Help! I Just lost $30k because of title seasoning! - Posted by THS

Posted by Ed Garcia on November 01, 2000 at 09:36:40:


This is a common problem. There are brokers who clam to have lenders who do loans with no seasoning, that’s a bunch of bull. What happens is the broker puts one down with out seasoning form time to time, but I promise you with no consistency.
When you give a lender a REAL BORROWER with real down payment and real credit, the lender will usually turn their head on the seasoning issue and make the deal. When you give a lender a borrower that takes a can of glue with seller carry back down, less than marginal credit that sends up a red flag. (When you tell me that you needed to get rental payment history, you told me that they have no credit or their credit has derogs.) So now the lender is going to take a closer look at the deal.

Lenders don’t mind a seller carry back if you give them a respectable borrower who puts some of their own money in the deal. What the lenders are tired of is a pattern of investors buying a property below market, finding a weak borrower with no substantial credit history or real money down, and then burying them in the house to create a seller carry back, which now becomes funny money because the borrow didn’t supply it nor did the seller. True equity provided by the seller is considered when the seller weathered the storm to hold on to the property and has paid payments on it over a period of time.
That’s when 12 months becomes your magic number.

So what’s the answer? First of all you better know that if you’re going to buy a house for an immediate flip, you better find a qualified borrower with real money down. Second, if you are going to deal with a borrower that is weak and has no real money down, then you better be prepared to sell on a lease option to giving the borrower enough time to bring their credit back and create verifiable down payment. There are other options such as selling with a wraparound, creating a note to sell off at a discount etc.

Another thing I haven’t brought up is AREA. When you have a property in an area that is experiencing strong appreciation and is considered a HOT market, again the lender will turn their head. However back to the pattern, most investors find a fixer upper or rehab in a area that is marginal or below and even though lenders are not suppose to, they red line.

Redlining is a lending policy, illegal in most states, of denying real estate loans on properties in older, changing urban areas, usually with large minority populations, because of alleged higher lending risks without due consideration being given by the lending institution to the creditworthiness of the individual loan applicant.

Ed Garcia

Help! I Just lost $30k because of title seasoning! - Posted by THS

Posted by THS on October 30, 2000 at 15:58:01:

Hello Ed,

I was looking for a solution to the problem I encontered today. On May 31, 2000, I bought a house for 65,000. The original lender on the first was owed 75k and the second was owed 15k. I got the first to agree to take 33k for the mortgage, but the second would not discount. I got a loan of 50k to pay of the first and second and the seller agreed to take the rest in a second mortgage.

There was a tenant in the property who had been living there for 2 years. She had good credit with a score of around 630. I had trouble getting her financed because the old owner didnt keep receipts for her rent and she always paid in cash. I was finally able to find a lender and we were supposed to close tommorrow. However, when title came back the lender backed out because I have not owned the property for 12 months. The sales price is $115,000 with 97,000 at closing and me holding a second for 18,000.

Ed, this property is in Atlanta and I know that you do not make loans in Georgia, but if you could offer and suggestions as to how to get around this issue or of lenders that will make this loan. My mortgage broker is telling me that ALL lenders now want 12 months seasoning. If this is now the case, it will be impossible for me to do any more flips.

Thank you for your help.


Seasoning What Seasoning? - Posted by Michael Morrongiello

Posted by Michael Morrongiello on November 01, 2000 at 21:59:45:

Ed has hit on another benefit of using Owner financing to sell off your investment properties FAST while allowing you a greater degree of control over the whole marketing and financing process.

“There are other options such as selling with a wraparound, creating a note to sell off at a discount etc…”

You can SELL to that buyer NOW and agree to take back an owner financed wrap around mortgage which if structured correctly should afford you cash liquidity TODAY or at the very leaset after a month or two of payments have gone by. Certainly that is a whole lot better than having to wait 12 months?

If you need some assistance to put this one to bed, feel free to contact me.

To your success,
Michael Morrongiello