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WTF BofA????? credit checking sellers?

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Nick J.

Real Estate Investor from Scottsdale, Arizona

Mar 15 '10, 05:34 AM


Some agent that hasn't figured out that working with me will be waaaaay easier :roll: posted on her FB wall this morning an article by some other dude on some Broker/agent site: blaaaaaaah

Anyways, it appears during his conversation with the BofA worker drone negotiator that the investor will pull the sellers credit to make sure they're not paying any other debts either. WTF?

Here's the link, be forewarned, I don't have any ties to this cult party: http://www.brokeragentsocial.com/GoodmanRE/blog/4631/


Edited Jun 26 2010, 12:04


James Harkness

Real Estate Lender from Philadelphia, Pennsylvania

Mar 15 '10, 05:46 AM
3 votes


Nick,

We do this all the time as well. It has always been a requirement for each one of our short sale deals. We use it to determine if we should be going after the seller for a deficiency judgement or like the article mentions, a cash contribution or promisory note.

If a borrower has the means to repay their obligation but simply chooses not to, then they should not be allowed to be released from their obligation in a short sale, IMO.


Edited Jun 26 2010, 12:04


Danielle C.

Real Estate Investor from Naperville (Chicago), Illinois

Mar 15 '10, 06:52 AM


Hi James,

What ratio does your company use when a homeowner is paying other debtors?

For example, the homeowner cannot pay their mortgage, however is still making car and credit card payments. Perhaps these amounts equal or are close to their mortgage amount. By looking at their financials, it's clear they cannot pay all three. In this scenario, do you require homeowners to sign promisary note?

I understand in a way, that the lenders are saying pay me over anyone else because your home should be most important. However, if the homeowner loses their car maybe they lose their job if they still have one and then really can't pay. Or if they are out of work and lose their car, then they really aren't getting a new job to catch up. On top of this, perhaps they are paying credit cards because they are then recharding the money to pay for other things, kind of like recycling the money. This is all hypothetical of course.

So where does your company draw the line in amounts being paid to other debtors? Is their a specific ratio used?

Thanks!
Danielle


Edited Jun 26 2010, 12:04


James Harkness

Real Estate Lender from Philadelphia, Pennsylvania

Mar 15 '10, 07:09 AM
1 vote


Danielle,

First, I think it is important to point out that I only work on commercial properties, not residential, so maybe the rules are a little different. We do not use a specific ratio. But we do frown when we see a 600 dollar per month car payment that is on time and the mortgage payment hasn't been paid. We also frown when we see that they pay a 1000 dollar credit card before they pay their mortgage. It is not right for someone to have an 80k car and not be able to afford their mortgage payment.

Basically, we look at monthly cashflow. If they are making a ton of money every month and everyone and their grandmother is getting paid before us, then yes, we are going to go after deficiency because mortgages are collateralized debt, where as credit cards are unsecured. I think it is right that we feel that we should be paid first.


Edited Jun 26 2010, 12:04


Nick J.

Real Estate Investor from Scottsdale, Arizona

Mar 15 '10, 08:18 AM


James, I actually don't disagree with you one bit, especially if you're holding commercial notes.

This would be a damper in peoples 'strategic default' in residential properties. I actually kinda agree with the strategic defaults. My beef with them is some of the costs of living doesn't show on a credit report until they're late, for instance, utilities. Also, would being current on a $100 a month CC really be worth denying a short sale mortgage or a $300 a month car note


Edited Jun 26 2010, 12:04


Scott Hubbard

Rehabber from Tucson, Arizona

Mar 15 '10, 09:57 AM


It is just due diligence. If I were to send in a financial worksheet into a lender, how are they going to verify its accuracy?

I think the numbers play a much bigger role in a loan modification than they do a short sale.

1. Does the borrower have a verifiable hardship?
2. Is the property underwater?

Generally, if the first two qualify, then they might look at DTI or look at there liquidity to see if the borrower can contribute to the deficiency.

If you are defaulting "strategically", then I beleive the lender should closely scrutinize the situation and ask for a contribution or question the borrower's choices. As a secured lender, they should indeed be paid before all other creditor's.

If I get a file and they guy has a newer car and is current on his credit cards, I tell him it is gonna cost you.


Edited Jun 26 2010, 12:04


Mike C

Real Estate Investor from Ohio

Mar 15 '10, 10:55 AM


Nick,

It has been a while. Hope all is going well.

When I was in loss mit years ago, they always had a credit report as part of the package. It was to verify whether or not the borrower was accurately portraying their expenses and income. This is important because the analysis of their monthly surplus/deficit figures prominently into what the homeowner will qualify for. In some cases homeowners would try to manipulate their numbers to help them get a workout option they might want or thought they wanted (not that a borrower would ever do that, wink). For example, if they said the mortgage was their only bill but they had 3 credit cards, a gas card, etc., you knew they were trying to mislead and it is hard to say you don’t have any credit card bills (when figuring your monthly surplus/deficit) when they are right on the credit report with the payment histories, min payments, balance and so on.

This would apply to a short sale in that the borrower has to show unaffordability of the home before they will qualify for a short sale based on their income and expenses. In laymans terms, that means the income/expense calculation has to show a deficit, even if by just a dollar. The bank is only using the credit report for income/expense verification (and the occasional laugh in some cases).

Good investing

Mike C


Edited Jun 26 2010, 12:04 by Mike C


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