Lesson learned from deal #8: always have a backup lender

I noticed people posting deal diaries to help others learn from their mistakes, so I thought I would do the same since this one was pretty nerve wrecking, and a few things could be learned from it, it particular that you should always have a backup lender:

April 4th 2015: I find (on the MLS!) a nice fourplex (built 1996) in Nye County, NV, listed at $209,000, all 4 tenants in place.

April 9th 2015: after getting a rent roll and some expense information from the listing agent (very important, always go through the listing agent. This saved me many times and here in particular), I informally discuss an offer of $185,000. The listing agent confers with seller, and still informally, tell me that the seller would accept $195,000 and that they're not big on haggling and sending 5 counter offers back and forth. I immediately like the agent for the efficient approach which saves everyone some time, and accept the $195k.

With my offer, I also submit a prequal letter from a broker that came highly recommended, for a 4.87% 30y fixed conventional loan. The broker is instructed to hold off on submitting the loan until my contract is accepted, and I have at least completed some basic form of due diligence (don't want to waste an appraisal that I have to pay for upfront).

April 15th 2015: Contract ready and signed by both parties, escrow opened and earnest money of $5k deposited.

April 20th 2015: One of my conditions on already rented properties is to review tenants payment history and leases, to get a feel for the tenants. I also always ask to get a maintenance history from the property management company. I receive all this info from the management company on April 20th, and learn that one tenant has been in place for 20 years, another one for 10, the next one for 5, and the last one moved in a year ago but is a relative of the first one. I'm very happy with these findings. So I proceed with ordering a home inspection (I ALWAYS get a home inspection, no matter the size, price or age of the property. I recently heard someone on a podcast saying that he can see himself the same things that an inspector would, and this is probably true, but I know myself: if I do it myself, I will tend to look too quickly the more often I do it, and start missing things).

April 23rd 2015: Received the home inspection report. There are some issues with AC, a water heater, and a small water leak. I ask the agent to have the seller address these issues. (If they won't we can negotiate a reduction on the sales price, but in this case, they are happy to comply.)

April 24th 2015: In light of the findings of the inspection, I get the seller to extend the due diligence period to give them time to perform their repairs.

April 30th 2015: I am in the process of closing a purchase on Homesearch (great deal, appraised at $140k, comps at $160k ish, paid $105k) through their own lender Greenlight (subsidiary of Nationstar), and as part of the process I need to disclose to them that I have another loan in progress. As soon as I disclose this, Greenlight comes back and wants to earn the second loan (the one on this fourplex) as well. I tell them we can talk about it if their terms are competitive, and they come back with a 4.375% on a 30y fixed, a full half percent lower than the broker. Based on this, I decide to proceed with Greenlight for the loan on the fourplex, specially since the process for the Homesearch property seems to go smoothely and they already ran all my information past their underwriter. I tell the broker that unfortunately I will not be proceeding with his loan due to the big difference in rate (big mistake as we will see later).

May 1st 2015: Repairs still not completed, so the seller is extending due diligence period again. The agent likes to be efficient, so this time he extends the due diligence period not for a certain number of days, but "until repairs are completed and can be reviewed by buyer" which is much better for me, that way I don't need to be watching deadlines like a hawk.

May 19th 2015: Agent speaks to the loan officer at Greenlight who confirms that they should be ready to close by May 27th, which is the expiration date of the contract.

May 23rd 2015: My home inspector reinspects the property to verify that the repairs have been completed to satisfaction. I could take the seller's word on it, specially since this re-inspection actually costs me extra money, but you will see in a second why this is money well spent: the inspector confirms most of the repairs but believes that there is still an issue with one of the AC units. My inspector likes to rant and says that a tenant told him the handyman that came to do AC, plumbing and electric work got paid $300 or so, which he thinks is nowhere near enough and must indicate that the worker was unlicensed. The seller claims that the AC technician (and not handyman) did what they were supposed to, that the tenant hasn't complained about anything, and that they don't want to bother tenants with more repair people and inspectors. I counter that the unit could be defective or die shortly, and that a new unit will cost a lot of money, a risk I am not willing to take. I offer to waive all further contingencies and accept the property as-is in exchange for a $2500 price reduction. The seller agrees, so we're now at a contract price of $192,500.

Up to this point I wasn't really rushing the lender Greenlight, as I needed the repairs to be completed to satisfaction, but now that we have cleared this step, the lender needs to come through on their side, particularly since we will be out of contract in a few days (which based on the time it took the seller to complete the repairs, I think I'll have no problem to get extended, specially since the agent will be making double commission as I contacted him directly, so he has a strong incentive to keep me as a buyer).

May 27th 2015: For the last few days, both me and the agent have tried contacting the loan officer at Greenlight to get an update on our closing, but he is nowhere to be found, so we are unable to get a proper status on the file and are getting a bit nervous. The contract is expiring today.

June 1st 2015: Still unable to get a hold of the loan officer, I locate his supervisor on Linkedin and reach out to him, but we're not very optimistic on this lender anymore. The agent convinces the seller to extend the contract till July 3rd (again, it helps that the agent is making double commission, so he doesn't want to switch buyers. This is why you should always work with the listing agent if possible), which gives me enough time to start over with another lender, in exchange for me releasing the $5000 earnest money to the seller. This basically means that I am waiving the financing condition and that I loose my earnest money if I'm unable to close. I feel confident that I can close quickly with a hard money lender if worse comes to worst. This is an interesting new bargaining chip that I'm learning about for the first time, and which I've recently used in another transaction in order to obtain an extension.

June 2nd 2015: the supervisor at Greenlight reaches out to me and explains that this loan was on hold while my other loan with Greenlight (for the Homesearch property) was closing. What? Why were we being told by the loan officer weeks ago that everything was on track, if the loan was on hold?? Supervisor does manage to convince me though, that they will be able to close the loan by the end of the month of June, so instead of activating another lender as I was planning to do, I decide to stick with Greenlight since they're already halfway there (they have just underwritten another loan for me, so the underwriter has all my information already). Big mistake.

June 11th 2015: the appraisal comes back at $195k. No issues there.

June 12th 2015: I am about to leave the country for 3 weeks to attend my brother's wedding, and would prefer this transaction to close while I am not there, so I ask the lender if it would be OK to use a power of attorney to close in my absence. Usually lenders don't like powers of attorney, but surprisingly, they agree. I ask them for their POA template, and they say that I should just have the title company write it up, and they will go with whatever the title company does. Very unusual... So I rush to the title company to get everything notarized before my trip.

June 18th 2015: the file is cleared by the underwiter with one condition: I have a bank account in a foreign country which is used for reserves whenever I get a new loan (because I have more than 4 loans, any conventional lenders want to see 6 months of reserves on each property). On the previous loan I did the month before with Greenlight, where I was buying one of their properties from Homesearch (Homesearch=Nationstar=Greenlight) they accepted my bank statements from the foreign bank and just translated them using translation software. But now for some reason, when it's not their property they are selling anymore, the rules have changed and it needs to be translated by a certified translator! (I am told that underwriting guidelines "change all the time"). Greenlight is willing to pickup the cost for this, but it will take some time. They even send me a copy of a $1000 invoice from the translation company as proof.

June 22nd 2015: just in case we were able to close soon, I am being told that the power of attorney I signed with the title company will not be accepted by the lender and that we will be unable to close until I come back! I'm not even replying to that sort of nonsense anymore. Didn't I specifically ask for them to give me the exact POA that they wanted me to sign???

June 29th 2015: Apparently it takes 10 days to professionally translate 10 pages of bank statements (which are mostly numbers anyways) for $1000! Maybe I am in the wrong business. The translations just came back, but instead of being ready to close, a new condition appears out of nowhere: apparently underwriting guidelines have suddenly changed again (LOL) and loans on multiplexes now require a desk review of the appraisal. In other words, and in-house appraiser of the bank needs to review the appraisal done by the third party appraiser to make sure it is accurate. I've never heard of something like that. The agent thinks that the lender may be temporarily out of funds (which apparently happens sometimes with lots of lenders) and is trying to stall. Or an alternative conspiracy theory is that the federal government needs to borrow more money and has temporarily blocked funding to Fannie/Freddie so that it can do its borrowing on the lending market. Apparently several lenders are delaying loans right around the same time. We are also told that there is an unusually high number of loans for the season.

July 3rd 2015: the contract expires again. I convince the agent to work on an additional extension if I immediately apply for a loan with a broker that he knows and trusts. That way, if the broker doesn't perform, at least it's not my fault this time. The agent believes that the seller will be OK with this, since I still want to buy and the seller still wants to sell. And remember, the fact that the agent is making double commissions doesn't hurt... The broker is told that he is acting as a sort of "backup" and he is OK with that, as he does a lot of business with this agent. This by the way will cost me an additional appraisal (which comes out of pocket upfront) but that's better than loosing my $5000 earnest money (you could also call it throwing good money after bad).

July 10th 2015: Greenlight informs us that the appraisal came back from review and was not satisfactory, and the appraiser needs to provide additional information on the property and the local market.

July 13th 2015: the appraisal report has been amended, and needs to be submitted for desk review again (and there is a 10 day queue/workload for this)

July 16th 2015: the supervisor at Greenlight pulled some strings to get the appraisal reviewed quicker, but the conclusion of the review is that the appraisal report has inconsistencies and that a new appraisal should be ordered! Greenlight agrees to cover the cost, but the agent doesn't like the idea of disturbing the tenants in the fourplex again for nothing, because he is now convinced that Greenlight is wasting our time. I manage to convince him that we have nothing to loose, and since the new broker has also ordered an appraisal, we could just schedule both appraisals on the same day and only bother tenants once. He agrees. At this point I still don't have a signed re-extension for the contract, so we are technically out of contract and just operating on the basis of trust between me and the agent. I have already signed away my $5000 earnest money, so I have nothing to loose at this point.

July 30th 2015: Greenlight has reviewed the new appraisal and apparently it's not acceptable because a picture of one of the bedrooms is missing! The agent refuses to let anyone into the property again, because it seems that the broker will be able to close soon. I can't blame him at this point.

August 3rd 2015: the broker (our backup plan) tells us that their underwriter is having some issues with the appraisal report they received, because there are no good comps within the required timeframe, and they are trying to find a solution for this. At this point, things look pretty bleak! I am about to activate Lendinghome.com, which I know can close this in 2 weeks but at a 8%ish rate.

August 7th 2015: Greenlight informs us that they are ready to close. Really??? The agent confirms that nobody was let into the property again to take that missing picture in the appraisal report. So were they just stalling this whole time? Not only are they honoring the original 4.375% that was locked back in May (and which by now is below market), but I also manage to negotiate a $1000 credit for all the trouble.

August 11th 2015: Closing day! Over 4 months after the original offer! As in every property where I inherit tenants, I make sure that security deposits are transferred to me. This is usually done on the HUD, but in this case, we kept the management company so they just transferred the deposits in our name, instead of them appearing on the HUD statement.

Lessons learned:

- patience sometimes pays off!

- always have a backup lender in place, even if you've already worked with the first lender before.

- I can release earnest money to the seller and use that to bargain for something I want, but it is very risky. I can only do this when I'm sure that I can close.

Thanks for reading all the way to the end, let me know if this was helpful to you in some way!

Jean