All Forum Posts by: Marc M.

Thanks for replying @Wayne Brooks, but I'm still confused... it was my understanding that each week the foreclosure attorney's working with the banks decide how much to set the value of the judgement the borrow has defaulted on. So, if the original loan amount is above and beyond the value of the home no investor will buy it, and it goes back in the pile until next week's auction. At the next auction the debt amount might be reduced by $10K or so, which the bank writes off as loss or is somehow recaptured through Fannie and Freddie mortgage insurance, so I'm told. If the investors in the audience bid a property well beyond the debt owed, that money is supposed to go back to the homeowner, right? I agree with you that the banks are auctioning off the property as well....but until the 6 month redemption period has passed all you really own is a note as far as I can tell. If the homeowner buys the property back from you within the redemption period, they owe the debt amount + interest of the original note. Correct?

Hello BPers,

I am somewhat new to foreclosure investing...I've bought at county-tax foreclosure auctions, but haven't purchased anything from a bank yet.

I've started attending weekly mortgage foreclosure auctions at the courthouse in Detroit where banks auction off their bad mortgages to investors....usually for a $1 over the starting bid amount (the bad mortgage debt). Recently, a house I had been following week-to-week after it continued to be adjourned came up for auction for about half of what the advertised debt was in the 'foreclosure information' provided by auction.com., and from what I could tell the bank bid on their own debt. To my question...if banks can buy their own non-performing loans at a huge discount, does the typical 6-month redemption period still apply? In other words, could I try to buy the deed from the homeowner for a few thousand dollars, and then go to the bank and pay off the now discounted debt amount to obtain the house free-and-clear? 

I have seen other investors do this to each other....where someone buys the bad debt at the auction, and then someone else swoops in a few days later and gets the homeowner to quitclaim the deed to them for small sum of money (given that they cannot afford to buy back the property and are willing to take what they can get since their losing the house anyway.)...kind of like cash-for-keys, or said differently cash-for-deed. Then the 'shark-investor' either charges a fee to original debt-purchaser for the deed or pays off the original investor's purchase amount of the bad mortgage. 

Best,

Marc

Hi BP'ers,

I've been meaning to send an update on this old post for too long now! I just wanted to follow up and say thank you for the support and advice on this particular deal. The closing went according to plan although I had to provide an enormous amount of documentation including letters from my private lenders as proof that they funded the renovation. The bank required that the cash from closing be wired directly back to them as a safety precaution instead of letting me disburse the funds :-)

The second appraisal came in at $230K so I was able to cash out for $184K @ 3.625% for 30 years. My total mortgage payment (incl. taxes / insurance) is $1289/mo. and the property is rented for $1900/mo. I just had it appraised again in February 2015 and it's up to $260K, so all in all this has been a good investment. 

Best,

Marc

Thanks for the reply @Steve Vaughan ! That is what I was thinking about...asset protection. I just wonder if the IRS would allow that kind of transaction or if they would consider it self-dealing? I remember listening to a good podcast on asset protection but can't remember the episode number. The attorney on the show recommended creating trusts that managed LLC's, which somehow made the owner untraceable (because the owners of the trusts do not have to be recorded publicly, I think).

If I personally own a property (I'm on title and I have a conventional mortgage), can I use an LLC that I own to give me a second mortgage against some of the equity in the property?

And then....if the senior position mortgage is paid off by a third-party purchaser of the property (ie: I sell the property), does my 2nd position take 1st priority against the new mortgage originated for the buyer? Or would that scenario never happen because the title company would catch that I had encumbered the title with the 2nd position mortgage and not go through with the sale unless it was paid off along with the first mortgage?

Thanks!

I think an irrevocable trust would only work if I were a family member (and could receive the property through an exclusionary transfer, which wouldn't trigger a reassessment) 

Yeah, the property could be worth more, although the lot is tiny....36 by 45 feet, and no onsite parking or even a yard to speak of. The after repair value could easily be $1mil or $1.2mil....but how to protect the investment by managing the risk involved in tying up $500k for 30 years? It may sound like a steal to get a property worth a million bucks on a $500k investment, but if you invested $500k and made a 5% return annually, you'd have $2million at the end of 30 years. In this scenario, it might be a house worth $1.5mil in need of another full renovation at the end of 30 years....

I thought the best way to fund it would be using Self-directed Roth IRA investors in their thirties (like me) Since that money can't be touched until age 59-1/2, it might be a good vehicle to park some money into. The Roth investors would buy shares in an LLC set up to be legal entity to buy the property. (this seemed like the cleanest way to do it, by taking title of the property) However, when I figured what the taxes would be after reassessment, the lifetime lease becomes impossible with higher taxes. And I'm not sure what sort of legal safeguards there are as an investor / mortgagor when the borrower still holds title and could potentially run up other debt against the asset. This would be non-recourse debt (I think), but I'm not sure who has first dibs on the real property in a messy case of multiple creditors going after debt.

My neighbor, a 68 year-old guy with no family or kids, started a renovation of his house and never finished it. The property is located 2 blocks from the beach in Santa Monica, needless to say it's worth a lot...even it's present torn-up condition. The land itself is worth about $500-600K. He currently owes about $350K in a HELOC he took out to do the renovation, and then ran out of money....8 years later it's mostly bare studs.

My idea: Pay off his debts, finance the renovation of house, and let him live in it for the rest of his life, and he would be responsible to pay the taxes, insurance, utilities, and basic upkeep. When he passes or if he defaulted on his fiduciary responsibilities, I would get the house . This would be similar to a reverse mortgage, but private, and therefore uninsurable by the federal government. So, to give myself some assurance I would prefer to take title of the property....but if the property taxes are reassessed the guy will not be able to afford them. He has owned the house for 40+ years. So the question is: what is the best structure to buy the property (or refinance his existing debt) that protects my interests and the title of the property? A deed trust? 

Looking forward to hearing your thoughts...

-marc

Thank you both for the replies.

Jeff, I understand the concern about a bank financing an LLC, but what I think Bill is saying (correct me if I'm wrong, Bill) is that a bank will treat this like two people trying to get a mortgage (ie: looking at our income and liabilities), so we're guaranteeing the loan but it will be underwritten to the LLC and it's name will show up on the deed. Or will the two of our names still show up on the deed, and we'll run all profit and loss through the LLC, which I would then show to the bank 2-3 years later to refinance directly through the LLC as revenue-generating entity?

One thing I want to address is the assumption that we both qualify for the loan. I have a credit score of 780 and I make $45K a year, however I don't have a rental history on the property I own yet because I just acquired it. I would think a bank might look at my situation and qualify me for a tiny amount of money based on my debt-to-income ratio (because they'll treat the rental property as vacant if I don't have 6 months (?) of bank statements showing that it is has income). So, can I still get tacked onto the mortgage by way of the LLC (effectively using the seller as a qualifying co-borrower for the majority of the loan)?

Or in other words, can we use the LLC as the conduit to give me ownership interest without using any of my own money to obtain a mortgage because the seller would be doing a cash-out-refi and bringing me along for the ride through the business entity?

-Marc

Hello,

I'm looking at a group of 4 SFR's that have been on the market for over a year for $600K. The seller inherited these properties from a family member who passed away and he is motivated to cash out. We discussed the possibility of a land contract, but he doesn't want to hold a note for very long. There are also other cousins that have ownership interest and they really want to cash out too. The property is owned outright as it has been in the family for a long time. They would take $400K or less if I cashed them out right away.

So, I'm trying to figure out a way to put together a deal where everyone wins. My situation is that I am closing on my first mortgage this Monday for a property that rents 20% over the mortgage (on an 80-20LTV). I only make $45K/yr. I don't think I'll look very attractive to a bank right now :-( My guess is that a bank would want to see a year's worth of rental checks before they give me leniency on my debt-income ratio.

The 4 SFR's are renting way below market value. One thought I had is to put $30-50K into improvements and get all new tenants in the properties (there are no issues with leases or rent control) I can easily get the rents up to $4500 per month. My question is: If I do this while seller still owns the property... (call this a lease-to-own or a land contract situation), will a bank look at the rent rolls in considering financing the houses as an investment property? And if so, how much rental history will they want to see...one year, two years if I go for a conventional 30 yr. fixed mortgage?

When I crunch the numbers to do a hard-money-loan, it just doesn't add up considering the interest rate I would have to pay (and the fact that I'm in a high property tax area...$17K per year for all four houses.) The numbers only make sense when I can get a conventional 30 year mortgage with up to a 5% interest rate.

Any ideas of what I could do to finance this property? Could the seller get a mortgage to cash out family members? He would be more inclined to do a land contract if you buy out the other relative's interests.

I look forward to some expert advice!

Best,
Marc

Thank you all for the excellent advice.

I called every local lender in Ann Arbor, MI to ask about their seasoning period for an 80% of appraised value cash-out-refi, and at least half of them didn't know their policy and asked to get back with me once they checked and the other half said 1 year was the waiting period. However, one lender said with confidence that he could do it since I'm past the six month window (and close in 30 days) During a second phone call he confirmed that in the latest (RMI? Manual...not sure if I heard him correctly..) the seasoning period is definitely 6 months and not 12 months as it once was just a few months ago. He said the policies do change rapidly enough that many banks are not up to date with the latest standards. I'm still going to hold my breath until it's a done deal, but he says we can close in 30 days, no problem. The only downside to this is that I've lost my locked rate of 3.625% with the other lender and the appraisal they just did. I asked if I could use the appraisal that was done two weeks ago and he said that banks can no longer request appraisers and instead have to assign appraisers randomly....so if the appraiser I used happens to come up when the computer makes its selection I can use the existing appraisal (which could be likely since there are only 5 or 6 active appraisal companies in town)

I also asked about the option of just selling the property to someone else, and he said that a 90 day seasoning period is all that is required along with documentation of repairs. This seems contradictory since I am essentially trying to do the same thing as a would-be purchaser, that is, buying a renovated property and financing it with a mortgage (the only difference being that I already own it outright) This new loan officer said the reason the seasoning period is different is because lenders are afraid that someone in my shoes could potentially walk away from the house once 80% of the cash was taken out of it, and the would-be purchaser has more of an incentive to actually keep the property. He also mentioned that Fannie and Freddie will rescind mortgage broker's commissions on properties that were mortgaged with a cash-out-refi if the mortgagor turns around and sells it within 6 months after close, which is yet another newly enacted policy to discourage flipping.

If all goes well, I will close by April 15th. I will let you know how it turns out!

Thanks again.

-marc