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

Tax, SDIRAs & Cost Segregation
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Be a lender/intermediary for buyers without a SS#?

Don SpaffordPro Member
Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes

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.

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Dmitriy Fomichenko
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
9y

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.

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  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    9y

    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.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    9y

    @Don Spafford

    You almost had it, you buy with them in a TIC, Tenants In Common, a TIC agreement governs use and ownership as well as other details. Do not use a lease-option with tenants!

    Their ability to buy you out is in the TIC Agreement (TICA) and this is generally not filed for record.

    SS# or not, there are many laws governing lending with owner-occupants, like Dodd Frank which could be tripped by a lease-option having a term more than 12 months. 

    Being in title with your "buyers" mostly keeps you out of a lender status, however you still have compliance matters dealing with a certain nationality in real estate. You need a clean and fair deal to stay out of "concentration of business" issues and predatory dealing/lending arrangements.

    Another issue, you all ready  know they cannot obtain financing for a conventional mortgage, this means they are not qualified buyers, giving them an option is pointless and predatory dealing, knowing they can't meet the obligation reasonably. 

    Your TICA can go out 15 or 30 or more years, they can pay you and buy you out over time without a mortgage. A fully amortized installment arrangement. They are buying shares of ownership under your TICA.

    A TIC can be refinanced, since you are in title you would be the primary borrower.

    You need two folks,  a RE Attorney and a good CPA/Accountant initially. 

    You might own 15 homes your way, this way you may own say 1/3 interest in 50  homes, which increases your net  worth?  You can also have administrative control without a majority interest under your TICA.

    State laws vary, all states allow a TIC ownership, but you need to see an attorney, small price to pay to set up a great business. Good luck :)

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  • Tony Gunter
    Investor · Canton, GA · Member since 2014 · 727 posts · 500 votes
    9y
    The riches are in the niches...
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  • Account Closed
    Lender · Hot Springs Village, AR · Member since 2014 · 274 posts · 92 votes
    9y

    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?

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  • David Wandel
    Real estate investor · Pasadena, MD · Member since 2016 · 165 posts · 258 votes
    9y

    they can't get a ss# because they are here illegally. they can get a TIN number though. A TIN number is like a ss# that the government will issue, if applied for, to an illegal resident. That number will allow them to be on the "books" and to  to work and pay taxes. at any company that wants to employ them. It will also allow them to start their own companies. Not sure if they can obtain a mortgage with a tin number though.

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  • Don SpaffordPro Member
    OP
    Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes
    9y

    @David Wandel@Account 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.

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  • Don SpaffordPro Member
    OP
    Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes
    9y

    @Bill Gulley Thank you so much! That is a great idea! I will look more into that and see what is the possibility. What I was thinking more about this today after my post, doing it the way I described, would be that when they finally bought it form me, I would then have to pay taxes for the depreciation, even if I wasn't taking depreciation since I wouldn't consider it a rental property, but in any case it would likely create some tax related issue to deal with that either myself or the buyer would have to pay even if it was bought in a LLC specifically for each property and then transferred the LLC to their name when paid for.

    So the TIC sounds like a better way to go. Not sure what tax implications that would create but it sounds like a viable option to research. Thank you!

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  • Don SpaffordPro Member
    OP
    Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes
    9y

    @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?

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    9y

    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......

    :)

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  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    9y

    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.

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  • Don SpaffordPro Member
    OP
    Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes
    9y

    @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.

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  • Don SpaffordPro Member
    OP
    Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes
    9y

    @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.

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  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    9y

    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. 

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    9y

    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  :)

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