Death of the sandwich lease option - Posted by Mrs SD

Posted by Houserookie on November 22, 2000 at 12:20:11:

Hi Ed,

The name Houserookie was chosen because I wanted
to be different. : )

Can I ask what made you ask that question?

Also, as for 95% NOO, I have had zero experience.
I do know that I can do a NOO at zero down
with LTV around 80.

There are many ways to profit in real estate, but
I try to focus primarily on assignments and
L/Os when the ocassionas arise.

I don’t push too deep for 20-30% profit, just
a handful at $10K per month is fine. : )

Of course, it doesn’t always result in what I
pray for.

I use Vandy for all my L/O sales. Not sure if
they are the best out there, but I figure if
the t/b can find a better deal go for it. All
I need is a pre-approved letter and a contact


Death of the sandwich lease option - Posted by Mrs SD

Posted by Mrs SD on November 20, 2000 at 10:09:42:

This issue is of such dire importance, that I think it warrants a rerun for anyone who missed thes posts (I’ve consolidated two) by B.L. Renfrow.

"Your idea of a double close was a good one…until recently. Just within the past year, lenders have gotten particularly squeamish about
funding deals where the seller hasn’t been on title for at least 6-12 months. So if your buyers are using a conventional lender. it’s a good
bet they won’t fund the deal.

The title seasoning issue is one that is still unfolding; where it will end up is hard to say with certainty. But as of now, NO subprime lenders
of which I am aware, and FEW conventional lenders will approve a deal with no title seasoning. Exceptions are VA and FHA loans…for
the time being.

How to get around this?

  1. Deal with cash buyers only, such as flips to other investors.
  2. Assign your option. See discussion above.
  3. Create a note between the original seller and your buyer and broker the note at closing for cash.
  4. Season the title. This means you either buy with cash, owner financing or take title subject-to the existing financing. This has been my
    approach. I have stopped doing sandwich L/Os precisely because of this title seasoning business. Of my two remaining sandwich L/Os, I
    just negotiated one into a subject-to deal last week in which I took title in a land trust. The other, I’m not sure what I will do with quite yet.
    For various reasons, it’s not a subject-to candidate, so I may go the note route. But my point is, sandwich L/Os are what I started with,
    and up until fairly recently, they were an excellent starting place for newbies. But that has changed. They are now difficult, if not
    impossible, to pull off. So the answer is, when the market changes, change your methods."

I think I recall Dee-Texas having a problem getting her t/bers financed when it came time to exercise their option. Hopefully everything worked out for her!
Thanks for the heads up, Brian-even if your post wasn’t responding to any question I’d asked, it was certainly educational!

-Mrs SD

A question about #4 - Posted by IB (NJ)

Posted by IB (NJ) on November 21, 2000 at 14:19:14:

Newbie here:

Am I avoiding the seasoning issue by buying with all cash or assuming the loan?

Thanks! - Posted by Mrs SD

Posted by Mrs SD on November 20, 2000 at 22:51:53:

to you all for helping me to maintain perspective!

Mrs SD

Going strong here. - Posted by Dee-Texas

Posted by Dee-Texas on November 20, 2000 at 20:32:05:

I was having a little problem but it was more not knowing the ropes. Worked though that with help here on the board. T/Ber now owns his own home. Cashed me out and I made $15K, on to the next. Some banks or mortgage brokers won’t work with you, but those that will. Chi Ching!!
Always Learning,

Not here! - Posted by Jim IL

Posted by Jim IL on November 20, 2000 at 18:34:54:

Mrs. SD,
I do agree that if you are just out looking around for a lender to finance, or refi your T/B’ers, you may have to look a while before finding one.
The title seasoning issue has come up on occassion here with my deals.
But, after some heavy searching, I have been able to find a lender or few that will STILL refi these L/O’s.
I just talked to a lender yesterday who has his own in house underwriters, and they do refi’s on these L/O’s and Land Contracts.
Another mortgage broker I have used in the past has simply added a little detail to get the job done faster.
He advises that I just record a memo of agreement for the deal, and that is it.
This gives me some record of having an equitable interest and thus allows the refi issue.
I know the majority of lenders are looking harder at title seasoning, but think of it this way.
The majority of sellers will sell conventionally.
But, some sellers will still sell using creative terms when we present a solution to there problems.
So, think outside the majority in ALL aspects of REI, including getting your T/B’er to cash you out, and it can be done.
Heck, if we all gave up on ideas because the majority of people do the “Normal” routine, then we’d be out of business fast.
As Mike said below, “Zig when they Zag!”

I just remembered this other example of dealing with this issue.
I have a lawyer here that works closely with my favorite title company. (He says, “I am associated with them”, which to me means he is one of there in house lawyers.)
On one of my L/O’s, the lender who approved my T/B’ers had an issue with title seasoning.
So, the lawyer somehow re-wrote the entire agreement, between the seller, me and the T/B’er, and I simply got a “Fee” on the HUD one statement.
This also cut down on the closing costs, and I still got my paid.
My buyers bought directly from my sellers, but at the price I had with them.
The sellers then owed me a fee.
I’m not sure how he worked this out legally, (I do need to re-read the HUD 1 again and the new agreements he wrote up.), but the title company and lender were all fine with it.

Bottom line, it can be done, unless you “Think” otherwise.

Good luck to you,
Jim IL

Be more involved in the loan process - Posted by William Bronchick

Posted by William Bronchick on November 20, 2000 at 11:11:47:

My experience with financing lease/option tenants is that you have to be in charge of the whole process, especially, the financing. Some lenders have a real problem with the double-closing. It’s not illegal, it doesn’t violate FNMA lending guidelines and it isn’t fraud. It’s just “the rules” with some lenders.

There are 10 lenders who will “play ball” for every one lender that is pig-headed. You need to know who the cooperative lenders are, then steer your tenant/buyers in that direction.

Learn to Zig when they ZAG… - Posted by Michael Morrongiello

Posted by Michael Morrongiello on November 20, 2000 at 11:03:28:

Mrs. SD:
You are right on the mark. Many lenders are getting more restictive and tougher regarding the ownership seasoning issues. Few will consider these deals at ALL right now.

You are also correct in your suggestion of considering OWNER FINANCING as STILL a viable option to put together these “quick flips” or transactions where the seller has not had the luxury of owning the property for 6 months or longer.

Offering the property for sale with Owner Financing, taking back the financing or “paper”, and then selling the paper for cash, is a program that a few (not all) note investment firms will consider providing the transaction can be equitably structured for all parties involved. (Our firm will still do them)

So, when markets change, or programs are altered or close up entirely, change your charted course and learn to Zig your sailboat to catch some different winds out on the open sea.

To your success,

Michael Morrongiello

Re: Fee? - Posted by MikeSon

Posted by MikeSon on November 20, 2000 at 19:23:14:

What fee did you get paid for? Was it marketing fee
for seller?

As you know, RE investors can’t just go around
charging people fees without considering the law.



Re: Be more involved in the loan process - Posted by Ed Garcia

Posted by Ed Garcia on November 21, 2000 at 02:45:54:


I disagree with your statement when you state, (There are 10 lenders who will “play ball” for every one lender that is pig-headed. You need to know who the cooperative lenders are, then steer your tenant/buyers in that direction.)

The problem is becoming more common and growing. But rather than, me go into a long post of disagreement to prove my point. Why don’t you just share a few of your lending sources with us. I will not only check them out, but most likely, will use them.

Thank you,

Ed Garcia

Re: Be involved in loan process/profile - Posted by AnnNC

Posted by AnnNC on November 20, 2000 at 20:57:21:

What lenders would be most likely to “be cooperative”?
How do you find them? What are their issues and incentives? Thanks, Ann

Re: Fee? - Posted by dewCO

Posted by dewCO on November 20, 2000 at 22:13:58:

His “fee” was the profit he had in the deal before the contract was rewritten. The difference between his purchse price and the new sale price.

Loan Sources… - Posted by Houserookie

Posted by Houserookie on November 21, 2000 at 07:11:34:

I agree and here is my contribution of great

Associates Financial In Texas - This is the last big one I think

Metropolitan Mortgage Of Washington - Note deals

My own private IRA lenders - My favorite

Local conventional lenders

I used to send 90% of my deals to MCA of Michigan
until they filed BK a year ago.

I don’t waste time with those one or two
man operations that advertise in classified
sections anymore. They talk more than they
can deliver. Many will add in unnecessary points,
and junk fees to build in their profit.

My experience has been that any or all of
these sources can do my deals. If these
guys can’t do them I just go for true
owner financing, l/o, or land trust.

A little known secret I learned is that most
note buyers sell their goodies to Associates
financial. After all they are the largest
loan company in America.

Anyone else willing to share some sources?


Re: Loan Sources… - Posted by Ed Garcia

Posted by Ed Garcia on November 21, 2000 at 10:14:08:


Thank you for your contribution of lenders.

Associates, cost is high and Associates has just recently been bought out, and is making changes in their lending criteria as we speak.

Metropolitan of Washington, I will check out and see if they lend “Nationwide”, remember here on Creonline, we need to share lenders that are in every State.

Your private IRA, once again is of no use to anyone here on Creonline.

Local convential lenders, once again are of no use to Creonline participants. However, they are usually portfolio lenders, and can be flexible in their lending criteria. I encourage people to seek out portfolio lenders as well as small local banks in their area.

I think our viewers will find it difficult to find lenders who will refinance lease/options with consistency. Most lease/options are NOT written with refinancing them in mind. For example: many of us who write a lease/option and remember, the original post was the “Death of the sandwich lease/option”. Don’t properly structure the payments so as the lender will accept the difference to be added towards the down payment. Most lenders who do lease/options will allow only a portion of the monthly payments to be applied towards the down payment and that’s if it’s above market rents. The majority of investors who do lease/options are not aware of that.

Sandwich lease/options have a particular stigma, because the seller has not held title in their name. The vast majority of lenders attitude is, not only, How can you sell a property that is not yours? But they have a problem with a seller receiving equity that is not theirs as well. The seller usually applies down payment from the monthly payments and both the seller and buyer are using equity in the deal to make it happen, which is not theirs.

This, as well as Seasoning of a deal, is a problem for most “National lenders”. The reason being is that most lenders sell off their loans or want the ability to sell off their loans and want to originate loans that are marketable.

Ed Garcia

Re: Loan Sources… - Posted by Houserookie

Posted by Houserookie on November 21, 2000 at 16:56:39:

Just a quick note.

Metropolitan Mortgage is a nationwide mortgage lender
AND note buyer. Many so called principal note buyers
are in fact brokers for metropolitan.

I believe that American Note is also a broker of
Met Mortgage.

Ed, who would you recommend as loan sources?


Re: Loan Sources… - Posted by Ed Garcia

Posted by Ed Garcia on November 22, 2000 at 02:45:24:


I’ve been doing these deals with Life Bank and WMC Mortgage. Life has recently withdrawn from the subprime market; WMC is no longer doing them. I’ve done some deals with Saxon etc. Houserookie, I’ve got a few moves up my sleeve and I can do these type of deals on a case by case basis. The reason I don’t share them is because as you know I am a broker and it wouldn’t be fair for me to give away my sources due to the fact I would like the business. But even for me, these sources come and go and are not consistent or abundant.

In California, I have my own investors as well as local portfolio lenders and can do it with consistency. Nationwide is a different matter. I’m constantly looking for and chasing financing sources for this forum.

Ed Garcia

Re: Loan Sources… - Posted by Houserookie

Posted by Houserookie on November 22, 2000 at 07:07:15:


Have you had any experience with Di-Tech Funding?
They’re always pushing subprime products.


Re: Loan Sources… - Posted by Houserookie

Posted by Houserookie on November 22, 2000 at 07:03:41:

Hi Ed,

I can understand your position as a broker.

Speaking of which I think there is another source,
Liberty Funding.

They will do NO MONEY DOWN for subprime.

I believe they are in CA. Personally, I stick to
2-3 sources. Anymore than that I could be
losing sellers while chasing the best one.

As for notes, and simul transactions, my experience
has been that most lenders will consider
buying notes created by the seller - IF PRESENTED

I prefer not to use note deals to sell properties
unless I hold onto them. The
discount for simultaneous note purchases is
too much for me.

Investors are better of creating a note and
assigning it to a subprime lender at closing
VS. selling to a traditional note buyer.


Re: Loan Sources… - Posted by Ed Garcia

Posted by Ed Garcia on November 22, 2000 at 09:28:57:


I know that Di-tech spends unbelievable dollars in advertising. I really don’t want to repeat what I hear because I haven’t experienced it first hand, but they’re not the god’s gift to lending, as they present themselves. A lender that I hear who is swinging is IndyMac. I have tried to send business IndyMacs way, and have not been successful to date. I haven’t needed them as of yet because I have other sources, so I haven’t really pushed it. I tried one deal with them because I heard that they could do Co-ops in California, but it was slow and tedious.

I tried a 95% NOO and was unsuccessful as well, however I know that Stacy from Arizona has funded one with them.

Houserookie, if you don’t mind me asking, how did you choose, and decide to go by the name of “Houserookie”?

Ed Garcia