All Forum Posts by: Jeff Copeland

"Assumable" has nothing to do with the "position" of the mortgage. Some loans are assumable, some are not. This is a characteristic of the loan itself and defined by the lender. As it happens, all FHA loans are generally assumable.

The "position" is simply based on the date the mortgage was recorded, and the liens generally get paid "first in, first out" in the event of a foreclosure. 

So let's say the borrower defaults in the scenario above, owing $100k on a first mortgage, and $80k on a second mortgage, then the property sells for $150k at a foreclosure auction. The first position lienholder gets made whole. But after that there's only $50k left over to pay off the second lienholder, who was actually owed $80k. The further down the pecking order you are as a lender, the riskier the loan is. That's why most lenders will insist on being in first position. 

In the scenario above, the assumable mortgage already exists, so yes - the assumption is that it is in first position, and any future mortgages would be junior to it, as noted above. 

It is possible (but sometimes unlikely) for an existing lender to agree to subjugate, and accept a less senior position behind a newer lien. This could happen, for example, if you have a first mortgage and a HELOC, and then you refinance the first mortgage. The new refi mortgage lender would insist on being in first position, so your HELOC lender (who was actually already in second position before the refi, but now would be senior to the new refi mortgage) would have to sign a subjugation agreement in order for you to keep your HELOC (in second position).

In a case where the lender knew they were taking a junior position at the outset, the subjugation and/or lien priority would be spelled out at closing. 

In the scenario outlined above you'd assume the FHA mortgage, then have a new lender (or the seller) fund a second position mortgage for the remainder.

In the vast majority of cases, if you are getting a new mortgage (203k or otherwise), the new lender will insist on being in first position, meaning the original mortgage would have to be paid off (or the original lender would have to agree to subjugate to the new one, which can be a tall order - Why would they?)

Yes, FHA loans are assumable...if you qualify for the mortgage and are approved by the lender (but note also that FHA loans are for owner occupants only, not for investment properties).

The reasons you'd want to assume a mortgage are usually rate and terms. For example, if your seller had a $100k mortgage at 2.5%, and mortgage rates are currently approaching 7%, it would make a lot of sense to assume the 2.5% mortgage if you could. For example: You might put $20k down and get a new $80k second position mortgage at 8% (the rate would be higher because the risk is higher in second position). Your "blended rate" would then be somewhere in the 5's. 

Or, better yet, maybe you give the seller $20k as a down payment, assume their mortgage, and have them seller finance the remaining $80k.

From your post, it sounds like this is something you agreed to in your Property Management Agreement.

And if I understand you correctly: The tenant pays a fee to the PM, and the landlord get $750 in pet damage protection. What's not to like if you are the landlord? 

(And if you are the tenant, pet fees are very common, and should be agreed upon in your lease - Beyond that, it's really none of your concern what happens to them on the back end). 

From a more general perspective, PM's charge fees to tenants all the time: Application Fees, Lease Admin Fees, Pet Fees, Resident Benefits Programs...the list goes on and on. Some of these pass through to the landlord, some stay with the PM, some are split - all according to your PM Agreement. There's nothing unusual or illegal about this. 

If you buy the property with seller financing, then sell it at some point in the future, the mortgage from the seller will show up in the title search and it will need to be paid off at closing, the same as if it were from Bank of America or any other lender. 

The title company or attorney will get a payoff statement from the lender, and they will be paid off out of your sales proceeds at closing. They will also sign a satisfaction of mortgage that will be recorded so the property can be conveyed from you to the new buyer with free and clear title. 

For more details, see: https://www.biggerpockets.com/...

This is exactly why you purchased title insurance. Your title insurance carrier should step in to defend against this claim and clear the cloud on title.

Before you go hiring an attorney in North Carolina, flying out there yourself, or calling the plaintiff and muddying the water or disclosing something you shouldn't, I suggest discussing more details with the attorney who handled the closing. 

There's actually no particular reason they wouldn't be "on your side" in this situation. This is simply a cloud on title that they need to correct. And they were most likely the agent who sold you your title insurance policy, so they would be the ones you work with to submit your claim.

You've obviously already been in touch with them, I would suggest following up to confirm the following:

-Are you in fact the agent for my title insurance policy? (If not, clarify who was, and ask them the following)

-Who is my title insurance carrier and what is my policy number? (You should have this with your closing docs, or you may have received it in the mail a few weeks after closing, but still worth confirming.)

-Will you be opening a claim with my title insurance (or have you already?) - If not, why not? If so, when, and can I get my claim number?

-Who, how, and when are we going to respond to the hearing in December? (Note: Your title insurance carrier may assign counsel for this, or may work to get it postponed. Attending the hearing, or getting involved at all, may be the last thing they want you to do at this point. If they want/need you to attend or respond, they will let you know - But clarify with them either way.)

-What is the process to rectify this beyond the hearing? How do we clear the cloud on my title?

This probably goes without saying and may not be an issue, but it's worth noting you probably don't want to sell the property until this is resolved. Adding another contract to the mix would only further complicate things. 

How much do you and your PM know about the The Fair Debt Collection Practices Act (FDCPA), which is a federal law, and your state's equivalent?

Probably very little, because Property Managers are NOT debt collection agencies, and they could subject themselves (and you) to a lot of unnecessary liability by acting as one in a scenario like this. 

Debt collection services are not something you want to offer your owners as a PM: There's a ton of risk, and literally almost zero reward. As a PM, I have been sued by tenants for violations of the Florida Consumer Collection Practices Act for trying to collect unpaid rent (bogus lawsuit, tenant is the one who ended up with a judgement, but still cost me $10k in legal fees). This was a painful lesson. 

Your property manager is doing everything right here, as least as it pertains to debt collections. As a landlord, this is simply the cost of doing business (and a fairly common one at that).

I highly recommend reviewing the video at http://www.evicttv.com/episode...(I have no affiliation with this law firm, other than as a customer, but they offer tons of free legal info. While much of it is Florida-specific, much of it also applies across the board, especially topics than involve federal law). 

Of course, we don't know the full story here. For example: Did your PM screen and place this tenant? Or did they inherit them with the property?

And one thing your PM probably could have done better is set clearer expectations about where their responsibilities end when it comes to rent collections versus debt collections. 

To be clear: I am not saying you should or shouldn't just let the tenant off the hook. If you want to send the tenant to collections and ding their credit, I'll be the first to thank you when I review their credit report and deny their application for one of my rentals. 

But have realistic expectations: There is less than a 1% chance you will ever collect a dime, and it is not your PM's responsibility. Their time is better spent getting your unit back in service right away. 

Some hard money lenders will take a second position on an investment property. Just keep in mind their rates and terms are going to depend on their level of risk, the amount of equity, and your history with them. 

Second position = more risk = higher financing costs for you as the borrower. 

On your primary residence, your best best is a HELOC from a reputable bank. This is a very common product, and it's essentially a line of credit in the second position on your home (which is why they are often referred to as second mortgages). The terms are very competitive. Of course this will also depend on your credit, income, and DTI.

If you are the seller, and the buyer purchases your property with a conventional mortgage, the lender provides the money up front, subject to a certain LTV (loan to value).

If the LTV is 80% (common for residential owner occupied properties) and you sell them them house for $100k:

--The buyer pays $20k (plus closing costs) as a down payment

--The lender provides $80k

(The buyer's repayment terms are between them and their lender. It does not involve the seller at all.)

--The seller gets $100k (minus closing costs)

(Note: the seller has to pay off any liens on the property, such as pre-existing mortgages, to be able to sell it free and clear. So if you bought the property with a $50k hard money loan, or any type of mortgage for that matter, the seller's lender gets paid off first, and then the seller keeps the rest. So they would walk away with $50k, less any closing costs, in this scenario.)

At a typical real estate closing, the seller gets their month that day - They either leave the closing table with a check in hand, or have the funds wired to their bank. 

Again, the buyer may be paying back the $80k they borrowed for the next 30 years, but that has nothing at all to do with the seller.

All that being said, it is possible for the seller to essentially be the lender, by financing a portion of the purchase price. This is called seller financing. 

For more details on both types of financing, see https://www.biggerpockets.com/...

One of the most important, yet often overlooked, questions to ask a potential property manager is: 

"What happens to my rent money, my security deposits, and all of my data (leases, etc) that you are holding for me if you die or become incapacitated?"

While it may sound morbid, experienced property managers will not have a problem with this question. Rather, they will have anticipated the need for succession planning and they will have backup plans in place, and backups to their backups.

The worst case scenario for a landlord is having an individual property manager who is the only person who has access to the bank accounts that hold all of the current rental income, the escrow accounts that hold all of the deposits and prepaid rent, and the passwords for your digital footprint. If that person dies, becomes incapacitated, or disappears, it could take months or years for you to recover your money. 

First of all, we don't really know from the photos how much of this may have been done by your tenant versus your handyman. Hopefully you have before and after photos. 

Beyond that, the underlying lessons here are:

1. Don't hire unlicensed contractors - Especially not for electrical, plumbing, and other work that requires a license in a specific trade. 

2. Real Estate Agent + Airbnb Host does not = General Contractor. At worst, she is running a scam. At best, she is operating outside the scope of her license and could be subject to investigation/sanctions from the state licensing boards for both construction (operating without a license) and real estate (operating outside the scope of her license) - This may actually be your best leverage to get her to refund some or all of your money. 

A full blown lawsuit will likely be too expensive to pursue over $20k in losses. But it would definitely be worth paying an attorney to draft a demand letter outlining your communications and payment history with her, showing before and after photos of the work, and highlighting the fact that this will be reported to the state licensing boards (you may want to do this anyway to prevent others from getting scammed, but perhaps use it as leverage until you get some of your money back!).

Best of luck!