Hard Money/Private Lenders

[Scott Houin]

I recently did a deal that was privately funded. I financed 100% of purchase and repairs. The issue i ran into was that when i went to refi, the home did not appraise. I now had to come up with a lot of cash to refior continue to pay on an interest only loan. A property that was going to be a great cash flow property nowhas no cash flow and no equity. I'm lucky because I was working with a family member that allowed me to just continue making payments, so i wasn't really hurt by the deal other than my time.

My question: What would happen if this would have been a Hard Money lender or a private lender that wasn't family and they called the note after 12 months and i couldn't get them the money? Is it typical for them to foreclose in this type of situation, extend the note? I was able to continue making payments, so the only issue would have been getting the cash for the entire loan price.

[Scott Houin]

Thanks Anthony and Mindy for your responses that is extremely helpful!

Mindy: 

I was actually pretty surprised when the home didn't appraise and i did appeal it. Unfortunately, I kept getting pushed to the side from my lender and appraiser. Every time I asked a question they gave me really terrible responses or took weeks to respond to me.  I even had my father(30 years as an appraiser look over the appraisal and he thought it didn't make sense)  I have a feeling that this was mostly because the loan was only 32k.    I thought the home would appraiser for 40-50k, it appraised for 25k. 

We believe the issue on the appraisal was that the realtors in the area do not all participate in the MLS system in this town. (this is a small rural community). Therefore, when the appraiser went to look up comps he had trouble finding them. I did call realtors in the area to provide me with comps and sent them to my lender. This was after we saw the appraisal( should have done that first) However, i could not get them to look at all the comps nor answer any of my other questions. I also had it appraiser in the middle January, and in this town the market really slows down.

When i did my ARV starting out I used recently sold comps. Again this was in the middle of the summer, so the market could have been better or I was just dead off on my comps. I do feel like we over repaired for the area. That being said I'm glad i took the leap for my first property because I learned a ton.

We are actually going to try again here soon.  Just need to let the appraisal expire.   We think we might have a better shot, being the house is now rented.  But i will also need to review comps before we get moving. 

P.S Saw you were from Colorado!  Grew up in Colorado Springs and miss those mountains!!