im starting to look for short sale deals and when buying these for all cash i will be needing to re fi so i can get my money for other deals. if im buying at 60-65% ltv can i still re fi at a higher percent? i was told that the lender looks at the sales price and goes off of that not the market value, so how do i do these so i can pull up to 90% out if i want? i was also told to do a quitclaim deed so it doesnt show a sales price.
The issue pertains to seasoning, that is the length of time you’ve been on title. Many lenders have a cash out restriction within the first 6-12 months. There are just a few that still allow cash back immediately after purchasing with the value determining ltv. Usually from 70-85% depending on the documentation type used.
Lenders look at doing the refi after a quit claim differently then they do a refi after a sale. You’ll find it very difficult to find a lender doing this, especially in today’s constantly changing market. I’d recommend staying away from doing this.
One thing that differentiates your scenario from most is that you’re paying all cash rather than getting a loan. There are a couple lenders that will allow you to pull that cash out + any documented rehab funds (nothing more than that) and consider the loan a NON CASH OUT transaction. It has to be done within the first 90 days and you must show that all the funds initially used came from your own resources. The benefit of this type of transaction would be getting a rate based upon non cash out, use appraised value, and higher ltv - possibly up to 90%.
so if i get the bank to quitclaim the deed and i buy a place at 65% market value then there is no price on that chain of title correct? so then i can re fi up to 80-85% right? they wont know what the sale price was so wont they have to go off the apprasied value?
I don’t know what state you are in but I haven’t heard of this QC to hide the price of a sale. I can’t imagine a lender doing that or it being 100% legal to be honest. (trying to hide the sales price)
And the other poster is right, finding a lender to go along with your scheme (and it is a scheme) in this lending environment will be next to impossible. Try calling a lender and asking, don’t ask us.
BTW, let’s be real. Lenders are not approving SS for 60% of FMV. I know I know…the “gurus” say they are, but they aren’t. Maybe 60% of the loan balance…but that isn’t relevant. Maybe 60% of some old appraisal from 2006…but that isn’t relevant.
THis whole idea of buy something for $1 and refi it for $1.10 and put cash in my pocket is so 2004. It ain’t happening now.
i was just meeting with a guy in chicago and he showed me the deals that he did buying at the auction. i knew what the market value was and they started the bidding at 50% of the market value, he was the only person there so i picked it up for a dollar more then what they were asking. he gained 154,000 in equity!! so banks are doing this, they need the money right now, otherwise they will be sittin on these properties longer and cant make anything on them anyways.
As a matter of fact, I live in Chicago and have attended and bought on MANY properties at the foreclosure auctions.
The story you are telling is a fabrication. If it isn’t, feel free to post the address of the property you speak about. I have access to all the info for Cook county property transactions. I will research it and post the details here for all to see.
The facts are that the auctions conducted by the 3 companies who perform FC auctions are routinely packed to the point that they spill into the hallways. Competition at them is fierce and property routinely sells for what I consider to be 90-95% of FMV or MORE.
In addition, there almost no way that you can “know” the FMV of these auctioned properties in advance because you can’t inspect them. You are bidding blind. So you can get a “deal” if the house is in great shape but just as easily you go in to find the place trashed.
Also bidding does not start at 50% of market value. It starts at the loan balance owed, which theoretically could be 50% of market value but in reality it is not since properties with 50% equity very rarely make it to auction.
Don’t tell me about how much “equity” you have. That number can be fudged easily…I call it Phantom Equity and it is what all the hypesters and gurus talk about. Tell me what you sold the property for and prove it.
There are many other reasons an auction sale could “look” like a great deal like tax liens or other mortgages. Many auction newbies have bought property for what they thought was pennies on the dollar only to discover they bought a 2nd or 3rd lien and they now have to pay off the first.
The only way you are going to consistently buy for 60% of FMV is to fudge the FMV.
You are not going to buy a property for 60K and immediately be able to resell it for 100K with no work. Not saying it has never happened or won’t again, but if that is your “business plan” you are going to be disappointed. If it were only that easy.
The whole “Banks aren’t in the business of owning RE and don’t want to hold property” is just the oldest and dumbest cliche of the gurus. Owning and managing REOs has been an integral part of the banking/lending business for a LONG time now and lenders have large depts devoted to it and are actually fairly adept at it. This whole idea that somehow banks are trying to have no REO inventory and will do anything to avoid having them is just naive.
But hey, don’t take my word for it. If you know you can do this, then go ahead. Don’t know what you are asking questions for. If you believe you can buy for 50-60% of the true value then just do it, you can’t lose. Then try to refi for a higher amount. If you can, go for it, if you can’t you’ll still have your “equity”. Good luck.
what you said about the banks starting the bids at what is what the loan balance is; i thought that same exact thing, thats why i never looked into auctions because 99.9 % of these places had no equity. when i was with this guy on mon he told me a totally different thing and he showed me what these places went for at the auction, it was all online so i know the guy wasnt lying to me. know this could all be wrong, i dont know. if your from chicago have you checked out ilfls.com, thats the sight the guy was showing me. if you dont use it, try their 7 day free trial, let me know what you think
I have used ILFS since it began. Again, he is trying to fool you or something.
You can ask anyone, they start auctions at loan balance plus $1. Most of the time no one bids because the value is too high and it goes to the lender as an REO.
Do not look at the “Zestimate” that ILFS publishes. That is Zillow’s estimate. They are well known to be way off very often especially in a market that is declining. Zillow values my own house incorrectly by almost 800K.
Again, unless you have researched the property’s title you don’t know if the mortgage in foreclosure is the 1st 2nd or 3rd. So if a second mortgage is being foreclosed the numbers could easily look like FMV 200K, auction 50K. But that doesn’t mean you get the prop for 50K. You are now responsible for the 175K 1st mortgage that is not in FC. Many newbies have made this mistake.
Again, post a sample address and I’ll show you what is what.
Cmon, do you really think there are no Chicago investors who would recognize if there were properties going for less than value? Only you and this guy have figured out the secret? There are thousands of us hunting for deals!! Buying at auction is one of the toughest ways to find a bargain in my experience but go down to the auctions and look for yourself. Looking at a free trial on-line tells a small part of the picture.
I have seen your previous posts and I see you are a real newbie kind of flailing around looking for the holy grail of RE. THere are lots of ways to make money but no holy grail. Quit looking for the get rich scheme and dig deeper and you will learn.
i never thought you could pick up prop that cheap at auctions, thats just what this guy was tellin me. im 75 min from chicago, i dont invest in chicago, and he told me that the only reason why he told me this about auctions is because i wouldnt be his competition. maybe i misunderstood him, i dont know but what your saying is exactly what i thought about auctions until i talked to him mon which maybe he is blowin smoke up my ass, why would he do this, i dont know, its not like he is making money of me or taking advantage of me, he could just be trying to look like a big shot who knows. thanks for the advice.
Why? I don’t know but plenty of people just like to sound like a hot shot. Maybe he truly believes it and has never really been there. Maybe he plans to hit you up for cash later. Who knows.
Again, go attend an auction. It is a good education even if you never buy. Doesn’t have to be Cook county, go in your own county. Just realize that whatever situation you find in your county, you can bet the competition is much more in Cook or some other bigger city. But get out there and do it. You can get a good deal. Not 60% of real FMV but you can make money. Just be realistic. REI is a good business. Sometimes better than others but no get rich quick for 99% of people. That is all hype. There is no free lunch.
eric3 Speaks the truth when he talks about the auctions. Standing room only, but I have seen the bidding start at less than the loaned amount but only by a few percent. I guess there are deals at the auctions but the competition is too fierce. I would rather do my mass mailings and be the only buyer. I still feel that the lenders are not hurting enough yet, thus are not making great deals.
Example: Back in March I offered 155k for a pre-forclosure, they refused to work with me and took the property back at auction for 132k. Even more crazy thing is that the lender has yet to come and secure the property. The homeowner I was dealing with is still there living rent free. And she has been living there rent free since December of '05. Never paid a cent in mortgage.
Thank you Bovine. You are right too…such a lovefest.
But even if the banks start to loosen up and dump properties, the auction is still not where you are going to get your deals. At least in Illinois, this is a legal process handled by attorneys hired by the lender. They are going to proceed by the book every time and bid the amount owed at the auction. (there are circumstances when the odd property seems to start less than loan, but there are usually arcane legal reasons)
Now it is possible that as things worsen, they will eventually mark the REO down to much less to sell it but I can’t imagine any point where the lenders would not bid the amount owed at the auction. Even if the property is worth LESS than the amount owed, they’ll still bid that at the auction, then take the write-off and sell the REO at a loss. (or of course they could take the loss before the auction via Short Sale)
There are states where the exact opposite is true about attendance at auctions. In Michigan, almost no one attends auctions (called Sheriff Sales there) and no investors bid on property because you have to pay in cash for your bid right now and you don’t get to evict the homeowner for 6 more months. You can imagine what is done to those properties during that 6 month redemption period. I have seen some amazing things homeowners do when they feel screwed by the bank.
I’m not into the SS side of RE, just reading for the interest…Eric, I’ve read some of your posts and you make a lot of sense on a lot of issues, and seem like a true source of great information…Can you clarify the above quote?..Obviously, most/almost all of us figure that banks don’t want REO’s, which end up being NPA’s (non-performing assets) on their financials…If a bank has too many NPA’s they literally can get shut down by the Feds (though this would be an extreme measure)…Usually banks, from my experience, turn over their REO’s to a real estate agent to sell them…I personally checked hundreds of these in Los Angeles, albeit 25 years ago when I had the lockbox key for Home Savings Bank, and they never seem to put one penny into them for cleaning, etc…Trash is sometimes left all over the place…So I don’t know what kind of “managing” they’re doing of these assets…In a highly appreciating market they may not mind so much holding onto them for a time, but in today’s market it seems like they just need to sell them and get as much cash as they can from them…
Also of note, is that when I was checking the REO’s in LA years back, the banks holding the properties DID NOT want to do the financing on them…Once burned, twice shy???
I’ll give you my opinions. I guess it is a matter of degree as to how much they want to dump Reo’s and how much we want them to dump them. They almost never dump them as cheaply as we hope they will but you know what? They end up getting rid of them somehow don’t they? There is always a disconnect between what we think the bank should do and what they do. This is because we don’t really understand how they approach REO’s. We assume they look at each property but they don’t. They look at the whole portfolio when making their decisions.
When I speak of “managing” the properties it is not like you and I manage a property in terms of maintenance, etc. It means how they manage the value of their portfolio. How they decide when to mark down the portfolio, whether they decide to clean the houses in the portfolio, who they decide to list their portfoolio with, etc. They don’t look at each property as closely as we do. They look at their portfolio as a whole.
Again, yes, in theory, Banks don’t want to foreclose or take back property. But the reality is they always have and always will. It is not a goal of a lender to have no REO’s. They expect to have them. They don’t fear having them even in a down market. The NPA accounting issues almost never come up until a lender is on the brink of failure. It is simply not an issue for them on a house by house basis. We as investors deal with them on a house by house basis so the NPA issues are never going to really benefit our negotiations. It is a non-issue for us.
If a lender gets nervous and decides it needs to write down its REO portfolio and get rid of it. They don’t issue the edict to all the individual loss mit people to ease the requirements on the individual homes they are working. They go the institutional route. They find a buyer behind the scenes for a portfolio of homes ($100M+) and they dump a batch in one fell swoop. Issue solved. Loss taken. Done.
Again, this doesn’t work it’s way down to the individual buyer the way we think it should in theory. Or the way the gurus tell you it will. They have too much volume to move. When they need to move it, it gets moved. Those are where some GREAT deals are gotten but we just don’t have access to that.
In terms of how they manage the assets it is all bottom line numbers to them. Again, these lenders have huge departments and software systems devoted to managing the properties as a portfolio. If their systems tell them that the net is slightly higher if they don’t clean the houses than it is if they do spend $ to clean the houses, then they won’t clean the houses. The systems will manage the value on a portfolio basis. Might look stupid when we see a dirty house but their systems tell them overall net is higher that way.
They also hire outside asset management companies whose sole job is managing asset sales and the pay is performance driven. They are very closely monitored in terms of % of $ they recover. They are going to use every trick in the book to recover more %. Sometimes to us it looks dumb on a property by property basis. (They don’t clean them or everyone knows about the deal where they turned a bid only to list the REO lower) But again, they do this on a portfolio basis and we don’t always see the logic. Often they are covered by mortgage insurance but the insurance policy may require a FC be completed and not short saled, or some other stipulation. It looks like they are losing money but are often covered.
As an aside, I know it looks like all these lenders are losing money and closing now because of the delinquencies but it is not really that simple. This meltdown is not REALLY about lenders losing money on foreclosures. It is about a much more arcane area of CDO’s and ratings of securitized debt. These lenders are not going out of business because of foreclosure losses. They are going out of business because of a loss of confidence by outside investors (pension funds , insurance companies, etc) in the RATINGS of the debt they are buying. When the lenders found that they could not sell off the loans as AAA paper anymore, they couldn’t make anymore loans. The big lenders had pulled a fast one starting on 2003 to convince Moody’s and SP that they could package C rated loans together and get a AAA rated security. European and Asia money bought these CDO’s as AAA. The recent defaults have made them realize they are NOT AAA and they are pissed. So they won’t buy them anymore at any price. So if there is no market to buy these loans, most of the lenders can’t make the loans. It isn’t that the loans are causing losses, it is just that they are AAA as promised.
INterestingly, it is the lenders who actually kept all their mortgages in house (even these mortgages that are in default) who are still in business and still making subprime loans. THey are able to absorb the losses from FC and continue lending.
Don’t know if that was clear at all. Just trying to show that the legit lenders are not really taking that much heat from losses on these loans. Therefore they are not really under pressure to dump REO’s. The lenders that are closing don’t even have REO’s since they don’t hold any paper!
I am not sure I am organizing my points well here but I am trying to make sense. Again, this is complicated, arcane stuff that is not easily understood or explained by the individual investor. And that is why it is easy for these gurus to use quippy sound bites like “banks don’t want to own real estate”. It is technically true and seems like common sense, people can’t really understand the real truth and it makes it easy to sell courses and books. Problem is, the real world can’t be described accurately by quippy sound bites.
Again, just because a bank doesn’t WANT to be in the REO business doesn’t mean it actually has a goal of having no REO’s. The guru’s want you to believe that the banks just can’t deal with REO’s on the books and simply must get rid of them and it cramps their lending, etc. But this is all built into the system of these huge institutions. The systems are built in to hold many thousands of properties and hold them for long periods and to mark them down very slowly. Banks have the lowest cost of $ around and can afford to hold properties for very long.
Even in the SL crisis in the 80’s. The lenders never dumped their property cheaply even as they were completely insolvent and failing. It wasn’t until the govt actually took control that they dumped the properties at fire sale prices. And again, who got those fire sale properties? Not individual investors. People who stepped up and bought bulk at secretive auctions for the most part. When they dump, they dump in bulk.
To wrap up, I am not saying money can’t be made by the little guy. I do it, you can do it and others do too. But of course, the reality simply isn’t what most of the gurus teach. How many people buy those courses and how many get rich? They fool you a little with quippy theories and ideas that sound good but really aren’t true or won’t really help you make money. This one about banks not wanting to own RE is just one of them.
Whew, that got long and rambling! Hope you didn’t fall asleep! Good Luck!
Oh, as to why the lenders won’t finance their own REO’s. Don’t know whay they are not set up to do that easily. But the lending side has nothing to do with the loss mit anymore and I’ll bet it you applied seperately for a loan on an REO from that bank they wouldn’t care. Can’t imagine they would turn the loan down just since it is their REO.
The Short Sale Flip. Here is my suggestion:
The Seller transfers ownership to a simple trust’s third-party Trustee. This is like a lawyer’s escrow (no sale). Now, the second seller (the simple trust’s third-party Trustee who is directed by the beneficiaries) sells it to a buyer with a normal financed deal (90% loan, that’s non-owner, interest only, probably an 80/10 or 80/20 ARM loan.) Lenders do this all the time. There is only one seller (trust), one buyer (credit investor/partner), one sale, and one appraisal. There is no double contracting, no simultaneous closing, no assigning your contract, no acquiring or selling of an option, no private or hard money, no loan fraud (everything is fully disclosed because of our use of the trust), and your down payment and improvement costs, if any, comes back to you at closing! It’s safe, ethical and legal in all 50 States.
Eric - I appreciate your answer above…I actually saw it in my email a few days ago but didn’t come back in here to say thanks…I know it took you a long time to write that and it actually cleared up some things for me… :beer