Flipping : Title Problems?
I have been told my some folks that lenders are having problems and denying loans on properties that don't have "chain of title", or that have not been held for 6 -12 months. Have any of you had this problem?
Solutions?
yes im going through that very problem right now.
Having the same problem, lender needs to see 12 months chain of title.
You need to find a mortgage broker. Explain to them that you're an investor, and they'll probably tell you (as mine did) that title seasoning isn't an issue for most of the lenders that they deal with.
Jeff
This is a somewhat stupid blanket policy lenders have instituted. I've read some posts where people have suggested flipping is "illegal", this is not true, lenders are just trying to protect themselves from fraud, and they figure if somebody is going to commit fraud they are unlikely to have the patience to wait a year to do it, and price increases are more likely to be justified. Many lenders that used to have no problems with flips are suddenly instituting this blanket policy that is sweeping the industry. There are still several lenders who will loan with less than 12 months seasoning, and if you have strong documentation to justify the price increase you may be able to convince some of the lenders who generally don't lend in this situation any more to do the loan, many are taking a hard line however.
Are Realtors held to the same standards as we are in this situation?
"Flipping" isn't illegal, and while lenders are wary of lending on a property that has had a transfer in the last 12 months, it doesn't mean they won't do it.
What we have been doing for our borowers is simply documenting their purchase, and the purchase before it by using the closing statements. It makes the new loan look cleaner.
We also try to get whatever borrower documentation is possible to show the reason behind the difference in value between the "flips." So if there are construction receipts, plans, etc. that help demonstrate the reason for such a price variance, we're usually ok.
Of course, we have lenders where the flips aren't as much of an issue, but they are almost always the non-conforming lenders who have higher rates.
Most lenders want a seasoned title of 6-12 months. This is an attempt to head off the fraud that has been running rampant in the mortage industry.
I would suggets talking to a smaller local bank, they are more amiable to creative investors.
OK, I hope this doesn't seem like an ignorant question, but do the seasoning requirements go for assignments as well after contracts are assigned to another investor? I am thinking the answer is no, but I know some places and people use the terms assignments and flipping in the same manner. Again, I hope this is not a dumb question so bear with me
Thanks in advance
The seasoning issue is only a problem when selling to someone that is getting a mortgage.
I am going to address Sharp rei question first. Every time a deed is exchanged the chain of title is longer. A chain of title on a purchase is a 60 year search. I am going to give you an example: Property was built 1965, the owner died 1999, because of legal issues the HUD DEED was recorded in July of 2001, I bought the property in Dec 2001(in my name), Feb 2002 I transfered it into my Trust. I wanted to pull cash out, the bank wanted the property in my name( transferred 03/2002 back in my name, refied 4/2002, transferred back into my trust 5/2002. Everyone one of these transactions create the chain of title. I hope this explains your question.
Now as far as seasoning requirements go: Fannie Mae, Freddie Mac loans do not have seasoning requirements. Subprime banks seasoning requirements are as follows:
3 months from time last deed was recorded as long as title makes sense.
6 months from time deed was recorded
12 months from when deed was recorded.
Cashout investment property:
12 months subprime, zero months conforming, 75% LTV
Cashout owner-occupied 90% LTV conforming or home equity line
flipping properties: This is where most investors get confused YOU don't have to hold a property for 12 months to sell. I am closing to deals for investors tomorrower One property bought in NOV 2003 and one bought in Dec 2003. the problems lies with the people who are qualifing you or your buyers.
You must screen your broker just like you screen your tenants. Banks are nationwide, the only thing that changes is state law. I want the person who is dealing with me to be qualified with real estate investors. So if a chain of title is holding up your deal, I would investigate, that probably isn't the reason. I think I wrote enough.
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real estate investor since 1988. I like to find creative solutions for my real estate headaches before they become problems. Most importantly, MOVEMENT DOES NOT EQUAL PRODUCTIVITY[ Edited by rajwarrior on Date 01/22/2004 ]
I just closed on a condo for which I paid 240K. Less than one week later I put it back on the market at $299, I have a contract in escrow for $291. The previous owner had title transferred to her in Oct. 2003, so she had it for 3 months.
I've been told that the minimum amount of time I must hold title is 6 weeks.
I'm waiting for the shoe to drop on the $291K deal. The buyer knows he has to get conventional financing. Any suggestions on what will happen?
I spoke again to my mortgage broker yesterday, because I've had so many people act like I'm wrong, or like I'm crazy when I say this.
Although the mortgage businesss is beginning to tighten up, He still has no problem finding good loan programs available for properties, and these programs have no seasoning requirements.
When I recommend finding a good mortgage broker, I'm not talking about calling up ABC Bank or another well known Mortgage company and asking to speak to a mortgage broker. I'm talking about finding a good independant Mortgage broker. They aren't tied down to one company. They'll shop around for you, and find you the best deals. This service doesn't cost you more, as the lenders pay them. My mortgage broker appreciates it when I steer people to him, just as you could steer your buyers to the one that you use, When you find them.
Try making a few phone calls. Ask them if they have programs available with no title seasoning issues when you are speaking to them on the phone. You'll be amazed, and thrilled when you find out that there are still funds available to do your business.
Jeff
You have a fair to good chance of succes if you have finished a rehabjob on the property.
The lender's main concern is the increase in price that seems substantial given the relative short period of time between your purcase and sale.
Knowing that, here's what we do in such cases.
We have detailed digital pictures "before" and "after".
There's an itemized report on the work done, very descriptive, on each subcontractor's activities and costs.
Where available we include copies of our receipts of Home Depot, Lowes, etc.
There's a timeline included with a fee for supervision and management.
Closing costs. HML fees and marketing expenses are itemized.
We clearly mention an amount as our profit on the property.
We include a BPO on our purchase price, and an appraisal on our sales price.
In just about every case the lenders have required a 2nd appraisal (at their expense).
It takes longer to get the loan approved, but we have gotten each house sold untill now.
...things we have to do to make an honest living...
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