Seasoning Explanation?
Hi everyone. Is the reason for lenders wanting an owner to wait a year or two after the deed is in their name before using the property as collateral is so that if there are any people connected to the property in the past claiming ownership or some other right to it will have time to come forward and make a claim? Or is there a completely different reason? Thanks.
To prevent fraud (illegal flipping schemes that defraud lenders). Instead of just using credible appraisers, they sort of threw out the baby with the bath water. Many large national lenders have no seasoning requirements (like Citibank).
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Imagine this:
You buy a house under value for $100k and put $5k in to "bandaid" the property to look good for pictures. You then get it appraised for $200k when it is only really worth $125k. Then you sell the property to a friend of yours for the appraised value, take the cash, and never pay for the loan. Now do this 3 times in the same neighborhood and you have new comps to which you can really rehab a property right and it could appraise for $250k with adjustments.
Like the others have said, it is to prevent fraud. Thus, lenders will do refinances with little/no seasoning with more documentation (like receipts for repairs made).
I am willing to bet that this "friend" would not be one for long if you screwed them like that. I can not imagine a scenario where someone would just take the appraisal as gospel without checking around. Maybe I am just to straightforward to do this type of deal. I have pulled cash out on refinance before , but never in a fraudulent manner.
I hope I am not the friend in this example.
Quote:
On 2007-04-15 02:44, estateXchange wrote:
Imagine this:
You buy a house under value for $100k and put $5k in to "bandaid" the property to look good for pictures. You then get it appraised for $200k when it is only really worth $125k. Then you sell the property to a friend of yours for the appraised value, take the cash, and never pay for the loan. Now do this 3 times in the same neighborhood and you have new comps to which you can really rehab a property right and it could appraise for $250k with adjustments.
Like the others have said, it is to prevent fraud. Thus, lenders will do refinances with little/no seasoning with more documentation (like receipts for repairs made).
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I was trying to say that the friend was in on the scheme. They would sell the properties to each other and take the money and run. It happened in my area (Tampa) and it throws the area off because of the fraud involved.
This is just one of the many reasons banks require seasoning.
Hi estateXchange. I knew what you were trying to point out by way of example. Thank you, it was very helpful.
What about subprime no seasoning loans? And what about Lease Option refi loans?
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