All Forum Posts by: Bob Malecki

Are your investors doing this through an LLC or if not, what is the specific method?

Bob

Hi All,

I'm a real estate invstor near Seattle WA and currently own 5 properties. I'm a 'buy & hold' investor and want to acquire more properties while prices are depressed. Financing is of course the current obstacle.

I've recently set up a Private Mortgage Lending company, loosely based on Alan Cowgill's course and have done a luncheon which has attracted a handful of mostly retired folks who like the idea of getting 8% on their idle cash. Great, eh?

Now, the problem I am facing is that the first mortgages for homes in our area range from $150K to $300K, and these private lenders have funds ranging from only $30K to $80K. I know that I could put them in line in a first/second/third deed of trusts based on their loan amount, but I think the folks in the 2nd position and up may not feel real secure on their note.

One suggestion from a fellow investor is to have 3-4 of the interested lenders create a LLC, then they fund the LLC with their cash and the LLC then loans the money to me. The LLC has the first deed of trust on the property and it also is the Holder on my promissory note. I pay the interest to the LLC and principal belongs to the LLC.

Has anyone done this, or do you have any thoughts on weather this could work or violates any SEC regs? My research shows that according to the state of Washington, it seems that a "one lender to one note" is ok, but I'm not sure if that translates to an LLC being the "one lender". Below is the applicable exemption from their website at http://apps.leg.wa.gov/RCW/default.aspx?cite=21.20.320. Your thoughts/comments are appreciated.

--Bob

Any transaction in a bond or other evidence of indebtedness secured by a real or chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels, if the entire mortgage, deed of trust, or agreement, together with all the bonds or other evidences of indebtedness secured thereby, is offered and sold as a unit. A bond or other evidence of indebtedness is not offered and sold as a unit if the transaction involves:

(a) A partial interest in one or more bonds or other evidences of indebtedness secured by a real or chattel mortgage or deed of trust, or by an agreement for the sale of real estate or chattels; or

(b) One of multiple bonds or other evidences of indebtedness secured by one or more real or chattel mortgages or deeds of trust, or agreements for the sale of real estate or chattels, sold to more than one purchaser as part of a single plan of financing;

I was listening to another guru podcast and he is stating that in a subject-to, the investor takes title for a short (hopefully!) period prior to reselling to a retail buyer. He said that many lenders will not loan on that property if the loan has not been seasoned for at least 90 days.

Has anyone found this to be a problem?

Hi John,
I'm in Kingston, which is across Puget Sound from Edmonds, north of Seattle.

Bob

Well, theorerically you could just keep making payments on the original seller's note, but I would strongly recommend that you refi if your going to 'buy and hold'. If there is >20% equity and your refi is for >80%, then you should not have to worry about a down payment, and only your closing costs may be out of pocket unless your mortgage broker can get creative.

I dunno. Keeping the seller in the process can lead to potential problems. What if, upon selling the property, they decide you took less than it was worth and file suite to get more out of the deal? What if they accuse you of coercion with your broker? I'd rather have the seller paid-off and out of the deal completely before I put my hard-earned money and time into a property!

Well if they are in foreclosure and do not have time to market the property for a retail sale, what choice do they have? Most owners would rather have a small percentage of something rather than 100% of nothing! They'll be walking away with the sherrif after foreclosure, so you can offer them some kind of cash incentive to turn it over to you.

Generally I do an 'equity split' by taking the low-side of estimated ARV:
less my expenses to fix up,
less 3-months holding costs,
less sales commision for a broker to list and sell the property after repair
less any reinstatement and/or lein amounts due.

I then give the seller 1/2 of their net distribution at closing and the balance when they move out. This way they do get some cash to get a fresh start. Offering them $0 is just rude and unethical in my book.

Bob

I'm doing my first Subject-To deal and have a signed Purchase & Sale agreement. I'm opening escrow today and will be getting a warranty deed at closing.

On another forum, someone said that the lender on the primary note will get a heads-up when I change the property insurer to my insurance company and remove the current sellers, possibly causing a due on sale letter to be sent.

Is this true and if so, any recommendation for this? Is there a process whereby I can keep the sellers's insurance policy in force and change the beneficiary from the seller to me? Any other ideas?

Thanks