All Forum Posts by: Patrick Roberts

Are you the lender or the borrower in this situation? It's the lender's responsibility to provide the note, the mortgage/DOT, and any other documents that may be required. The lender should be sending over a package containing all of the prepared documents, along with instructions on what needs to be executed, as well as reviewing for effective execution prior to wiring/releasing funds. I would not rely on Title to draft these or to advise on title commitment/title policy as Title typically represents the insurer. I dont know CA's rules and customs, but my experience is that the Title/Closing attorney does not represent the lender's interests. If they botch something, it's the lender's problem to deal with.

Another thing, if the lender doesnt provide written closing instructions, the closing protection letter goes out the window. I believe not having written instructions has some impact on the lender's ability to go after the attorney/title company if get jack up the closing, as well, but I'm not 100% on this. My understanding is that if the closing instructions are followed, then the lender has no recourse against Title/E&O claims for any mishaps that result from Title following the directions. This is not a generic form I'd pull from a random source.

Interesting. Typically nonrecourse debt caps around 55-60% LTV. This is the first lender I've heard of going to 70%.

Baton Rouge has a decent REI meetup every month on the first Tuesday. It's called Red Stick REI. Not sure where youre located, but if youre nearby, it's worth attending. I believe Title-2-Land also hosts a monthly meetup call the RING or something like that. I know Nola has a few decent meetups, but I've never attended any of them. I stay focused on the BR area as far as Louisiana goes.

I'm assuming this a second position loan against the equity in your primary home. If so, then most lenders are at WSJ Prime + a spread on these types of loans right now. Whether this is a line of credit vs a closed-end loan, the tenor of the loan, your FICO, and the CLTV on the property will all impact your rate. 9.8% is probably a little high, but if your FICO is below 700, then this is likely on target.

For reference, WSJ Prime is 7.5% as of this morning. 

If this is first position and the property is currently free and clear, you'll be much better off with cashout refinance.

Bank statement loans replace your W2 or tax return income with a cashflow calculation based on a 12-24 month history of deposits into your bank account. There is typically an expense ratio applied to this. As an example, if the gross deposits after adjustments over the past 24 months averaged $12k/month, and the expense ratio is 50%, then the lender will treat this as $6k/month in gross income for qualifying. 

Bank statement loans are most commonly used for primary and second home purchases, although this income can be used to purchase rental properties with some lenders. Your personal DTI will still be considered with bank statement loans - it simply replaces your how personal income is calculated.

DSCR loans replace your personal income and personal DTI with the income and DTI (DSCR) specific to only the property for the loan (called the subject property). These loans are only allowed for non-owner occupied rental properties.

For a lot of lenders, there is a pricing adjustment when a loan is originated to waive escrows. As other have said, escrows/impounds for taxes and insurance materially decrease the risk in the loan. Many people are undisciplined and will spend this money if it's not escrowed and then will be unable to pay taxes and insurance when due. This leaves the lender/servicer to advance the funds needed or puts the collateral at risk if not paid.

You're asking the lender to bear more risk for your benefit. This typically comes with a cost, and usually that cost is the pricing adjustment, although some will waive escrows later for a fee. You don't get a gold star for paying your loan on time; this is the baseline expectation and is what you agreed to do when you took the money. 

Ultimately, the source of truth for whether you can have escrow cancelled will be your loan documents. If there is a provision for this in the terms, then pursue it. If not, then you don't have a leg to stand on and filing a CFPB complaint will do nothing. 

I have a feeling that there may some confusion on definitions in this question. 

When you say ARV, are you implying that the ARV, as in After-Rehab Value, is lower than the fair market value for the same property? Typically, the ARV and the fair market value are the same thing. If you're not getting some kind of discount from the fair market value, then there really isnt any reason to do any of what you're doing - just buy a turnkey property off the MLS and you'll have the exact same end result.

In other words, if the ARV of the property is $400k, then you shouldnt be getting a distressed property in need of rehab at $400k; you should be getting a completed, tenant-ready property for $400k. A distressed property with an ARV of $400k should be selling for much less than $400k, like $300k or less. 

Typically, you would buy a distressed property with some kind of residential transition loan (RTL), with hard money being the most common type. This loan would cover both the purchase of the property as well as rehab costs. Once the rehab is complete and the property will appraise at fair market value (the ARV), then you would refinance into a permanent loan like a DSCR loan to payoff the hard money loan, as hard money loans typically have high rates and short tenors (9-12 months).

There are conforming renovation loan products that provide the funds for the acquisition and permanent financing as well as construction costs in one loan. This is what @Stephanie Medellin was referring to. The difference between these and hard money/DSCR loans are that these are still conventional loans - you still have to meet income and DTI requirements, cant close in an LLC, have to go through a conventional underwrite, etc. Nothing wrong with this, but this is not the same process as hard money or a DSCR loan.

Long story short, youre going to have two separate closings any time you use some kind of RTL loan for the purchase and construction financing, and another loan, like a DSCR, for the permanent financing. In some cases, if the same lender originates both loans, they may cut you a break on some of the lender fees, but youre still going to have 2 sets of title/attorney costs, have to get an updated lender's title policy, etc.

Based on what you initially described, if you're paying ARV for a distressed property, then the rehab costs should be funded out of what you've already paid for the property, and the loan that's used to purchase the property should be the only and final loan. In other words, if the ARV is $400k and the property needs $50k worth of rehab, then the $50k for the rehab should be paid out of the $400k used to purchase the property, not in addition to it. There wont be any bridge or construction loan; otherwise, you would be $450k into a property that is only worth $400k.

Yep, this is the same kind of stuff that I'm seeing. A large part of what I do is educating and guiding investors on these kinds of things. I lose a lot of deals because of it, but I'm not about to be the guy who cons some new investor who's basically one step away from a FTHB into a loan that's going to sink them in the next few years.

This is going to end badly for a lot of people who overlevered themselves in the past few years. I dont think property values will drop severely, but it's clear to me that cash has been drained from the system by the Fed and it's showing up in the personal financials in a lot of borrowers. There's no margin of safety - the deals I'm seeing are just one bad stretch of a few months away from insolvency. Theyre doing ok right now when the wheels havent come off yet, but they dont have the ability to survive a rough patch. Reminds me of the adage "never forget the 6ft tall man who drowned crossing a stream that was 5ft deep on average". 

I think I said this earlier, but when some of these DSCR loans start going bad, I think one of the major changes will be that ratio minimums increase to 1.25x or something like that. Just covering the PITI isnt enough - you have to allow for vacancy, capex, turns, the unexpected, etc. I dont know that requiring reserves will solve it because reserves will be spent in short order on the downpayment on the next property.

First and foremost, you need to find out what type of liens they are (mortgage, mechanic, taxes, hoa, etc) and how many. You also need to find out if they are in good standing. If not, the liens could be in default or in the process of foreclosure, which will lead to you losing the properly or potentially seeing the balance owed increase with each day. An RE (title) attorney can help with this, or you can attempt to research the liens/deed yourself, assuming they are property recorded. FYI, East Baton Rouge is a PITA when it comes to this. You have to pay for access to the records that only lasts 24 hours. NETR can sometimes pull EBR recorded documents. 

When you say that you put $25k down and were going to pay the rest afterward, what kind of structure did you use? Did the seller take back a mortgage, is this a bond for deed or some kind of subto wrap, or was this just a 'handshake" deal where you agreed to pay the seller X amount whenever you finished? 

Normally, any existing liens on the property are paid off at the Closing when you buy the house and title is transferred. The funds for the purchase wouldve went to satisfy all outstanding liens first, and then the seller wouldve gotten whatever was left. In this case, this is more like a sub-to deal, where you bought the property subject to the existing liens. 

The quit-claim deed and existing liens are going to create an issue with getting new financing. Im almost positive quitclaim deeds wont fly for loans, and even if the lender would accept this, I doubt that anyone would issue a suitable lender's title insurance policy in this situation for the loan to close. Youre going to need to sort out the title mess before you can refi. 

I've had good experiences with both Legacy Title and Sternberg, Nacarri and White in BR for stuff like this. I'm happy to help where I can on the lending part of this. I'm originally from BR and am still actively invest there.