Hard Money Loan???

Question

Pros, cons?

The realtor I work with found a foreclosure that looks promising if I put in the work. I went for a viewing yesterday, and it needs a bit of work but I can see the potential in it if I buy it for the right price.

While we were viewing the property, he mentioned something about a hard money loan. This was something I have never heard about before but the realtor gave me some literature and after doing some research, it is a very interest strategy. At the end of the day, what are the downside risks if I chose to use a hard money loan to conduct repairs in order to re-fi out of the hard money loan?

Rick H. · Answer

Well, Tony H., I guess you already have your answers.  So good luck to you and hope you find and attract what you are looking for on these BP forums.

Jay Hinrichs · Answer

@Tony H.

for 2014 you can buy a cash flow rental in the mid west and make 10% if your lucky :)  personally I think value add is a nice space to be in whether its rehab and or ground up.. We are killing it in the North west with new construction.

and I would not have said that pre 08 but with all the builders and subs going under in 08 and 09 there is some really good talent that can be brought on to manage these [projects for those that are not that savvy.. The barrier in these is usually capital especially west coast.. So if you have access to a good amount of capital and search your markets and if you can leverage.. you can achieve 35% cash on cash fairly easily and actually do much better. We are do much better here in Oregon than 35% cash on cash.. BUT you have to have access to quiet money or bank loans... there is hard money for this but your returns will go down to 20% or so if you borrow at too high a rate.

I bet you can do this in CA pretty easy to doing infill in the more popular towns. and metro areas.

Tony H. · Answer

I love debate, makes us all consider different option and perspectives.  I value your opinions as well.  I do have experiences, as do you.  I'd like to have partners and make things happen, rather than break up possibilities.  Maybe one day we can do something great.  I am not afraid to fight or advocate.  Let's all work towards success in a challenging environment. (I made over 35 % in stocks last year,,,that is great.  2014...? what can we do?  Real estate in specific areas look appealing.  Thoughts?

Tony H. · Answer

Rick,  last point, if an estate has to go through probate (not all estates obviously do with the right pre-death financial planning), the administer can be immediately be appointed and take action.  Many times, it's the wife if there is no will (succession), or an executor appointed in a will by decedent's wishes.  And they can quickly take these actions.  Been there, done that.  And if the executor is dragging their feet (grief, confusion, etc.) any other heir can quickly file for executorship, and get it simply based on the other sitting on rights that will harm natural heirs.  Executors have a fiduciary duty to act in the best interest of the heirs and the estate.  If they aren't, they need to be booted/replaced or at least challenged.  Usually folks need attorneys to do these things, but so what.  The executor is paid out of the estate.  Or, in many cases, the executor and each heir has their own counsel and there are many times disagreements and conflicts.

Tony H. · Answer

Rick,  Although I understand what you say I, respectfully disagree.  And, I am sure are good at what you do.  But in my 10 years working in law (and probates) we NEVER called you for advice.  Depending on the circumstance, including whether or not there was a will, a living or revocable trust, equity worth saving, OTHER ASSETS we made the critical and time-sensitive moves to stop in process foreclosures.  Happens all the time.  My law firm was worth something and we fought hard for MANY estates, many heir's, represented executors and many other parties that may be involved.  And yes, depending on what was necessary (numbers usually) we save MANY homes from foreclosure for the estate, so the property could go to the heirs.

I would not want to be in business with anyone who didn't consider saving, what is 'usually' the largest asset in a decedent's estate (all snake-attorney jokes aside).  If it's in jeopardy and there is equity, the foreclosure need to stop, and either catching it up or BK are the fastest options.

The subject here seems to be evolving.  Although great subjects I did not get into hard money, conventional borrowing, etc.  I spoke of options to save a home that was in the foreclosure process, in the unfortunate situation the owner died.

We can differ without insulting one another...?  (Leave your assumptions at home..)  I will use the same respect.  I like robust debate.  Not insults.  And what I have said, has been dome time and again...and the heirs were able to get the property - to sell, or keep, etc - depending on the numbers.

Rick H. · Answer

Tony H. - I disagree with your logic that any probate attorney worth his salt will try and save the estate [asset].  Some aren't worth saving.

I've probably dealt with more probates in foreclosure (documented and verifiable) than any other person in CA. It's my specialty. It's my report that goes out annually to the probate legal community each Summer. And I'm usually the first person the attorney calls when s/he has a client with such a situation and wants "insider" legal expertise in dealing with the other side, namely lenders, loan servicers and foreclosure trustees.

The remedies available to a PR are limited and further constraints are created by slow courts, unable to respond sufficiently to ExParte motions. This is due, in part, to CA major metro courts consolidating their satellite probate courts to single, downtown courthouses.

Many properties go to t-sale due to the economics of the assets. Without sufficient equity, it just doesn't make sense to open probate. Not everyone has the resources needed to retain an attorney by paying the court filing fees, referee, pub and bond fees (if any), etc.  Also, they may be in foreclosure because they were unable to afford the payments!

Using hard money to stop a probate in foreclosure is one thing, and using it to buy a property is something completely different. Others will likely argue that they are the same however lending on estate assets has many, many pitfalls.

If you are working with a family with a property in foreclosure and the owner is deceased, prior to opening probate, you have a time challenge. Getting someone appointed with sufficient capacity, powers and authority to borrow or sell as executor, administrator (or special administrator) can easily take 5-6 weeks PLUS one to four weeks getting the signed order back from the court!  That can make probate a hurry up and wait business.

Leave your assumptions at home. What you'd think makes sense often won't. You're in probate-land.  If I did vocal impressions, imagine this being said by Rod Serling.

Tony H. · Answer

Hello again, I like robust conversation.  Perhaps my points did not convey properly.  I am fully aware of probate, wills, intestate, intestate succession, living trusts and revocable trusts. LLC's - and the pros/cons of each.  For the purposes of real property in case of a death - each and every mechanism mentioned would play a role for the government, taxes, the bank , the executor and the heirs - in the sad case where a property was in the foreclosure process.  And in each, heirs have serious rights, and the executor has VERY serious responsibilities to protect the estate and any heirs (in our example), that the deceased did not.  Further if said administrator/executor did not take such steps to act in the best interest of the estate and heirs, the heirs would (should) sue the executor and or revoke his/he position and have her replaced.

Each product has ways of protecting real property and any foreclosure proceedings in progress.  BK is designed to protect assets, and not unnecessarily give them away.

There are so many options to help the sad situation and protect the property, and therefore the estate/heeirs.

Mark Pedroza · Answer

@Tony H. Estates file BK all the time; in probate (no will) or by way of having a trust.

In probate (no will) Letters of Administration - (will) Letters of Testamentary

Tony H. · Answer

Mark,  you misunderstood my reference.  I was merely pointing out a few of the countless scenarios the posters numbers and his purchase, which don't make a lot of sense.

And, if someone is in a foreclosure situation (still in the process) and there is a death/probate, any probate attorney worth his salt would file on behalf of the estate, so that the property is not completely lost from the heirs, or the state/gov.  Then the property could be sold/bought in the probate.  Whether through BK or other family coming in with the funds needed to save the property from a foreclosure.  There is still a homestead allowance.

The other thing I alluded to was a BK itself, by the person in trouble with the home.  If for some reason he wouldn't sell to save himself from losing his home, a BK would immediately stop the foreclosure.  After any homestead allowance amount (depending on the state he is in), the BK trustee would definitely sell the property to pay off debts.  In this case, the trustee would either list it with a agent, or the BK trustee would value it and sell it directly out of the BK to someone willing to buy quickly.  I have been a part of deals like this.

So, I respectfully disagree,  If someone dies, any probate attorney would do anything possible to keep from giving the house to the bank, and the probate court would encourage that,  If the estate admin filed BK in a probate, or otherwise had other family member pay a few dollars to save their own inheritance, there is no choice.  If no probate is required, the heirs could rectify any foreclosure process to keep the home, or sell it themselves.

Estates file BK all the time; in probate (no will) or by way of having a trust.  There are several options.  IF these were the case, just sad the original owner left I up to either BK, heirs, estates or probate attorneys/processes to deal with.

Only point here, other parties are involved - and the described deal by the poster would not play out as described.  Which changes the numbers, the predicament of the property, who owns in properly and who is allowed to sell it.

Mark Pedroza · Answer

@Tony H. A lazy or deceased seller and a inexperienced bank. But even then, a probate or BK courts would have stepped in.

In CA a probate does not stop a foreclosure.

Hard Money Loan???

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