Looking for advice on owner-finance deal

[Stacey Everett]

Unique situation. Our company has completed a fix and flip, found a retail buyer, have agreed to a sales price, and have a contract. Buyer is ready to move in as soon as they are financed. They wanted to go FHA but can't due to the 90-day rule. So they went with a CRA program with their bank. However, minimum credit score is 620. They have 615 due to past medical expenses. Buyer paid off credit card and a retail debt (all payments historically on time) in order to bring credit score up. However, bank can't/won't do a rapid rescore and said buyer has to wait 30 days for score to come up. Buyers and I both want to get this deal done now so they can move in within the next couple of weeks. House, price, contract, buyer and title company all in place. My plan is to seek a private lender that will buy the package deal and owner finance so that the buyers don't have to wait until mid-April to move in due to the snail's pace of the lenders. Any other suggestions?

[Bill Gulley]

Well, I assume this is in Texas. Installment contracts, contract for deeds are so restricted that they are avoided by attorneys, to the point of saying, we don't do CFDs in TX. L/Os are also limited. And, not only does Texas have predatory RE laws, even municipalities have predatory ordinances.

Next, you can't have a buyer "assume" a private loan without consent of that lender. You might sell that assumption with a pitch, but at 95%, you'll be so far off using your sale price to establish the LTV that your investor will be put at a high risk, overstated value, small down, an unknowing private lender, you're taking on the liability of putting that deal together and it's not good.

I'll skip other issues, but you can do a straight L/O for 180 days and sell under FHA. Take a lump sum as the option price, collect rents, don't give any rent credits (that is financing if applied to the purchase price) it gives your buyer time to increase credit scores and if FHA is doable, you're done.

I agree that govt. program loans will be looking very close, getting six months past the rehab may take you beyond the rehab cut off depending on the program, meaning, you'll be looking at the sale price to establish the LTV without complications.

However, what you are wanting to do is get your money out. That should be done as a refinance by you as the owner, note made by you, based on your costs, not what your sale contract is at, then allow your private lender a safer LTV. Then, you can sell the property on a Subject-To transaction. Give a special warranty deed to the buyer. Your loan is covered.

Then you have no maintenance issues under a lease, no rent credit issues, you didn't put a private lender at risk with some predatory accounting, your private lender is better secured by you, your buyer owns and covers the remaining amounts due you.

Since you rehabbed the house, you have Dodd-Frank issues seller financing to an owner occupant, you need to use a RMLO to originate the note in a Sub-To. Your private lender loan doesn't need a RMLO granting a loan to you.

There's my nickel's worth.   :)