As a private lender, I work with real estate investors only, not with home buyers. The nature of my business is such that there are tight timelines for closings, and frequently borrowers initiate the loan process with only a week or so to go before a mandated closing date. As with many real estate transactions, everything happens at the last minute, and it can be a pressure cooker in the hours before a closing.
All of our loans are contingent on clear and marketable title. Title defects are a show-stopper. Because many of the properties we are lending on are short sales and REO's, title defects are common. In fact, they are the norm. Seldom does a title search reveal no issues at all. Most of the time they are paperwork issues that are easily resolved with a little extra time.
Recently a title defect was discovered a few days before closing on a deal where the real estate investor buying the property planned to rehab and then resell. His construction crews were waiting to start, but had other work lined up, and were going to move on to the next job if they couldn't start soon. Losing a construction crew meant that the investor might have to wait weeks or months to get them back, and time is money in rehab deals.
The details of the title defect aren't important, but it involved documentation provided by the selling bank regarding assignment of the mortgage. Since the seller is responsible for curing, and the seller was a bank, it was important that the defect be cured before closing. The seller has little incentive to cure AFTER a closing. The investor/borrower wanted to close without curing the defect. He said he was ok with it. Are you kidding me?
He may have been "okay with it", but his plan was to sell the property to an end buyer. This end buyer would probably get a conventional mortgage. The end buyer's bank would most certainly not be "okay with it" and would refuse to close. The investor would be stuck trying to get his original seller to clear a title defect long after they had sold the property. How quickly do you think that would happen, if at all? The investor would be stuck with a property he couldn't sell, and we'd be stuck with a short-term loan with no exit strategy.
The interest clock would keep ticking, the investor would have big expenses, and the deal would go south in a hurry.
There are investors who specialize in buying properties with title defects. They almost always buy with cash, and they are very experienced and have good attorneys on their team. Sometimes they ARE attorneys. The average investor should not be "okay with it" when a title defect is discovered. The time to cure is BEFORE a closing, not afterwards. It will save grief and money in the long run.