I got a preforeclosure valued at $220,000. Mortgage was $94,000, I gave owners $22,000 to walk, Spent $9,500 to cure the loan. I recorded the grand deed and indicated that I paid $31,500. Got a buyer but his lender cannot fund saying it is a flip. What is the problem here? Is there a way I can go around this? any alternatives? Please help!!!
Sounds like a combination of the low offer and a seasoning issue…
You basically paid $22K for the owners’ equity, paid another $9,500 to bring payments currect…what happened to the $94K mortgage? If you assumed the mortgage (sub2?), you really paid $125.5K not $31.5K…You’d probably still have some seasoning isses and, actually it is a flip. However, flipping is not illegal as long as it’s on the “up and up” and the appraisers, etc. are not consppiring to artificially inflate the prices so as to give you monetary room to deal. Buy low and sell high is the American way. If true and accurate appraisals come in at the $220K level, there are lenders that have less stringent seasoning requirements.
Keith
explain more about the seasoning. As of now, no banks had metioned nothing to me about seasoning. However, I have only been investing for one year!
Mike
From theREI Club Investing Glossary:
Seasoning - loan which has been in force for a period of time thus establishing the borrower’s payment history, loans are tyically deemed to be seasoned after either six months or one year.
What this means is that banks will often balk at property that you have purchased, have made little or no repairs to, and are trying to resell for a large profit. The real issue is that, in several cases, there has been collusion between loan officers, appraisers, real estate agents, investors, etc. to artificially inflate the prices of homes (backed up by a fradulent appraisal) to give their investor buddy monetary room to do the deal. What happens in the end is that the new buyer defaults and the lending institution is left “holding the bag”…in this case a property that was severly and fradulently over-appraised and over-priced. The lender could in now way recoup their costs – not even close.
Keith
Hey Mike,
Did you assume the mortgage, or is it still in the name of the seller? If it is still in the name of the seller, then in the past I have been able to note myself as a creditor on title, or a lien holder. This way the paperwork shows the original seller (your seller) as the seller in the new deal. There are certainly other details that need to be in place for this to work.
Keith is correct, as long as the deal is on the up and up, a flip is not illegal. I have also been able to pay for an additional appraisal by someone the bank chooses, this will sometimes set their mind at ease.
By the way, nice deal, the numbers look good and it appears everyone won! Keep it up.
Go Get’em,
Ray Rochefort
Managing Member
Purpose Investments LLC
Indiana
Thanks Ray for making me sleep better. How do you note yourself as a creditor though? I did not sign any paperwork to show I assumed the mortgage hence it is still in the original owners’ name. All we signed was a Grant Deed and an agreement that they received the money
Doesn’t sound like you screwed up at all. Congrats.
- Find a new mortgage company that does not care about seasoning. The best ones are portfolio lenders( they do not sell the loans after closing)
American Home Mortgage or First Horizons are two that come to mind. - Refinance the home and sell on a wrap mortgage.
- Wholesale to an investor who can pay cash.
- Hold for 6 months and anyone can finance without seasoning issues.
Many possibilities when you have bought right like you did.
Good luck and good investing.
Thanks a lot. I found a different buyer. Just opened new escrow and hope all will be fine.