Need $40k, secured at 25% LTV - Posted by Bob Johnson

import · December 25, 2000, 2:45pm

Posted by Bob Johnson on December 26, 2000 at 20:27:57:

Sorry, didn’t mean to leave out details. The property is in Maryland and was in agricultural reserve as part of a small farm (about 140 acres). They bought it out of reserve, but can’t transfer ownership for 2 years. The woman is a friend of the family, or I would have given up LONG ago. I’m just too much of a REI newbie to figure this out. I really appreciate the help.

I have two main problems. The equity in my residence is too small - only about $25k. I’d need to find a lender that would go 115% LTV in a second position. Also, I’m afraid having the woman die before I can gain title to the property, leaving me stuck with the payments and having title pass to “the son”, who will sell it for cash as soon as the 2 years are up. That would mean skip tracing, court, and he’d probably spend the money before I’d ever see it.

The current $20k lien is in default and the holder is demanding payment in full. He’s a developer who stands to gain 2 acres at about 15% of their value. It sounds like this may just be too hard. If the lady gets a hard money mortgage and can’t make the payments, she just loses the property in a year instead of a couple of months from now.

I’d rather not post personal details like my credit worthiness, etc. in the forum, but would be willing to discuss via email.

Bob Johnson

import · December 25, 2000, 2:45pm

Need $40k, secured at 25% LTV - Posted by Bob Johnson

Posted by Bob Johnson on December 25, 2000 at 15:45:43:

I know an older woman with a son in his late 30’s. She’s destitute, having lost her husband and the family farm. She managed to keep two 1-acre lots from the farm - one for her, one for her son. Both are zoned residential, but were in agricultural reserve (it’ll be 2 years before they can sell or transfer ownership). The lots have been perked but still need driveways, power, septic, and one needs a well. And, they have an outstanding lien of $20k. They have two solid mobile homes for the lots but the health department won’t let them occupy them until the lots are improved. And the current lienholder is trying to take the lots for non-payment. The appraisal value is in the $65-75k range for each lot. In other words, they’re land-rich and cash-poor. The mother is disabled and can’t work, and the son is…uh…I guess motivationally challenged would be the politically correct way to say it.

It’ll take about $40k to remedy the default on the current lien and complete the improvements to make the lots livable. It’s a pretty good bet that the woman can’t make mortgage payments, and the son won’t. I can afford the payments, and am considering a deal where I would obtain the financing and improve the lots to make them livable. In return, I would take a first lien against the lots. I would let the woman live there with no payments until she passes on, and then take the property in lieu of back payments. If the son didn’t get a job and make the payments (a couple hundred a month for an acre of land!!), I’d simply take that lot and have him evicted.

I just can’t quite figure out how to structure this, since I don’t own the lots. If I had the money, I could loan it to them, and then discount the loan to an investor to get most of my money back. But, I think what I want to do is wrap the mortgage, since I’m pretty sure I’d end up making the monthly payments. When foreclosure happens, I want to own the properties - not some investor who bought the paper.

I’m not willing to tie up the equity in my home to do this deal. There’s gotta be a way to get this done using the lots themselves as collateral. I need some creative ideas here. Basically, I want to create a $40k loan secured by a first mortgage on 2 acres that I don’t own, that together appraise for over $160k. Help!

Bob Johnson

import · December 26, 2000, 10:06am

Re: Need $40k, secured at 25% LTV - Posted by Ed Garcia

Posted by Ed Garcia on December 26, 2000 at 11:06:02:

Bob,

First of all, we don’t know were you and this deal are located?

We go along reading your post thinking this could be a good deal. Then at the bottom, we read that you don’t want to put up your home, meaning that you don’t want to take any risk, you want your investor to take all of the risk. That now makes me think that this is not as good deal as you’ve tried to convince us that it is. This deal reaps with problems.

You tell us that it will be two years before they can sell or transfer ownership, but you don’t tell us why? I assume it’s because she is pulling it out of the agricultural reserve, and that’s the time period they require.

If they can’t sell or transfer ownership, then how can you borrow against the property?

Bob, you can’t even get a hard money loan if the property is not transferable. If you help the lady get a hard money loan to fix up the property etc. Then she will procrastinate leaving the property, and you may have given her time to sell the property to someone else.

At this point, my suggestion is a lease option. I would lease option the property from her, making the payments on the existing loan. If I leased optioned the property for two years, that would give me time to resolve what ever the reason she can’t sell or transfer now. It also would allow me to have control of the property now, show, making payments on the property, and therefore make it easier for me to re-fi in two years. After I leased optioned the property, controlling the deal. I would take the old lady down to a hard money lender to borrow against the property for the improvements. You might even go on the loan with the old lady since you’re going to make the payments anyway and are going to pay that loan off in a few years.

Ed Garcia