All Forum Posts by: Clifton Jones

Daniel, Regions Bank completed one for me in December. They are currently working on a LOC against two of my properties, so I can get cash out to purchase more. The original was a 30 loan from them on a new rental property I was purchasing though, not a LOC.

I have also been approved for loans like this from Wells Fargo, though Regions had the better rate, so I used them instead.

It stated right in the paperwork that the mortgage was for purchase of an investment property.

I agree with Bryan. Based on your numbers, the value is $100K AFTER repairs, yet she currently owes $95K. How much are repairs? What about closing costs? Other incidentals?

When looking for Sub-2 properties, it is usually best to find one that has at least 30% equity. This is not always the case, but can be used as a rule of thumb. It all depends on your exit strategy. If you plan to keep the property and rent it, 30% equity is good, but if you plan on flipping it to another investor, you will normally be out of luck, as they are looking for the same 30% equity.

If you can get a property for 40% equity or more, after all expenses, that would be a great deal. If you plan on making it your personal home, a 25% equity might be a great deal for you. But, you have to remember to add in all the costs associated with the closing before you think a deal is good.

It also depends on how your market is trending. I did a Sub-2, where the property was worth $105K and I got it for $59K. I put $5K into fixing it up, then turned around and rented it out. Since then, the property value has fallen $35K, so that property is now worth $70K. Part of the $59K I paid was to bring the loan current, then $8K to the seller. I currently owe $39K for this property, as I bought it SUB-2 two years ago.

Another thing you need to identify is the terms of each loan. If the seller has a 15 year lease with a 6% interest rate and still has 9 years left on the lease, then you are still paying quite a bit in interest. So, you have to have a strategy ready for those scenarios. The above scenario is the one I faced. In my research, I misidentified the number of years left to pay off the loan and the interest rate.

I still believe I got a good deal, but I am running at a $50/mo loss on this property because the loan is 15 years, not 30. I am re-financing it in the next 3 months and will be able to change that $900/mo mortgage payment (which includes taxes) down to a $200/mo mortgage (not including taxes).

I have a great tenant who is willing to purchase, if I ever decide to sell, also. Not only that, but both the tenant and the previous owner have sent more business my way because I treated them right. I could have decided not to give the seller any money at close, but made the decision that it would not hurt my position and it would benefit them. The current tenant owns a landscaping business, which has been severely hurt by the lowering house values. More people are doing their own landscaping instead of paying for a professional. I use him on my properties and he has given me a much lower rate due to the number of properties I use his services on and due to him being a tenant.

Now, a lot of what I have stated doesn't address your question on SUB-2, but it does help address other issues concerning RE investing. RE investing is a people business, not a property business. If you treat people right, then your business will grow. If you don't, it will be much harder to grow your business.

I hope my ramblings help.

You can always try and purchase the note from the lender, then either get a Deed-in-Lieu or foreclose. With properties in the 4 digit range, it might not be that difficult for you to be able to get the note from the lender.

TyWes,

Here is a rule that you should use as an investor, "NEVER, EVER trust a realtor to tell you what is wrong with a property." This is for multiple reasons.

1) Most realtors today do not have the knowledge to identify the problems with a property. If it is not disclosed to them by the Seller, they are not required to inform you. (This may or may not be true in your state.)

2) The Realtor that listed the property is working for the Seller, not you. As such, they have an obligation to get the highest price they can negotiate for the Seller/Lender.

3) You are the one purchasing the property, so it is your responsibility to make sure that the repairs needed in addition to the amount you offer still provides you a positive investment opportunity.

Never use a wrench to do the job of a hammer. In other words, the realtor is not the expert in repairs. You should be using the proper resources to meet the job. A contractor/inspector/plumber/electrician should be used to identify the problems with the house.

Always get an estimate. My company always gets three estimates. They can all come from the same person, but we use three so that we can send the high estimate in to the Lender for short sale approval, use the lowest to potential buyers, and the middle for our true repair estimates.

Now, that is not to say that we have our inspector do anything unethical. We ask for what it would cost to do XX repairs and we ask for 3 different estimates, so we know that the price will not come in higher than XXX or lower than YYY without some unforeseen repair.

If it so happens that the high estimate can reasonably be used to justify the repairs, then it is perfectly acceptable to show that to the lender. The same with the low estimate. If it is a reasonable estimate, then we show that to our buyers. If we were to decide to rent it out, then we use the middle estimate to dictate our expenses.

Michael,

Another way to go about this is to provide her the Authorization form and the fax number to the lender. Let her fill out the form and send it in. Once that is taken care of, she can provide you the account number. You will not need her SSN at all, doing it this way.

Up until June of last year, I negotiated short sales and never had a customer refuse to provide their SSN, but I also never came across a lender that mandated I provide it to them a second time, if they received it on the Authorization. Just be aware and make her understand that some lenders only accept the Authorization for 3-6 months. If it takes longer than that, they mandate receiving a new Authorization. So, she may have to provide a new one all over again, given this scenario. But, she would have to re-sign one anyway, if that scenario came to pass.

Once I get back into the states from serving our country again, I will be putting my knowledge of short sales, rehabbing, landlording, etc back to good use. For now, I can only talk about it on this site.

Our company always puts in writing in the contract "Inspection Period begins upon receipt of Lender(s) Approval Letter(s)." This way, it is unambiguously notated in the contract at what point we have the ability to inspect and back out of a contract for repair issues.

If the short sale has taken 24 months (which some of ours have), then the inspection in that first month would be worthless. If the property values are such that the value has decreased drastically, which ours did on the one that lasted 24 months, you need to have an exit out of the contract, if the lender will not accept a lower amount due to the differences in the current values.

We do not put this in there with the expectation of using the clause to back out of a property, but it is necessary when the short sales go for long periods of time. It does allow us to back out of any transaction up to 30 days after the Approval Letter(s) have been provided. (We state that we have a 30 day inspection period in order to make sure we have the funding available. We have never had a lender dispute that clause.)

I agree with both Scott and James. If the lender still wants to see a listing, I always substitute a postlets.com flyer. BoA requires a MLS listing, but have accepted the postlet flyer as the MLS listing.

Most of the short sales we deal with are not listed on the MLS. None of those we originate are on the MLS, but sometimes we are contacted by realtors on certain properties, so those are normally listed. But, we have not had a single lender require the property be on the MLS. Some have required a Listing Agreement with a realtor, but the Listing Agreement is not the same as the MLS listing.

Bill, I agree with Steve. I would recommend putting as much information as you can in an ebook, then send it to me for critique. As I know next to nothing about purchasing notes, I will give you glowing reviews (and have the information for free). :o)

Seriously, you should consider putting your knowledge of notes in an ebook, including how to find the depts that deal with note selling from lenders, creating notes, strategies on how to buy and sell notes, and formulas to identify how much to offer, based on the note, etc.

I, for one, would love to have that ebook, as we are setting up a vehicle for private money. I definitely foresee buying notes, in addition to doing the short sales that we currently concentrate on.

This happened to us previously. I realtor friend had some clients come in on a Thursday and tell him that their home was going to sheriff's sale the following Wednesday. The realtor referred them to us and we got all of the short sale info in to the lender (Chase) on Friday. When we talked to the Chase on Monday, they stated that they would have to receive 50% of what they were owed before they would stop the sheriff's sale. That did not guarantee that they would accept the short sale, just that it would postpone the sheriff's sale.

The issue was that the homeowners were still going through a loan modification with Chase. The Loan Modification Dept even confirmed this to us when we called in. We advised the homeowners to speak with a lawyer to get it straightened out, but that we could do nothing for them.

Long story short, this is the reason to always speak with the lender a minimum of once a week, and preferably at least twice a week on every short sale you are negotiating. This type of thing can be stopped short when the sheriff's sale date is set. I realize that this would not solve your specific short sale, but this is directed more at short sale negotiations in general.

Yes, I would suggest you consult a lawyer on this. That lawyer can then contact whoever is negotiating the loans, both for the Seller and the bank, to find out what is taking so long and what the holdup is.

One thing that the lawyer will need is a Letter Of Authorization. But, once he has that, it is a simple thing to call the lender for a status and background on the short sale.

You need a lawyer involved, as the Seller's negotiator has a responsibility to complete this short sale. If he, in fact, has stopped trying to negotiate, but is continuing to dangle your contract out there, there is a possibility he is breaking some law. With you getting a lawyer involved, that should motivate the negotiator to complete this deal.

It might also be that Chase is just dragging their heels because there is no foreclosure pending. We have found that Chase wants to get a minimum of 40-50% of their investment back to provide a full release of lien. Since no foreclosure has been set, then it does not benefit them in any way to waive the rest of the money, at this time. Your lawyer can get to the bottom of all of this.