Dealing with B/C credit

I have a rehab for sale that has been sitting or a few months. It is priced well under it’s appraisal value and needs zero work, all new everything. I got a call from a guy, “Bob”, a few weeks ago about it. Bob tells me he has private investors in Florida that are still lending to people with B/C credit.

We are all away of the subprime fallout and this obviously raised a red flag for me. Bob proposed the following plan:

He puts a sign up in the yard, “creative financing, bankruptcy/bad credit okay, zero down! Call Bob”. He then gets calls from these folks, shows the house, they love it, they fill out an application and he sends it to his lenders. Bob says all the buyer needs is a job and a 550 credit score. If approved, the lender will have an appraisal done on the house. Here’s the key, the house has to appraise high enough to actually make this a deal.

We are selling this house for $73,900 and I know it will appraise for around $80-$85,000. When it appraises for this, these lenders will loan 95% of the appraised value to these buyers. Say it appraises at $85,000, 95% of that is $80,750, so that’s what they buy it for. We then get our $73,900 and Bob gets the difference, of course minus closing costs, etc.

Anybody ever heard of this and if so, how the hell do we do these deals without Bob?? He swears up and down this isn’t mortgage fraud or anything like that…

I can tell you right now you want no part of it. I’m in the mortgage business and anyone claiming all you need is a 550 score and a job and they’ll give you 95% LTV is full of it, big time. I would watch out for it.

What a freakin joke this guy was. He says he has investors in Florida he is using… well, old Jared here starting sniffing around a little bit and found out he is trying to get these people finance through a Mortgage company right here in Fort Wayne, Indiana. Absolute BS!

I’m not a newbie anymore, and I’m sure not an incredibly successul investor YET, but man I almost felt like a sucker there for a minute. This guy was really convincing. Come to find out he used to be a big investor here in town that lost his a$$. He would buy houses, fix them up, refinance immediately at high appraisal values, then either rent them, sell them, or let them sit. He needed money, he would do a few more… UNTIL… BAM… reality crept up and kicked him square in the a$$. Now he is trying to scam people … he’ll get his in the end… jacka$$. :biggrin

Yeah, I know a few guys that were doing that. They would buy and rehab and then cash out as much as lenders would let them to fund the next purchase, so they were always only one crisis away from bankrupt because all the properties were stacked on the previous ones’ equity.

FHA does allow for low FICOs and Chapter 7 (if it is two years old) and 13 (if it is 1 year old) filings—although I don’t agree with the marketing approach, it is possible to finance somebody given the right circumstances…


Scott Miller