All Forum Posts by: Denise Evans

It's a lengthy conversation. Call me. You can fight it, but it is fact specific and I need a LOT more facts.  Denise

The attorney quoted random decisions that are irrelevant. To add to my earlier comment about Buzelli, here's one for Austill v Prescott. It was decided on a procedural technicality NOT on the law about how long before you can quiet title. The procedural technicality had nothing to do with tax sales. I was present for oral arguments. The court was going in favor of 3 years of possession, WHENEVER possession first occurs. But, the procedural technicality could not be ignored, so the investor lost.  After Austill v Prescott, the statute was amended to comply with the original intent of the judicial redemption law, and say three years of possession from the date the investor is entitled to possession burns off the short statute of limitations. Not, three years from the tax deed. 

AND saying the short statute of limitations might not be good law is wrong on two grounds. First, it has been around for 100 years. There is no controversy surrounding it. Second, the relevant statute is not the short statute of limitations, but the judicial redemption statute. In short, fake legal advice supported by impressive sounding case cites that don't even apply to your situation. If you want real advice, like everybody says, contact ME.

Weighing in for everybody's benefit reading this. @Roy Oliphant is right with his answer. I called Brittany (who is a customer of mine already) and explained it all to her. But, I didn't want to slight the people reading this by not providing answer. Thanks, Roy, for the shout out, by the way.

One recent wrinkle in Alabama. We are running into a large number of title insurance companies refusing to issue title insurance even with a final and non-appealable quiet title order. Non-appealable means enough time has passed after the court's order that any appeal rights have expired.

The issue with the title companies vs. investors is a change in the statutes several years ago. They now say that if someone wants to redeem, they need to do it within 3 years of when the investor was entitled to possession, or lose those redemption rights forever. 

The investor is entitled to possession when it gets a tax certificate. So, shortly after the tax deed issues, as long as the investor is in possession and has been for some period of time, the investor can quiet title.  The rules about quieting title say you MUST be in possession first. They don't say how long.  In a case down in Mobile County, the investor took possession in the morning and filed quiet title in the afternoon and the court said that was too short. But, no court has ever expanded on that.

Despite the law change, and despite a lawful order from a court quieting title, the title insurance companies are saying you can't quiet title until you've had a tax deed for at least three years. They say the judge is wrong if he gives a quiet title order and it's been less than three years after the tax deed. 

That is INSANE.  If the judge was wrong, the former owner could appeal. If he did not appeal, then the judge is legally right as between the parties to the lawsuit, and nobody can ever say he was wrong. In other words, the judge is allowed to be wrong but everybody has to treat it as if he is right for purposes of that particular lawsuit and that particular property, because nobody appealed. The former owner has no redemption rights. There are  no claims against the property. There is no reason to refuse to issue title insurance. Yet, the companies continue to balk.  

I'm working on a solution, but I'm not there yet. Roy, call me if you want to discuss.

@Aaron Singer, The wonderful thing about Bigger Pockets is that someone can ask a question and receive a wide variety of well-thought out answers from knowledgeable people with differing experience levels, skill sets, backgrounds and success strategies. Bigger Pockets is like having a Cabinet to help in making decisions.  

I am not offended by your disagreement with me. You make an excellent point--the need for a good team. With a good team, your strategy is excellent. Without a good team, it might be problematic. If @Sean Haran wants to invest in other cities, he knows from you that he needs to first assemble a good team. With a good team, there is no limit to what he can accomplish. If he is not confident he can do that, then perhaps closer to home might be better. 

Even investing near home, however, at some point Sean will have to make the transition from Mom-and-Pop to a true business. He will need the help of a team such as you describe.  Perhaps out of state speeds that growth, since it forces the focus on the team at a preliminary stage.

First point: your first investment should always be local. You are going to learn a lot if you are hands on. You cannot manage a property manager in another state, and don't even know what you have a right to expect, if you've never managed at least one property.  You can identify problems early if they are local. You can fix them more quickly. You can fire someone who is not performing and easily hire a replacement based on recommendations from local friends and acquaintances. But only if it is local. When you get some experience, then branch out of town.

Second point: If you want tax sheltering as one of your goals, then you want something close enough to self-manage. Depending on whether you do short term or long term rentals, you might need to spend 100 hours a year working on the property, or 500 hours if long term rentals. That is hard to do with out of state investments.  Right now I have a property under contract for $1.1 million that will generate over $300,000 of tax sheltering with cost segregation and bonus depreciation. If you do not know those terms, you should research them, because they are very important components of real estate investment decisions. Also research passive activity loss limitations. 

Is it a tax certificate, a tax deed or a tax lien? What year was the auction? Any answer depends first on knowing the answer to those questions, because all the rights are different depending on the answers.

I am the buyer's real estate broker on a deal that needs a hard money lender.

Alabama short term rental property was just converted from offices. Turn key. 1.3 miles from stadium, 3 blocks from food and entertainment district, 3 blocks from football game day trolley. Football season short term rentals for home games, the rest of the time mid term rentals for traveling nurses and University of Alabama vendors and visiting professors, Mercedes Benz plant visiting personnel.

Comparable rents and values support purchase price and debt service. $1,150,000 purchase price, buyer has 20% down payment via 2nd mortgage loan from one of the sellers.

Please contact me if you can possibly meet this need.

I am the buyer's real estate broker on a deal that needs a hard money lender. 

Alabama short term rental property was just converted from offices. Turn key. 1.3 miles from stadium, 3 blocks from food and entertainment district, 3 blocks from football game day trolley. Football season short term rentals for home games, the rest of the time mid term rentals for traveling nurses and University of Alabama vendors and visiting professors, Mercedes Benz plant visiting personnel. 

Comparable rents and values support purchase price and debt service.  $1,150,000 purchase price, buyer has 20% down payment via 2nd mortgage loan from one of the sellers.

Please contact me if you can possibly meet this need.

I'm glad! There are great deals out there, and great deals overlooked by other people, that work if you run the numbers properly. Good luck, and let us know how you are doing!

You are taking subject-to on a 3% mortgage when current interest rates are closer to 7% for rental properties?  

You are at great risk of the lender exercising the due on sale clause if it ever finds out. Not such a big risk in a time of stable interest rates, or rates falling below the current note interest rate. That is because lenders just choose not to notice. Now, however, it is a realistic risk and must be accounted for in your planning. A lender who can get a 3% loan paid off and put that money back to work at 7% or more will take that opportunity. That was the whole reason due on sale clauses came into being in the 1980s.

If you reduce maintenance to $1,000 expenses that is more realistic unless stuff is just falling apart. But, if it is falling apart, it needs to be replaced, which is a capital expense, not an operating expense.

From an accounting standpoint, you can still put another $1,000 in reserves, but that is not an operating expense, so it doesn't affect NOI.

With maintenance expense of only $1,000 that gives you an NOI of $4,415. Student housing in Tuscaloosa caps around 6%, but let's say you are in a market of 7% or more. At a 7-cap and an NOI of $4,415, the property value is slightly over $63,000. Will 80% of that number be enough to pay off the current mortgage, if you had to do that? What if that particular property (location, condition, size, etc) caps at 9 percent? That gives you a value of only $49,000. Do you know where cap rates are for similar properties?

If you need to refinance on a value of $63,000 with an 80% LTV, assuming 7% interest and a 30-year amortization, your annual mortgage payments will be $4,023.75. Your NOI is only $4,415. That gives you a debt coverage ratio of 1.09. Conventional loans (with lower than 20% down payment and low interest rates) typically require a minimum of 1.2, so that means your rents will need to increase in order to gain approval for a new mortgage of 80% of $63,000. For a DCR of 1.2 and mortgage payments of $4,023.75, your NOI will need to be at least $4,828.50. Since your expenses seem close to the bone, that means increasing rent by $67 per month. Will the market support that? Would it support that if you spent a small amount of money for upgrades?

DCR loans will sometimes go as low as gross rents (with no deductions for operating expenses) just barely enough to cover the mortgage payments. But, that is down payments of 20% or more and higher interest rates. Have you taken all of this into consideration for this particular deal?

Again, the biggest risk for which you need to prepare is the possibility the lender will find out, call the note, and demand payment in full.

How do they find out? It usually starts when the current owner cancels its insurance and you put new insurance on the property, but with a different name than their borrower. Sometimes a seller gets mad at you, thinking they sold too cheaply (not your fault, but that's human nature) and rats you out. There are sometimes rewards for doing things like that.

You can't just leave the current insurance in place and pay the premiums because (1) that is insurance fraud and you risk the insurance being cancelled if the company finds out and (2) guess who gets the insurance check if the place burns to the ground? Not you.

Also, mortgage interest statements from the lender will be sent to their original borrower, and reported on income taxes for his/her/its SSN or EIN. When you declare interest deductions for that property, but have nothing from the lender to the IRS to back that up, you will have audit flags. Are you prepared for that? 

Will you get the username and password for the mortgage loan so you can sign on to the account to get any info you need, without having to rely on the borrower to forward things to you? If so, you'll be also be able to change the settings to put your own email address and physical address for notices and things, so be sure to do that.

There are safer ways to do this, but they require all the right paperwork and steps. Each deal is different, so I can't give you general advice about how to go.

Or, you might want to go ahead, as is, with this deal. Just do it with your eyes open to the potential risks, and take steps to minimize their impact on you.