Cash At Foreclosure Auctions, Flip, And Title Seasoning
Hey folks,
I was wondering if there was anyone here that knows if lenders will allow a lack of title seasoning (under one year) if a "pretty house" was purchased for cash at a foreclosure auction at a deep discount? This is for counties and states where you have to come up with ALL CASH SAME DAY OF AUCTION.
For example:
Auction purchase price = $100k
House is in fine condition
FMV = $200k
If you buy this property, take title to it, then flip it in a month for $185k, is the buyer's conventional lender going to NOT allow the buyer to go through because of no title seasoning, or will they give the loan (if buyer qualifies) and accept the reason for disparate values being the fact that it was bought on the auction block?
Please let me know, thanks so much, Dave
I had several of those in 2003.
In all cases we guided the buyer to "our" mortgage broker, who has identified a particular lender who is comfortable with this.
I must add however, that it was easier in those instances where we had done rehab, and were able to provide documentation and pictures before and after.
With the last 2 the lender required a second appraisal, specifying that he would only accept comps of properties that had not been flipped by an Investor.
So the answer is yes, it can be done, but in our case we think it is because we indicate to the buyer that he contact this specific mortgage broker that we identified, and we stay on top of the Q&A as they evolve in the approval process.
Hope this helps.
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Dave
Seasoning and title only become an issue if there is an issue with the buyer. I read this all the time on this site. There is absolutely no truth that a house has to be seasoned. I know someone who just bought a house on 02/03/2004 at the auction for $3200.00 and is signing a contract with someone 02/07/2004 for $75,000.00 sale price. The byer is putting down 3% and it should close by 02/20/2004. I know this for a fact because both parties asked me to look over the documentation on 02/04/2004. Based on the information that was given to me to review I could see no problem with the deal. The only time there is a problem is when the buyer is not a conforming borrower.
LORI
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Lori,
Boy that's a nice looking deal! Interesting to find this out...so decent credits (assume 650 and up), or should we way CONFORMING buyers for a conventional loan do not have this issue.
But the whole logic around title seasoning is that banks want to make sure artificial appraisals weren't created, and then created again at higher amounts so people committing fraud can profit, and thereby providing the bank with a devalued asset.
Am I right? Also, if I am right, then perhaps that means banks assume non-conforming buyers are more likely to commit this type of fraud because of their poorer credit history?
Just trying to understand why title seasoning is an issue at all. Maybe it is a new way for banks to discriminate without having to admit that they are, not sure.
Hawthorn, were your buyers that just barely eeked by even the "liberal lender" nonconforming?
Thanks eveyone!!!!! Best, Dave
Dave,
When a buyer has not so great credit, They do want to make sure no one is taking advantgage of them. That is why purchase price, improvements(must be verified), recent sales, are all looked at more closely. The bank wants to make sure there is not a scam going on. You can make $25,000 -$30,000.00 on some properties in the Pgh, Pa area. If you can get a house for $7,500-$12,000 and put $4,000.00-$6,000.00 into it. Now houses are selling for $50,000.00-$60,000.00 would you pay someones closing costs and down payment to make that kind of money. That is what the banks are looking at. That is why non-conforming banks don't care where the money comes from. But they are more rigid on their guidlines.
Hope this sheds some light
Lori
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It certainly does, thank you Lori!
I'm a mortgage loan officer/broker.
The buyer is part of the equation and the lender the other. Not all lenders will get involved in flipped properties.
FHA recently put some restrictions on borrowers to avoid flipping.
It can be done if you deal with the right people though.
Jeff
I am a mortgage lender, and I have been writing mortgages for years. I have seen lending guidelines evolve, and I know why they evolve.
Seller (or title) Seasoning requirements evolved evolved because of banmk fraud scemes where certain parties flipped properties between the other then dumped the property at an inflated value on some unsuspecting rube.
FHA will not accept a property that has changed hands in the last three months and any increase in value, that is, profit, must be proved if the property changed hands in the last 180 or 270 days.
Seller Seasoning is a tremendous hurdle in the sub-prime marketplace, which means it is usually one of my first questions I ask my real estate investors when they are referring a buyer to me. I have a stable of lenders to whom I can broker my deals where this is rarely an issue.
Seller Seasoning is not an issue for FNMA/FHLMC loans.
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Lori,
I'm trying to figure out what auction you are referring to in Pgh. I thought the auction in Pgh was on 2/2/04 rather than 2/3/04 - or was this sale at a different auction? Thanks
Dave,
The mortgage broker actually identified several programs for the buyers.
As to be expected the buyers opted for the package with the lowest rates, which in these cases happened to be Homecomings.
It might very well be that other lenders are "easier" to work with, but I can only post as to my actual ex[eriences in this.
The buyers accepted all of this without much complaint. After all, as is the case with most buyers at the retail level, they were not sophisticated investors, and pretty much considered it par for the course.
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Thanks everybody, you have all been very helpful in helping me to understand this issue.
You guys and gals rock! - Dave
VA in our area has some idiots for appraisors
FHA may not make a loan without adequate "seasoning"
But there are "Conventional" lenders that certainly will
N.
Quote:
On 2004-02-05 14:30, tinman1755 wrote:
Dave
Seasoning and title only become an issue if there is an issue with the buyer. I read this all the time on this site. There is absolutely no truth that a house has to be seasoned. I know someone who just bought a house on 02/03/2004 at the auction for $3200.00 and is signing a contract with someone 02/07/2004 for $75,000.00 sale price. The byer is putting down 3% and it should close by 02/20/2004. I know this for a fact because both parties asked me to look over the documentation on 02/04/2004. Based on the information that was given to me to review I could see no problem with the deal. The only time there is a problem is when the buyer is not a conforming borrower.
LORI <IMG SRC="images/forum/smilies/icon_smile.gif"> <IMG SRC="images/forum/smilies/icon_smile.gif"> <IMG SRC="images/forum/smilies/icon_smile.gif">
This is absolutely incorrect. I am selling a house right now for 1,200,000 that I purchased 6 mos ago for $835,000.
My buyer has a fico score of 770. The underwriter shot it down and said it was a flip. This has happened to me several
times before. The key is knowing which lenders don't have a problem with this.
You can have a perfect buyer and a perfect house and still have problems especially if you go FHA like mentioned above. The key is knowing which lenders to work with in this situation.
There are some FHA look alike programs that are conventional loans.
The reason this all came to be is like
mentioned above, there use to be people who would go out buy a property, get a "straw buyer", payoff the appraiser and sell for an over inflated value. Then walk. Or they would sell to a first time buyer with no down payment, for an astromomical price. This is what brought this all on along with some other factors.
Best Riches,
Jeff Adam
_________________
"The only place success comes before work
is in the dictionary."
[ Edited by JeffreyAdam on Date 02/06/2004 ]
[ Edited by JeffreyAdam on Date 02/06/2004 ][ Edited by JeffreyAdam on Date 02/06/2004 ]
There are ways to sell a home that does not have Seller (Title) Seasoning without waiting at least a year. One is to work with a momortgage broker who handles this type of business on a regular basis. An inexperienced loan officer could chase ten dry holes or more before finding a lender willing to take the deal.
Many FNMA/FHLMC lenders do not have Seller Seasoning requirements, however they will seriously question the increase in value.
Most sub-prime lenders will not consider these transactions -- unless you know the right lender. Such knowledge only comes from experience.
Financing the buyer gets easier if there is documentable investment into the property. If you're buying foreclosures, then you're probablly fixing plenty in the house to bring it to code, to increase its salability and curb appeal. Again, this has to be documented in such a manner that the mortgage bank accepts. It's not always as easy as it sounds.
And, nowadays every investor has to worry about the state attorney generals and housing advocates suing you for taking advantage of buyers. I know several investors who've paid through the nose for selling homes to people later running to HUD or the attorney general's office. Who wants headlines screaming: "Investor Sold Home for Ten Times Its Value"? Where did the paper determine the value? - based upon what the investor paid at auction, which as we know is not a true indicator of worth.
A good mortgage broker is an important partner in re-selling your properties. The same documentation that makes the lenders happy eeps the attorney generals away.
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My "friend" has bought properties from HUD I have refied them once they were transfered into my trust we both are on the trust paperwork or I have bought them from him . I have never had a problem, here is a list of the the most recent ones: Interfirst, Flagstar, Flagstar, Chase, Wells Fargo.
All loans were fannie mae loans, done within 3 to 6 weeks of HUD purchase,
I also have excellent credit like you. So I can't see why you are having a problem. Whoever set up your loan DIDN'T DO IT RIGHT. I have seen people in my office try and their loans were turned down for the same reason you said.
Also I was wrong the house was bought on Monday 02/02/2004 at the auction.
Lori
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