TItle Seasoning Question?

Rehabbing, Fix and Flip, Rental Properties
1

After reading through many different forums and such I still have a few questions about title seasoning issues.

  1. How big of a problem, or annoyance, is title seasoning for active rehabbers? (Scale between 1-10)

  2. How effective is creating a rehab report that shows all before and after photos, repairs, receipts, permits and such to show to the prospective buyers lender?

  3. Is title seasoning here to stay?

Obviously, the best way around this issue is to find a lender with no seasoning requirements.

Excluding that option, what is the best way around this issue?

ANY and ALL comments will be appreciated!

Thanks :beer

2

Take before and after pictures of your rehabs. Include them with a letter of explanation to the lender if there’s an issue. Most of the banks that have seasoning issues are concerned with flips. If you include a detailed account of improvements you have made with pictures (before and after) to back them up you shouldn’t have a problem.

Go into detail about COSTS for those improvements.

But in the end THE BEST way around this problem is to get YOUR OWN mortgage broker. Here’s what I do and why…I have a VERY GOOD mortgage broker. When I show a house I take the prospective buyers name and number (if they won’t give you that info don’t waiste 1 second on them) I then call my Mortgage Broker and he contacts the potential buyer. this guy is a TOTAL PRO, excellent phone skills. He puts these people at ease. He then gets their credit history and calls me back in about 15 minutes and let’s me know if we have a dead beat or a winner. He ALSO DOES NOT deal with banks that have seasoning issues. He does this ALL DAY, EVERYDAY. He KNOWS who to go through for MY customers.

I would strongly suggest YOU find a GOOD mortgage broker.

3

fannie mae will NOT finance any deals with less than 6 months seasoning. period. it’s a rule.

other lenders who are not using FNMA money can have different rules.

FNMA title seasoning is here to stay. it was a response to people buying houses cheap, reselling them quickly with little to no fix-up at inflated prices. in effect, scamming buyers.

the problem will probably get worse with the glut of foreclosed properties on or about to be on the market at a discount.

a few bad apples…

4

I hate to contradict Mark, but that is not the case in my experience. On a rate and term refinance, my lenders (I’m a broker) are telling me they don’t have a title seasoning requirement. And that is Fannie. Now, for cash out, they want 6 mos on title.

But again, just because their guidelines say they will do it, doesn’t mean it will be easy. If you are showing a big increase in value, they are going to want reciepts and your appraiser to comment on the extent of repairs and how you got the property for so cheap. They will beat you up on that part of it for sure and it’s possible they will cut your appraisal.

5

Just closed a flip with Fannie Mae YESTERDAY !!!

I owned it for 4 months, light rehab. Bought it for $100K sold it for $179,000 4 months to the day. Never even had to explain it.

Just put $179,000 of their money in my bank account. I think you may want to RE-READ your rule book.

6

Stone…one of the best way to handle this is to “control your deal”. What I mean by this is that you take the time to find/meet with lenders who do not have seasoning requirements that will hold you back. Then, when you find a buyer, you only sell to them (via the contract terms) if they use “your” lender. Controlling your deals lead to less problems…(most of the time).

Chris

7

Chris just hit the nail on the head.

The way the market is in my area, I INSIST that potential buyers go through MY mortgage broker before I sign a P&S with them. If they have a problem with that I don’t go NEAR them. I do tell them that they DON’T have to use my broker, but in all honesty he’s so good that they ALL have. This guy is my “go to” right now. He pre-quals these people, he knows I’m sending EVERYONE to him, so it’s in HIS best interest to go with THE BEST candidate. It speeds up the process tremendously. On top of all that HE WON’T put ANYONE with a lender that has seasoning issues that he can’t clear because he knows ALL my stuff is quick flips.

8

Thanks for the input guys. It’s always appreciated.

REIforNewbies and fdjake: your advice definitely seems like the easiest route to take.

Have you ever had a problem with a buyer coming back to you angry or threatening to sue if they used your lender and things didn’t work out the way they expected(bought a house they couldn’t afford, ARM, to high of closing cost, whatever)?

People can be weird so that’s why I asked the question.

Do you ever have realtor’s that are skeptical of you or any other rehabber insisting on a particular lender/broker in the contract?

Insisting on a particular lender/broker makes complete sense to me but I can also see how others might view it as collusion of some sort. Any opinions?

Thanks. Responses are always appreciated!!! :beer

9

First off…I am NOT insisting that they USE my lender. I only insist that my lender QUALIFIES them. The final decision is up to the buyer. They don’t HAVE to even TALK to my guy. But if they don’t… we’re all done talking about ANYTHING regarding the sale of that property.

This is what everyone here needs to remember…Mortgage Brokers are DIEING right now. Case in point…I’m having lunch at a local Bar & Grill a few months ago. I sit down at the bar next to a guy and we start talking. My cell phones rings concerning a property I am closing on. He can’t help but overhear my conversation. He tells me he’s an independant mortgage broker. He also tells me that in 2006 he made $425,000. He asked me to guess what he made in ALL of 2007??? I said I had no idea.

His answer???

$17,000 !!! and this was in December 2007 :shocked

When these guy’s get a WARM BODY applying for a mortgage they will try anything to get them financed, they could CARE LESS how much it might screw YOU up. This is NOT GOOD for US because it can WASTE a LOT of time. I’ve learned this the hard way. Once you sign a P&S your locked in (even though it’s a limited time, it’s STILL a WASTE of that time if your buyer is a STROKER). I’ve had mortgage brokers who were trying to get clients to SELL CARS, LAND, BOATS, ANYTHING they could inorder to raise the CASH they needed to qualify. THIS TAKES UP TIME. TIME you could be using to actually SELL a property instead of cars, boats or other BS. In this economy banks are ROUNTINELY asking borrowers to come up with MORE and MORE CASH. They’ll get a pre-approved for the loan (which is as valuable as the paper it’s written on) But the problems pop up in underwriting.

By using MY mortgage broker I’M in CONTROL. He tells me straight out. This guy CAN qualify, or he can qualify IF he can raise $20K!!! Now I’m not waiting for that to happen, if it does GREAT!!! If not… I’m free to show and sign with another buyer. It also makes it HIS priority to raise that money!!! He knows the house is STILL for sale and being shown. If he wants to BLOW OUT his Harley inorder to buy my house that’s great!!! Either way I’m not waiting for him because he has this house locked into a P&S that gives him 30 days to screw around while I cross my fingers on the sale of his Motorcycle. The thing you have to remember is…you won’t find this out until UNDERWRITING, (that’s why I USE MY BROKER.) That’s when the lender takes out the microscope for a little exam.

Pre-approvals are BULLSH*T in this market. UNDERWRITING is were loans get KICKED OUT. That happens AFTER, a signed P&S is filed, ( in fact, a loan can not even be SUBMITTED to underwriting without a P&S) A good mortgage broker working for YOU is going to alert you to ANY possible problems. A BUYERS broker CAN NOT discuss these issues with ME due to privacy laws!!! MY broker simply gives me the YES or NO!!

NO…I have NEVER had ANYONE threaten to sue, complain, or anything else regarding this practice. I’ve had people who refused to go see my Mortgage guy…BYE, BYE…I look at them as a waste of my time. If all I’m looking for is CONFIRMATION that your pre-approval will get through underwriting, what’s the problem?? If that buyer is SOLID I don’t care WHO they go through. I have a GREAT mortgage broker. In EVERY SINGLE CASE he was able to actually save these people money over THEIR brokers offer. He’s a pro, he WELCOMES them to have a third party (their attorney) look at the mortgage and confirm the savings. When you not Bullsh*tting people, it’s really not hard to sell them a better product at a lower cost. In the end it’s 100% THEIR decision. BUT I KNOW they CAN qualify BEFORE I sign them.

GET a GREAT Mortgage broker on your team. In this market he is my GO TO GUY these days!!!

10

This post is excellent. I’m in a similar situation. I have two offers on a property right now. One is at $350k by a group of investors, which I’m sure will be be able to close.

The other offer is at $370k by an end buyer, who I’m not sure can close. I don’t have a mortgage broker like you do, so I spoke to the buyer’s mortgage broker and he gave me the following info on the buyer:
D.T.I - 31%
Credit-score - 716
Bank - GMAC
Downpayment - 5%

According to this info, he looks like a capable buyer. So I’m going with the $370k offer.

What do you think of this?? Any tips?

11

I work for a major lender…we don’t have title seasoning on cash deals…so if you need to cash out of a recent rehab and you own an LLC or Corp I can do a commercial real estate loan with no title seasoning…PM me for more info if you need it…I’m not a broker, I’m work directly for the bank.

FYI, the guy claiming Fannie needs seasoning probably mean FHA’s anti-flipping rule…not Fannie!!!

12

NJ bird dog,

I would be very worried about this buyers down payment. 5% is very weak in this enviroment. I would almost guarantee the lender WILL request more in underwriting.

I would ask the broker to provide PROOF that the buyer can come up with more cash IF requested.

The other advice I have for you is MAKE SURE your P&S has this phrase in it…

“TIME IS OF THE ESSENCE”

You also want to have an IRON clad commitment DATE in the P&S for your buyer to provide a letter of commitment from his bank. If he can’t provide that commitment document make sure you have writting that says the agreement is NULL & VOID on THAT DATE.

I would also have your lower offer buyer go through the approval process as a BACK UP BUYER.

Just to let you guy’s know how bad it is out there…

My realtor had his last 17 BUYERS REJECTED in UNDERWRITING!!!’
The banks could CARE LESS if you EVER find a buyer. these guy’s are losing their shirts and they ARE NOT about to loan a DIME to anyone who they even THINK may POSSIBLE present a future problem.

13

While brokers are nice to work with (I have 3 that I trust) I ALWAYS take my buyers to my local banks. Super easy to work with, could care less about seasoning, and they are the fuel that feeds my business. Buy and sell on the same day transactions are no problem for my local lenders. I have O-O and investors who buy on the same day that we buy and if they are using a mortgage broker I tell them they are NOT getting my deal. Plain and simple.

Mortgage brokers struggle with seasoning. This is my experience and my opinion. I have about 5-6 local banks that I know well and know what they can or cannot do. This is key, whether if your wholesaling or flipping. You have to know what your lenders can or cannot do to avoid problems down the road. Before we even sign a OTP I have already called their lender and talked about the house, their buyer, etc. etc. Basically…I interview the lender and their borrower before we even write. I can’t tell you how many headaches I’ve saved by doing this small yet very easy step.

Food for thought,

Nate-WI

14

Would these be a part of the additional contractual provisions at the end of the contract? For example, can I add:

-Property sold as-is
-Time is of the essence. Buyer must provide a mortgage commitment by 4/12/08, otherwise this contract is nulll and void on that date.

Thanks, you don’t know how much this helps!

15

Yes…This is were paying your Attorney for a couple of hours work is PRICELESS. Did you know that the “time is of the essence” sentence is actually a legal definition??

Without that simple sentence a P&S agreement can be DRAGGED out while YOUR BUYER makes a “reasonable effort” to obtain financing. What that means is anyones guess. What it means for YOU is if your buyer wants to, he can bring this matter before a judge…LOSE THE DECISION…and STILL GET HIS DEPOSIT BACK FROM YOU!!! Figure on about 3 to 4 months while you WAIT. Meanwhile the BUYER can record the P&S on YOUR HOUSE and completely SHUT YOU DOWN from selling to another QUALIFIED BUYER!!! That recorded P&S will show up in ANY title search another bank does and YOUR SCREWED!!!

The judge will only decide what is “reasonable” WHO THE HELL KNOWS WHAT’S REASONABLE???

But…by ADDING…“time is of the essence” the buyer is NOW certain that a QUICK transaction is what he is expected to complete. If that DOES NOT happen HE can LOSE that deposit. Now…I’m not in business to keep deposits…but I am in business to SELL HOMES. I am NOT going to be jerked around while some dope is trying to sell a boat, a motorcycle, a car, or anything else.

Have your lawyer put these additions in. Even their LOCATION in the P&S can affect the meaning.

16

5% should be okay with that kind of credit score. Lender may want to see 2 months PITI in the bank, but probably not. Only thing I would worry about is if the lender says it’s a “declining market” and then wants an additional 5% down. If that’s not the case, then it should be okay.

This declining market thing is one of their new pet peeves…I think they use it just to deny loans they don’t like.

17

I don’t think you know what you are talking about. time of the essence simply means i have from now until whenever to close a deal. reasonable could be 3 months or 6 months or even 3 years with an option. what you need to do is simply put a date the buyer has time to close. so if you want them to close in one month, then put that in your contract, and if they don’t close in one month the contract is void.