Need financing advice. Stuck in a deal. Need a way out.

Financing, Hard Money Lenders, Private Money
1

Hi everybody. I need your help/advice.
I am stuck in a deal where my debt goes up by the day and I need a way out. Now, my situation is somewhat complicated, so I’ll try and explain it in short but clear manner.

My problem is this.
Last year I bought a house. I got a %90 mortgage and borrowed the %10 down payment from my lander as a hard money loan. This was my first property so I got an owner occupied loan for the 1st mortgage at %11.75 interest.

The property was in a very bad condition. It had to be completely remodeled. So, I got a Home Depot-home improvement loan and a home depot credit card. I also got a Lowe’s credit card and a lot of remodeling/construction books. My goal was to flip the house as soon as possible, but since I couldn’t afford to keep it on the market for long, I was also prepared to refinance (to pay the remodeling costs) and rent it out while my credit rating was still good.

Well, as most of you would have guessed by now, it took me longer than I expected to finish the project. So after about 2 months on the market and since the local real estate market was getting worse, I decided to refi and rent it out.
When I went to my banker (who was also my real estate broker/lender when I bought the house) I explained that I wanted to refi ASAP, since the remodeling project put me in a lot of debt and my credit rating was soon to be ruined. Credit score was going down already, and I was unable to pay all my bills.
He strongly disagreed with me and assured me that he could get it sold. Although I didn’t believe he could do it, I took his advise (how stupid of me!!!)

2

Well to make a long story short, I am now stuck in a bad situation. I am behind of my mortgage payments, since the rent from my tenants doesn’t cover the mortgage ($400 neg. cash flow). I am also behind on my Home Depot / Lowe’s loans and my credit is ruined, (just like I predicted).
My lender/broker (who I now hate) is calling me all the time asking for payments for the hard money loan-the %10 down payment I borrowed from him. He even threatened to foreclose on me. And he was the one who told me not to refi when I begged him to. He promised to sell it, and if he couldn’t, he said he would buy it from me. Which he later didn’t.

So now, I have a house with enough equity in it to be able to take out enough money to pay all my debts, and still have the new mortgage covered by the rent. Yet I am unable to do so. I wanted to “sell” it to my father and solve this problem that way. Since he is my partner and his credit is excellent. But I was told that it couldn’t be done because we are family and have the same last name.

Can anyone give me an advice? Where would you go from here? I would appreciate any advice.

3

A few ideas:

  1. Have your tried seeing if you can refinance into an LLC with your father holding the majority of ownership? He may be able to provide the personal guarantee you would need to get a loan. The interest rate might be a bit higher, but it might be comparable to what you would get for a non-owner occupied residential loan.

  2. Would you be open to getting a lease option tenant in there? You could get $5K-$10K non-refundable option deposit and be justified in asking for more rent to cover the negative cash flow each month.

  3. There’s one strategy where you can offer seller financing to sell your home quickly (if you’re not in CA or NY). This might be a viable option, since you still have equity available.