Posted by Anthony on December 14, 2000 at 21:13:06:
Thank you for your response.The information is always helpful.Anthony
Title seasoning? - Posted by Anthony
Posted by Anthony on December 12, 2000 at 23:30:45:
I’ve been learning alot on re investing and want to start with rehabs.I read some posts on here from a few days ago about title seasoning. From what I read it looks like buy,fix and sell is getting more difficult to do. Are many rehabbers having a problem with this? Are some lenders more likely to do this then others?What length of time do they require? Does it depend on me buying creative or conventional? I also have read on here where people do this all the time with no mention of seasoning. maybe someone could set me straight. Thank you for any response. ANTHONY
Re: Title seasoning? - Posted by Ed Garcia
Posted by Ed Garcia on December 13, 2000 at 10:25:18:
Anthony,
Here is an answer to a post that I answered a short while back. I hope it will be useful to you. If I can be of any help, you will find me in the Financing section of this forum.
Seasoning and redlining
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
Re: Title seasoning? - Posted by JPiper
Posted by JPiper on December 13, 2000 at 09:48:09:
Here are a few thoughts on title seasoning, but keep in mind that these are general comments?.there may be nuances within situations that would cause some variance in these comments.
I think it?s safe to say that ?most? mortgage lenders today are going to be concerned about the length of time the seller has held title. Note that I said ?most?. There may be local portfolio lenders more than willing to consider these deals. But as it applies to the national mortgage lenders most are going to be concerned. Factors that will probably come into play are things like area of the country (we all heard probably a couple of years ago from Steve Cook that Maryland was a problem due to all of the flipping scandals). Then again, the borrowers situation may cause some lenders to make EXCEPTIONS to their policies?..that is, the better the borrower?s credit, the more stable his employment and income, the more cash he comes into the deal with, the better the chance for an exception in title seasoning for the seller. The location of the property may become an issue. The better the location, the better the borrower, the more apt the lender will make an exception to a general policy.
Then we have the house itself. Was this a deal where the title NEVER was in the seller?s name?and he is simply marking the price up and flipping? Or was there significant rehab to the property that can be verified? If you are doing significant rehab good records become important. Before pictures, after pictures, a record of expenditures, copies of contracts with your contractors, etc. may all be helpful with the lender in obtaining an EXCEPTION to a general policy.
The lenders own policies become important as well. The question becomes HOW they determine or verify seasoning. As an example, in my area houses bought from FSBO?s are NOT going to be automatically obvious as to title seasoning. The lender is going to have do a chain of title to verify when the deed was transferred. SOME lenders are even doing that?..others don?t. On the other hand, in probably any area a house bought through the MLS is going to be obvious as to transfer date. In California, transfer date is easy to determine for any sale through the title company without a chain of title.
Over the last few years this area of title seasoning has become a murky issue. The trend is clearly away from financing the quick sale. But that isn?t to say they can?t be done?.it?s just become more difficult. A good mortgage broker injected into this situation is helpful. Particularly one who is willing to do battle with the mortgage lender to get you an exception to a policy.
But an unseasoned sale of a house in an iffy area to a borrower with poor credit and little cash has become more difficult by the day. My idea has been to take the path of least resistance?..hold the property so that it IS seasoned.
JPiper
Re: Title seasoning? - Posted by Anthony
Posted by Anthony on December 14, 2000 at 18:48:21:
Thank you for your response. It was very informative.I always learn from your posts. Anthony