Why Borrowers Should Tell Their Lender The Truth
Self-employed automotive guy comes to me to refinance a land contract on his 8 unit multifamily and pull cash-out to use on the purchase of an 80 unit multifamily. The guy is an experienced investor with six other properties.
His financial statements aren't so good, but he has decent credit. Clearly, a stated-income deal.
Lots and lots of talk about the property, his investing style, yadda, yadda, yadda and he finally works out a deal with an appraiser after going through a ton of calls to MAI appraisers.
Know why he made so many calls? The appraiser he finally chose called and said the property is currently under renovation, needs a new roof, it looks like a 12-unit but only 7 are legal with only 2 leased, substantial water damage.
He also said that instead of the $360,000 value the owner placed on it, that it was formerly listed for $119,000 with no offers and was purchased on land contract for $165,000. The value will likely come in around $120,000.
Now, if we're told the truth upfront, we can work around certain issues (albeit this property has lots of issues). Instead, $1,800 was wasted on this deal on the appraisal.
The fact that this property is 8 units and worth $120k makes it an application which I would give to my worst enemy.
Most investors, know that they're smarter than a LO,the lender, and everyone else involved.
In this case, his deceit only cost him an appraisal fee. I don't see how you could have helped this guy even if he would have been honest with you.
Exactly. So its a waste of both our time, and his money. At least the appraiser made a few bucks . . . . . . . .
Decision Man,
The deal you just described seems to be a standard out here in the crazy part of California.
What I do when something like that comes in the shop I check it myself. You know last transaction, check the face of the Grant Deed and the Trust Deeds, I also now check Building and Safety and see if there is a big hairy red tag on it. I then go look at the MLS in past times and then of course the property. You would be amazed at the things tenants tell you. I also check the meter box and see who is connected and who is not. Then and then only do we get into Negotiation. Saves an appraisal and besides I look at any recent appraisals and the local Brokers Opinions.
In many instances I find myself reversing my hat from Mortgage or Real Estate Boker to participant in the great save of the property. Bringing it to true worth, or removing the Goniff from ownership on a purchase at true worth. If I think there is a future in playing with the property.
Sorry to be so wordy but I really do not know how else to explain a fact of life out here. Maybe too many scripts and too many people who think in circles. That I do not mind so long as I do not have to join the Circle.
Cheers Lucius
Couldn't agree more, Lucius. However, since most of my work is over the phone across state lines it isn't easy to personally check things out myself. That is why I ask so many questions of my clients.
I prefer to front-load my time to weed these things out, and I can only do this on the phone for 90% of my transactions. So it cost me time, but the borrower money.