experience – I have a feeling I know what the topic’s gonna be on when you say your best advice… Based on your experience, what is your best real estate investing advice ever for investors?
Dave Krieger: Well, the first thing is make sure you read all the paperwork, make sure you understand what it is that you’re purchasing, especially… If I had to say what big mistake I made, it was taking on a note and deed of trust or mortgage not fuly understanding all the terms, only to find out later I had a balloon payment. Know the terms, know what’s going on.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Dave Krieger: I’m ready, go for it.
Joe Fairless: Let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Dave, what’s the best ever book you’ve read?
Dave Krieger: I would say right now The Big Short tops my list.
Joe Fairless: Best ever deal you’ve done?
Dave Krieger: Negotiating with a bank on a piece of property that I got for about $200,000 less than what it was listed for.
Joe Fairless: How did you do that?
Dave Krieger: Basically, the property was a construction loan, and I went to the bank, they said “We’re about to foreclose on a property”, and they said that the property is way under market. I said “Look, here’s what I wanna do. I don’t want you to put this in the MERS system, I don’t want you negotiating a sale of the note. I want you to keep it and I want you to service it; I don’t want you securitizing it.” In the closing there was a piece of paper with all those terms to that effect, which I signed, and the deal was done.
You can actually negotiate with the lender if they’re desperate enough to get rid of it.
Joe Fairless: What’s the best ever way you like to give back?
Dave Krieger: I have a program called Financial Education Services, and if you e-mail me through my CloudedTitles.com website, I’ll explain how I can help you. This is helping your investors directly, that are listening to this program, how they can help their people buy a property… Because a lot of these people in this day and age are credit challenged, and I have ways that I can help your investors help them give back, and put them into affordable housing.
Joe Fairless: What’s a mistake you’ve made on a deal?
Dave Krieger: I would have to refer back to taking on a note without understanding I was signing a balloon.
Joe Fairless: I just loved that piece of property so bad I had to have it; it was a great deal, and all of a sudden, seven years later, I find out “Wait a minute, what do you mean there’s a balloon payment?”
Joe Fairless: [laughs] What happened to it?
Dave Krieger: I ended up having to liquidate it to pay it off.
Joe Fairless: Where can the Best Ever listeners get in touch with you?
Dave Krieger: If they go to the CloudedTitles.com website, that’s the easiest way – just click on the Contact Me. I get the e-mails right in my inbox, at CloudedTitles@gmail.com. That website and the e-mail have been set up since 2010, and I’m happy to entertain any questions from any of your Best Ever listeners.
Joe Fairless: Thank you for being on the show; you have given us a due diligence item that I suspect was not on a lot of the Best Ever listeners’ radar, and that is to look at the chain of title. Go to the courthouse, look for specifically the Mortgage Electronic Registration System Inc. on there, or the acronym that stands for what I’ve just said. You have two options if you find that – one is to run away as fast as you can; the second is to quiet the title, and if you haven’t bought it yet, then make sure that the seller is willing to give you a stipulation that they won’t contest your quiet title action. Additionally, look for if there’s a quitclaim deed on there as well.
First off, did I summarize that correctly?
Dave Krieger: You did, that was excellent. What a great student, Joe Fairless! [laughter]
Joe Fairless: Alright, great. Well, thanks so much for being on the show; I hope you have a best ever day, and we’ll talk to you soon.
Dave Krieger: You do the same, sir. Thank you!
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