All Forum Posts by: Rob K.

- Deeding a property from entity you own to another entity you own (aka: deeding a property from your name to a trust).

If you do this without getting an endorsement on your existing policy, there is a good chance you will lose your existing title insurance if a claim later comes up. Read your existing policy before you decide to do this.

Agreed, I have been involved in some subject to situations in a commercial context. They are high risk potentially high reward transactions.

With owner occupied SFRs in California, some additional risk to mitigate is where the lender has filed an NOD. Jumping through the hoops and disclosures under the "Home Equity Sales Contract" act, CA Civil Code Section 1695, et. seq. is highly prudent. It is a misnamed act as the statutory definition of "equity seller" does not require that the seller actually have equity in the property for it to be applicable..

I have never thought in terms of a distinction between "private lenders” and "hard money" lenders. To me they are one and the same. I distinguish between conventional lenders and non-conventional lenders. If one wants to look at a different set of semantics, I suppose you could talk in terms of "sophisticated" and "unsophisticated" private money lenders. Sophisticated would be your hard money types and unsophisticated would be the inexperienced person with cash whose greed you might appeal to in order to convince them to make you a loan. From a regulatory perspective, at least in California, private money lenders who take a real estate security interest are generally considered the same, whether sophisticated or not.

Any lending decision, whether private or conventional, fundamentally comes down to what are sometimes called the "three Cs" of lending: collateral, credit, and capacity. Collateral is the underlying security value from a lender protection point of view, credit is the borrower's willingness to pay (payment history, sometimes evidenced by a credit report), and capacity is the borrower's ability to pay (front end and back end debt ratios). Sometimes there is a fourth “C”, character. For instance, someone who submits to the lender tax returns that show they are not quite honest with the IRS in declaring income and then explain to their prospective lender that their income is higher than shown would be lacking in character and make the lender wonder if they are being lied to as well.

Collateral tends to be the most important factor from the perspective of a hard money lender. They want to know that if something goes south, they will be protected by resorting to the collateral. If you want to impress a lender with your credibility, show them that there is sufficient collateral in the deal to protect them and that you have skin in the game.

You might want to touch base with the Norris Group, they are right in your backyard and have several resources that might be a fit for you.

Good place to start is to look at what your insurance policy uses as square foot replacement cost for the dwelling.

I am not a CPA or tax professional though.

Greetings Sundeep,

I too am based in San Diego County and like you have only recently started diving into the site.

One of the common themes I am seeing here is that cash flow oriented investors are looking outside of California to other markets.

True, it is much more difficult in the current environment to find real estate opportunities that paper out. I am a longtime investor in California, so what I am about to say may seem a bit divergent from what the consensus seems to be. It may also have more to do with my personality and the way I choose to manage risk.

In 2004-2005, I reached the same conclusion. California made no sense from a cash flow perspective. I began traveling to out of state markets to investigate new markets. Based on what I learned, I did not pull the trigger and invest anywhere out of state.

One thing I learned, was when locals learn you are from California, the price seems to go up. You tend to get offered properties at prices and terms very different from what locals would ever pay. There seemed to be an assumption that Californians were rich who would not mind over paying based on what they were used to in California. Almost like I had a "kick me" sign on my back.

Another thing I could not get comfortable with was finding property managers who you could trust, both in ability and judgment. Most talked a pretty good game, but once I started doing due diligence and looking at the properties they were actually managing, I kept getting discouraged. Of course, if you have prior relationships with someone whose judgment and ability you trust is actually local to where you are looking, then you have a bigger advantage.

The fact of being thousands of miles away from a property you own was something I could not overcome, at least in my mind. For instance, I had an issue here in California on one of my properties a while back where I needed a heat pump repair. The first vendor came out and said I needed to do an entire replacement for $4500. Did not seem right, and I was able to determine with another vendor that there was a line leak that was easily repaired. If my property were out of state, what could I have done? Paid for a new heat pump I did not need most likely.

I am sure there are those Californians who do just fine investing out of state. But for me, I have become comfortable staying put. It just means you have to look harder in the areas you know, stay patient, and look for “forced appreciation” opportunities, situations where an investment is based on taking a current “non-papering” property to a better place based on vision and a plan specific to that property. But that is something that I could only do locally, can’t imagine trying to do that out of state.

Yes, the whistle blower provisions have been expanded under Dodd/Frank.

But the liability sections of the mortgage regulation portion of the statute are directed to “Creditors” under 15 U.S. Code § 1640(a) and “Mortgage Originators” under 15 U.S. Code § 1639b. If there is something in the code that imposes liability on borrowers, I am unaware.

Again, I am not aware of anything under Dodd/Frank that would cause a regulator to come down on a buyer/borrower. Non-consumer transactions are outside of Dodd/Frank.

If you are a borrower under a seller financing transaction, and the seller decides not to involve a mortgage originator, or does involve a mortgage originator who screws up, I just do not see that the buyer/borrower has to step up and make sure the transaction is compliant with Dodd/Frank. If it turns out the transaction winds up under the microscope of a CFPB regulator, it is the seller/mortgage originator who is at risk.

Maybe there is some way to concoct that a borrower is also a mortgage originator (a “consumer” somehow taking his own loan application, verifying his own ability to pay, and receiving compensation for doing so), but I think that is a stretch.

Not legal advice.

@Bill Gulley,

The original poster is specifically inquiring about a seller carryback transaction from the buyer perspective. The issue came up about application of the Safe Act and Dodd/Frank. Both statutes are consumer protection statutes oriented toward regulating "loan originators" in the case of the Safe Act, and the adopted regs under Dodd Frank also regulate certain seller financing transactions by requiring the involvement of a loan originator and restricting certain terms and conditions in the structuring of seller financing in large part to determine if they are exempt. It is still my understanding that if these acts are applicable, they protect the buyer/borrower, not the seller/lender. If you have specific information that this is incorrect I would be very interested in the specifics. I searched "Life Events" and there are 651 forum hits, so I am not really sure what that is all about.

If your point is that a buyer can still get in trouble by making false representations to a seller, violating foreclosure assistance statutes and the like, then we are not in disagreement. But I do not see that this has anything to do with the Safe Act or Dodd/Frank.

@Bill Gulley

Newbies should of course get help when they are jumping into new transactions, but the fear of non compliance with Dodd/Frank, SAFE act, etc. is for the seller end, not the buy end.

On the buy end, it can still be just about the numbers. If it is a good deal, and still non-compliant with Dodd/Frank, it is unlikely the buyer would default, seek to rescind or seek to beat up the seller. The Consumer Financial Protection Bureau will never know if the buyer does not complain. Dodd/Frank non-compliance gives the buyer leverage against the seller, no real leverage for the seller over the buyer (unless the buyer is a licensed professional which is an issue the seller might raise if the buyer started making waves or sought to use Dodd/Frank as leverage to excuse a default in performance).

I figure the uncertainty over Dodd/Frank has probably peaked, and going forward it will just be another regulation where the cost of compliance will need to be included in the numbers.

LOL, I don't think lightning strikes twice, but who knows.