Truth About New Flipping Law
Hello all! I noticed so many posts relative to the "chain of title" law that ultimately may impair us rehabbers, so I grilled my Lenders on this and wanted to report my findings (I'm a Mortgage Broker in Chicago)...
1. Please note that most of my Lenders (both prime and sub-prime) have required 24 month chain of title for well over a year now - I suppose that only recently an alarming announcement has been made
2. "Chain of Title" displays all transactions for that property including the seller, buyer, purchase price, and buyer's lender (mortgage/note info)
3. SADLY - yes... Lenders are specifically seeking past sale prices for the property to determine if the current value is "fluffed"
I explicitly asked a few of my most trusted and intelligent Lender Reps - why is this relevant? What if the seller was desperate and sold low? What if the buyer improved the property? Unfair...
I will try my hardest here to articulate their position so bear with me -
Appraisals are predominately based on what "like" property has sold in the past six months - and for what price - cosmetic improvements typically won't cut it (i.e. Hardwood floors, paint, new cabinets, etc.)
Their position: If you purchase a property for $100K, and it was an outstanding deal... then you invest $15K for cosmetic improvements however all comparable homes in the area sold for only $105K - then is YOUR property really worth $115K? WHY?
I apologize for my "All CAPS" - just trying to emphasize their point of view. I still think it's unfair - however they do have a valid point.
I look to you Veterans here at TCI - any thoughts or strategies?
Hope this helps!
Caterina
I will post again when I wake up in the am, but this bank logic defining their position is BEYOND PATHETIC.
Why don't they just say they want a monopoly over all money made in real estate, and that they, like a lot of crappy lawyers, do not like to see others profit from these deals. At least that would be the truth
they make me sick to my stomach
Seems to me that if you buy a property for 100k and have to put 15k into it and the comps for the area are 105k, you did not get a good deal. Now if you bought that property for 70k and put 15k into it different story, and probably no financing issues with repair receipts.
although i'm a cynic from the Boston area, i'll try to shed some light without being sarcastic.
Pretty much, how would an appraiser judge the "Overall" market price of your property? Easiest answer is to measure it against similar properties bought and sold. These prices are set by the MARKET. similair to the stock market. Who cares much about the employee benefits or the value of the land that the buildings are on. They care about what if you default, what's in it for them! Pure and simple.
Investment property is judged by what it will return in positive cash flow divided by a cap rate. If the building is oh my god beautiful, but located in the deep southside of chicago, no one would value it the same as in Lincoln Park.
It's always about what the market will pay!!!! Don't get mad at the banker, get yourself a BROKER. If you don't like the answer, don't be shy, pick up the phone and call the next one.
If the property is that close to margin, I'd keep looking CHICAGO is HUGE, spread your wings and demand the best for your efforts, you will get it!
Good luck, (How did I do?)
Jay
There is no "flipping law" and no "anti-flipping law". Please don't refer to a HUD regulation and a Fannie Mae rule as "law".
There are plenty of lenders who will fund loans without regard to title seasoning. This would not be possible if there is a "flipping law" in place.
Quote:
On 2004-02-19 23:51, Jamesajohnsonjr wrote:
It's always about what the market will pay!!!! Don't get mad at the banker, get yourself a BROKER. If you don't like the answer, don't be shy, pick up the phone and call the next one.
......
Good luck, (How did I do?)
Jay
You did good Jay. I spoke to my broker about the title seasoning restrictions on FHA mortgages and the possibility that these regs may move to conventional loans, he said "yes it's a problem if your buyer is going with FHA, but no problem if they're going conventional." So I make sure that my buyers know when they make an offer that they must have conv. and not fha financing.
so the "flipping law" only apply's to people who are going through the FHA? And do these laws differ from state to state?
I agree with davehays.
This is another trick by the banks to take more of the investor's hard earned equity and put it in their pocket.
Example:
I am in the process of refinancing 2 houses. I had 2 appraisals from an appraiser the mortgage broker works with for 100k and 102k respectively. The bank was going to loan 90% of the appraisal (1st at 75%, second at 15%) to get rid of MI. That would have been two loans of 90k and 91.8k. I will be paying off a hard money loan of 67.9k on the 90k loan and 60.35k on the 91.8k loan and both properties still have great cashflow. Seems like a good deal, right?
Well, then the lender comes back and does a desktop and field review and "decides" the houses are worth 90K and 92K. So that lowers the amount being borrowed (90% of the lower amount) to 81K and 82.8k.
I can go get two 80% loans with total closing costs of about 5-6k on the original appraisals (80k & 81.6k) with another bank (supposedly. I have another broker working on this now – taking away precious time I don’t have) or I can take 90% of their lowered estimate and pay them a total of about 9k between the 4 loans and close in a couple of days.
They are playing a shell game with the $3,000.00. I worked damn hard for that money.
Their position (theory) is absolutely right. The value of the property is based on the market, not the amount of repairs the investor did. But who determines what that value is? Who pays the determiner’s paycheck? They can pull any price they want to out of thin air. Exactly 10k different? Come on. Their argument is sound in theory, it is the practice that kills the investor. We are out there trying to find good deals in real estate, putting in sweat equity, taking the risk.
True, it is their money. The golden rule. Just hate giving so much away to these guys. I disagree with Jamesajohnsonjr. Their intention is to make as much $$$ as they can. That’s capitalism. Their interest was protected. The first appraisals are accurate.
Like I said, the Golden Rule. God, I love this country!!!
Nexxxt!
JohnCl
[ Edited by JohnCl on Date 02/20/2004 ][ Edited by JohnCl on Date 02/20/2004 ]