All Forum Posts by: Ann Bellamy

Joe, it depends on whether you are talking about live foreclosure auctions at the property, or online auctions for REO property. (These are generally bank owned properties that have been foreclosed already)

1.  Live foreclosure auctions:  most live auction investors learn to do their own title searches online prior to showing up at the auction.  Then once you win the bid, you can pay for a title search.  If you find something that you believe can't be fixed with a limited outlay of funds, you will lose your deposit, which is frequently 5-10K.  Bear in mind that foreclosure auctions are among the riskiest of acquisition strategies, and should probably not be on your list of methods until you are more experienced.  For example, you can end up winning the bid on a second mortgage foreclosure, which means you will take title subject to the existing first position mortgage. 

2.  Online auctions:  You will have to sign their contract, not your own, and it will generally specify insurable title, not marketable title.  The difference can be huge.  I wrote a blog post about the risks.    
Since online auctions frequently now require deposits by credit card, you may be stuck with your deposit at risk if you win the bid and don't complete the transaction.  But that may be preferable to taking title to a property with a huge problem. You will also have difficulty in obtaining funding on a property with a title issue.  There are also title issues (such as missing bank assignments) that are relatively easily fixed. 

Bottom line:  either learn to do them yourself, or establish a relationship with a title company/abstractor that can run preliminary title for a fairly reasonable amount.  Think of it as insurance on those properties you are serious about.  Perhaps someone else will chime in with their method that will differ.

@Odie Ayaga is correct.  They probably mean, you can't apply until it's under contract, and they won't look at it until it's under contract.  

"Under contract" means that you and the seller have a contract for you to purchase the property.  The contract outlines the terms under which you will buy (close on) the property.  Even conventional lenders don't actually take applications until you have a contract to buy a property.  

Kyle, while you are at those meetings, ask other people if they have done business with the person.  @Jeff S. has given you good advice, and I also have a handout of questions to ask a hard money lender that I give when I speak on the topic in MA and NH.  If you PM me I'll send it to you.  Most of the comments are about fees, but the following are a few additional important points:

• The reputation of the lender is super important.  Ask around.
• Back end fees:  Specifically ask to find out if additional fees or percentages apply at the end of the loan
• Excessive attorney costs:  Many lenders, myself included, require that their attorney handle the title work and closing.  That's fine when the costs are reasonable, but I'm aware of a couple whose attorneys charge 3000-5000 for a hard money closing.  So the rates are low but the fees are high.  Ask about this.
• There is a difference when you are speaking to a direct lender, and a broker or loan originator.  I know a few local brokers who take months to deliver a term sheet.  You don't even realize they aren't the lender until you are weeks or months into waiting. 
  
• I also know lenders who change the terms at the closing table.  What you were told, and what is in the loan docs, are two different things, and you don't find out until the closing when you are pretty much stuck.
• So pretty much all of these come back to #1, reputation.  It's super important. 
  

if you have a large group of investors then you should make sure that you are in compliance with SEC regulations. That gets very expensive. You can't just find a deal, shop it around to the investors and have them put money into an LLC. That violates SEC regulations and can get you in a world of hurt

Thanks @Jim Froehlich for the @mention, nice to be in such impressive company!

I'd sit tight.  Build up your cash reserves.  You are near the top of the market, so leveraging equity to move may backfire if that equity evaporates with a market correction or overbuilding.  Do a few upgrades when your tenants move and get a little more next time.  Tenants value a small building over a noisy complex so there is still an attraction.

Then if you find an opportunity, those cash reserves will allow you to take advantage of a value add property if it comes along.  Attend local meetings to find wholesalers of multifamily properties in Haverhill. 

Just my 2 cents, and I'm conservative by nature, but real estate cycles average every 14 years over the last 100, so we're due.

Originally posted by @Jordan Bowley:

@Ann Bellamy

So then what's the point of having an LLC if piercing the corporate veil is so easy if/when there's a mortgage lien against the property?

See #1 below. 
 
Do you know of an approach to starting all of this off that will avoid the need for a personal guarantee? I am really trying my best to keep things totally separate! Thanks for the responses btw!

See #2 below

#1 "Piercing the corporate veil" usually refers to another party holding
the underlying owners personally responsible involuntarily, even when
they have engaged the protection of a corporation or LLC, usually
through legal action. In the case of a mortgage, you will voluntarily
sign personally, or you won't get the funds. The LLC still protects you
against liability from other parties, such as accidents, etc. I am not
an attorney so discuss this with your attorney, this is not legal
advice.

#2 Yes, pay cash. 

I realize that this is a sarcastic answer, however, this is a case of "he who has the gold makes the rules."  You are  not entitled to borrow money, it is granted based on certain conditions.  And taking responsibiity for your own actions is one of those conditions.  When a borrower is intent on not signing a guarantee, it makes the lender wonder why.  It makes it clear that if the deal gets in trouble, the borrower is likely to walk leaving the lender holding the bag, rather than make every possible effort to to make the lender whole, even if years later.

This is not an accusation, simply a non-sugar-coated response to your question.

No, @Jordan Bowley, I'm saying that any commercial loan, or hard money loan, whether in first or second position, will require a personal guarantee. 

If you take a loan on your first property and have enough to pay cash for the second property, you'll still need to personally guarantee the loan you just placed on the first property.

If you take a loan on your first property to provide the down payment against the second property, and get a first position commercial or hard money loan on the second property, you'll have to provide personal guarantees on both loans.   

The question about personal guarantees has mostly been bypassed, but regardless of cross collateralization or not, you're unlikely to find any bank or HML that won't require a personal guarantee from the partners in the LLC.  If there are a bunch of partners below a certain threshold, as in a low percentage of ownership, they may not require those partners to guarantee. 
Loans without personal guarantees are call non-recourse, and are mostly limited to larger commercial deals where the players are bigger, or loans specifically made to Self directed IRAs, where the borrower can't guarantee without breaking IRS rules.  In this latter case, the LTV is low, as in maybe 50%.  

Thanks, Jon, what a great group you have going!  I'll definitely come to more of them!  Thanks for having me.