Posted by JohnBoy on October 25, 2000 at 01:59:27:
Jim,
I wasn?t sure, but I didn?t think you were referring to deeding a property over in this case being fraud. When you wrote that statement in the paragraph like you did I just wanted to be sure on that.
My deal wasn?t the same type of deal as this one. Mine was for the purpose of getting a business loan. Had nothing to do with buying real estate. I went into the bank wanting to obtain a SBA Loan. After the bank had reviewed my plan they decided they would like to find a way to write the loan through the bank and not bother with SBA. Naturally, I didn?t have a problem with that!
The one problem they had was that they wanted a way to show something in their paper work to justify them for writing the loan. At the time I had these lots which I just purchased on contract three months prior. I had a business that I purchased with owner financing. I had my personal residence, which I was buying on contract. Everything I had was purchased through using seller financing. I had equity in everything, but nothing had enough equity to support the amount I was trying to borrow. I had good credit. Showed little to no income on my tax returns and low credit scores because of high debt ratios and a lot of inquiries.
The banker said I had equity in everything, but it was all spread out. That?s when I suggested that they refinance my two lots, put a new first on them to pay off the contracts, write a second for the working capital I needed for the business loan and use the leasehold improvements as collateral for the installation. He said he could do that! All he needed was the appraisals on my lots to come in high enough to pay off the contracts and have enough equity left to cover the amount on the second. The rest would be secured by the leasehold improvements. He said they could use that to justify writing the loan. He also said that he was taught in school if a deal only shows a dollar for a profit that they should do the deal because it shows it’s profitable. Hey, that?s what he said, me, I thought he was nuts myself!
Since I just purchased these lots I was worried the appraisals wouldn?t cover the second, so I called the sellers and explained what I was trying to do. I told them the bank had appraised the land which came in at the price I paid them for it. (I know, I lied to the seller about the appraisal amounts the bank had said they came in at, shoot me! :)) I told them the bank would loan x amount and if they would take x amount as payment in full, I could pay them off within the next two weeks. They both accepted the offers, so I was able to get a nice discount on the contract amounts owed. That created enough equity I needed for the bank, which I told the bank I was going to see if the sellers would take a discount. He liked that idea!
My point about my deal vs. this deal is, if the bank would accept vacant land and leasehold improvements for a business loan on a new business start-up, then why wouldn?t it be possible to get them to do a loan on something like this using the same strategy with one or two of the seller?s properties? My deal was at much higher risk being a business loan vs. buying real estate producing income to support the loan. (Assuming of course the deal would support the debt and be able to show a profit. I agree that the deal has to be there or it will never fly.) If my business didn?t make it, what would the bank have as security? The real estate that housed the business was being leased in a shopping center. The leasehold improvements, once installed, would have no value to it for the bank to take back. In fact, it would cost the bank more to remove it than what they could get out of it by trying to liquidate it. The land was leveraged 100%, which they would have lost money on if they had to take it back and sell it. Plus, with being vacant land, how long would it take to sell if they needed to? This other deal would have good marketable real estate producing income if they had to take it back.
If my deal would be considered solely or partially stupid on the Banks part, then keep going to another bank until you find one that is just as stupid! 
I mean, if there is one stupid bank out there, then you know there has to be others that are just as stupid.
I can see your points on this deal whether it?s even a deal or not and whether the income is there to even support itself and still be profitable. The one thing that throws up a big flag to me on this deal making it very questionable if it?s even a deal or not, is the fact that the seller is offering to put $50k into the buyers account to use as his down payment. That makes me suspicious right from the start.
But ?assuming? that this would be a deal and you have a seller willing to put up $50k to help get the deal down, I?ll use this as an idea that might be a possibility to get it funded.
I can see your point on deeding the property over. So instead of just deeding over the property and making this look better to the bank without trying to make it look so obvious, I?ll structure it like this, assuming of course the seller has sufficient equity in the property where the buyer would be getting a deal.
Have the seller take one or two of the properties and sell them to the buyer on contract, below appraised value. Don?t structure it to where they have the full $50k needed in equity since you wouldn?t have owned them long enough. You may need to work this deal over a period of 3 months to make it more attractive to the lender.
Once you have all the numbers worked out and a good plan put together to approach the bank with, tell the banker you had purchased two of these properties a few months ago from the seller. After you purchased the property, the seller had called you a couple of months later asking if you would be interested in buying all his other properties because he?s wanting to sell everything he has. The problem is he won?t sell the others on contract because he says he needs his cash out of them.
Now ?assuming? the deal is a deal and the numbers work and you have a GOOD plan put together to submit to the bank, you proceed to explain your intention while the bank is looking over your plan. You tell the bank that you were able to get a decent deal on the first two properties that have a fair amount of equity in them. The problem is that you don?t think the properties you have will appraise high enough to give you the equity you would need to borrow against for all of the down payment needed. BUT! The seller is ?motivated? and really wants out! I think I can get the seller to take a discount on the balance I owe on these two properties in exchange for buying all his other properties. Mr. Banker, you can refinance the two properties I already have by paying off the contract allowing the bank to write a second against the equity. If the seller agrees to a discount (which he will since this is part of the plan instead of having him stick $50k in the buyers bank account) it will give me more than enough to come up with the down payment needed for the other properties which produce enough income to support the deal and still show a decent profit coming in.
By presenting it in a way simular to this, it doesn?t appear as obvious to the bank what you?re really trying to do where if you just walked in right after getting the property with a large amount of equity in them like that.
My guess is that ?IF? the bank would consider doing the deal that they would probably do a blanket mortgage on all the properties together vs. funding them individually.
One thing is for sure in my opinion. The deal will have to speak for itself, meaning it?s a strong deal, the buyer is going to have to present a solid plan to show this and he?s going to have to be able to present it good enough to sell the bank on wanting to do the deal. If that can be accomplished and the buyer has good credit, then I think you could get around the low personal income issue and seasoning issue with the other two properties.
STRONG DEAL, SOLID PLAN, GOOD CREDIT and the ability to walk into the bank and SELL YOURSELF to the banker getting him to WANT to write this loan! If you can package all that together properly and have all the pieces fall in place, then you might have a fair shot at pulling this off.
It?s not going to be easy and it will require some time and work involved with putting it all together, but if you get that far, the worst that can happen is they say no! At the minimum you?ll get a good learning experience from trying it. The question is, whether or not this is a deal or not before getting into all this. First determine if it?s a deal, then proceed from their if you?re willing to put all the time and effort into this and try to get it funded.