Be a lender/intermediary for buyers without a SS#?

Question

So I had this idea today and I want to get some thoughts and legal advice on how it would work if possible. My wife is a Realtor who speaks Spanish. She gets a lot of buyers who have large sums of money for a down payment but don't have a SS#, they are legal residents but without a SS# can't get a loan from a bank. There is one local credit union that will but they're not easy to work with. So I see a need and would like to help fill that need. My thought is to essentially be the bank for these people. But since I don't have millions to lend out, my thought is to buy the property they want in the name of my company, using their money for the down payment, and then essentially immediately sell it to them in a lease option.

The only real issue I see is still going through the bank. I know they won't want to accept their money as my money since I can't use borrowed funds for the down payment. I am hopeful that if I can do it in the business name, I can take the down payment from the buyer and incorporate it in the business income to then deploy to buy the house for them. No intention to rip off anybody, just trying to help a large group of people that are hard working and want to buy a house. My wife gets the commissions, then we get a small percentage over the minimum mortgage payment. it would be spelled out in a contract that they can pay it off at any time but if they don't make the payment or get behind, they can be foreclosed on just like the bank would or they would be in breach of the contract and charge some extra fee if it is late or whatever.

This would obviously set my wife apart as THE Realtor to go to for people in that situation which would I expect increase her business tremendously and therefore at some point we could really be the ones buying the properties with our own money to do this.

Any thoughts to any legal, SEC, fair housing, or any other laws/regulations that would make this a bad idea or make it not even possible? The other thought besides using the bank would of course to find people with really BIG pockets to help fund these situations and truly be the bank. They would get the down payment and could foreclose at any time.

I appreciate any thoughts, input, or advice here.

Dmitriy Fomichenko · Answer

Don, you will not get a legal advice on the forum, for that you need to hire an attorney. But there are many experienced investors here who do creating financing, deal structuring, etc. so you will probably hear some ideas. One possible solution that comes to mind is to use private financing to help those folks buy those properties. I know one broker who probably can help you. They (those buyers) will not get the same terms as they would from the bank, but since they are unable to get bank's financing those terms will be pretty decent. The broker funding those loans with private money of many individual investors who are using their savings as well as self-directed IRAs. Their rates start at 6.5%, they will finance up to 60% LTV and don't require US citizenship. PM me if you wish to explore this option and I will connect you. While this option may not be as profitable as what you proposed it will be cleaner and if this works your wife can help more people so the benefit will be in the volume.

Don Spafford · Answer

@David WandelAccount Closed That is correct. They can get a car loan and such with the TIN but the are not allowed to get a mortgage loan. Not really sure why either but that is the regulation. Only some small local credit unions and such that are not national can get around that if they wish to. They usually don't because they still consider it high risk.

Account Closed · Answer

Am sure this shows my ignorance but why can't they get a SS#. The government loves to track income and needs people to have a SS# to do this. What am I missing?

Bill Gulley · Answer

If anyone says there is a way around Dodd Frank they are misinformed or lying!It states that any method or scheme that attempts to circumvent the intent of the Act will be subject to the provisions.... so there is no way around financing to owner occupants, especially after rehabs.Follow the rules and the specific exceptions allowed.The IRS is similar in applying installment sale rules.See your attorney :)

Dmitriy Fomichenko · Answer

Don, if the buyer is going to be living in the property - this would be considered owner-occupied property. If the owner will not be living in the property and renting it out to others - this would be considered investment property.

Don Spafford · Answer

@Bill Gulley Yes, I have thought about the tax consequences as well and have put some thought on ways around it. I haven't put too much effort in it just yet until I can find out if it is even doable. If the attorney says there is a way to do it then I'll consult with CPAs and find the best solution, whether it be a 1031 exchange at the time of the refinance/sell or my buyout price at the refi needs to cover that, but there is a way to deal with it, just need to find the best way. The biggest hurdle so far I think is going to be to find the banks willing to do it without needing 20% down.

Don Spafford · Answer

@Dmitriy Fomichenko Do you know if it is still referred to as owner occupied with an investor? I am meeting with an attorney tomorrow as well to get his thoughts on how to make it happen. If there is a legal way to do it, then I'll visit every bank until I find one willing to do the deal.I'll be sure to update this post once I find out more. I'm sure somebody somewhere has already done this and found a way to do it right.

Dmitriy Fomichenko · Answer

Don, they do have long term loans, but something that I just came to realize - this will be owner occupied loans. I know that you can easily get one of such loans for investment property but not sure if they are doing owner occupied loans.

Bill Gulley · Answer

Actually, options that are greater than 12 months are viewed accounting and tax wise as an installment sale, unless you can show the buyer has no intention of buying, how about that, an option to buy but no intention to buy, LOL. If the property was in service you'll recapture depreciation, hope the option price covers the taxes due! And, with owner occupants, like I mentioned, it will be considered an installment sale subject to Dodd-Frank......:)

Don Spafford · Answer

@Dmitriy Fomichenko Thanks for your reply. Yes, I had thought about that as well. But for a 40% down payment, that may be a bit steep for most buyers. but I will definitely consider that an option for those that have the resources to do it. The question is though, would those private lenders be willing to do it on long terms like a normal mortgage of 15, 20, or 30 years?