Posted by JohnBoy on June 20, 2001 at 13:56:41:
You must of misunderstood me. This was a pre-foreclosure, not a bank owned property.
The bank didn’t need me for 2 hours. This deal was basically handed to me from a mortgage broker friend of mine. The owner was in foreclosure. The owner called my friend the mortgage broker to see about getting a loan to cure his foreclosure. The mortgage broker couldn’t get him approved through anyone. The mortgage broker then called me after he wasn’t able to get the owner financing. The mortgage broker was considering doing the deal himself, but he never did an investment property before. He only brokered loans. He said the guy will just deed the thing over to prevent the foreclosure. The guy was over 6 payments behind, plus late fees, attorney fees, back taxes and a city lien. The mortgage broker could have gotten a new loan on his own, but the best he could find was having to put 5% down, which he didn’t want to do. He was also worried about getting stuck with eating the mortgage payment if the property was to ever become vacant or he needed to evict someone. Being his first deal he was facing some fear of doing this.
He calls me because he knew I did deals and wanted to know how he could get this thing without having to come up with the money to reinstate the loan or put 5% down by getting a new loan. Then he asked me if I would partner on the deal because he would feel better having someone to split expenses if the property was to ever become vacant. Naturally, I said yes! For $34k instant equity? You bet!
I had a lender that I worked with through a local branch. So I told my friend I think I can get this thing refinanced if we take title and record the deed in our name. Before we did this I first wanted to see the property. My friend also wanted me to meet the seller. Part of the deal for this guy to just deed over the house and give up all his equity was if he could remain living in the property. I didn’t want this guy involved once he deeded it over to us. I wanted the seller distanced from the deal as much as possible to prevent any potential problems later on where he might start crying we took advantage of him. So we L/O’d the property to his son instead.
Before we recorded anything I went to see my lender first and explained what we were wanting to do and get pre-approval before taking title to the property. My lender said no problem! We’ll refi you for 80% of the appraisal!
My friend had already pulled title and had an appraisal done because he was trying to get the guy refinanced and was considering the deal on his own. My lender wanted to have their own appraisal done. No problem! We got approved, recorded the deed, my lender then ordered appraisal and we closed within two weeks!
It wasn’t the seller’s lender that we dealt with! I used my own lender to get refinanced once we took title in our name. They had no problem with seasoning. They had no problem with us getting cash out. They would loan up to 80% LTV of their appraisal!
The property appraised at $100k. We refinanced for $80k. The pay off on the underlying loan and liens, plus our costs for appraisal and title, came to $66k. My lender cut a check to pay off the defaulted loan and we walked out with a check for $14k. We still had 20% equity left in the property which was $20k. The house will appraise for $118k if we put about $5k of work into it, adding another $13k in profit!
The people that lived in it were slobs and since they were staying in the property we haven’t done anything to it since! It’s been about a year and a half or more and so far they have paid on time every month. The sad thing is the original payment the owner had was only $650. Now they just rent it from us for $950! We get $50 a month in cash flow after covering our mortgage payment.
So the 2 hours wasn’t dealing with the seller’s lender. That was the time it took to go see the property, go see my lender and get pre-approval before recording the deed and then going down to record the deed.
So basically, all we did was get approved for a non-seasoned, cash out, non-owner occ., refi at 80% LTV of appraised value. To qualify we had to be on title as the legal owner of the property! Once recorded the deed we were home free, subject to the appraisal of course. But we already had one appraisal done and knew we were in good shape there. At worst, we may of had to accept less cash at closing if the appraisal came in lower!
I also knew of another guy that buying properties the same way through Bank One. He would get the sellers to deed the property to him and then he would turn around and refinance it, pay off the sellers underlying loan, pay the seller for any equity if they had anything coming, and he would end up owning the property with new financing in his name! Basically, these were just non-seasoned refi loans.
This is probably a lot harder to find today with all the seasoning requirements going on with these lenders because of all the lender fraud going on around the country, but a year and a half ago this wasn’t a problem for some lenders. You might find a local lender that holds their own paper be willing to do this if you have a good relationship with them. Otherwise it’s probably pretty much non-existant today.
Does that clear things up now?