On the 1 yard line for my refi and have hit a snag

I'm refinancing a rental property right now under fannie's 5-10 guidelines. I'm over 3 months into this crazy refi and just when they're about to issue the clear to close, I get blindsided by some crazy issue.

Does anybody know what kind of argument I can make to overcome this lender's issue?

I bought the property with my aunt's money and had a private mortgage/note drawn up and recorded. My aunt wired the money to the title company at closing for the purchase. She also rolls in some of the rehab costs into the total loan amount.

So I paid 67k for the house and the loan was made for 88k. I put in about 25k in rehab.

Here's the issue: Because the HUD from the purchase was recorded as me paying cash and not with a lender on the HUD - even though the mortgage and note were dated on the purchase - the lender is now worried that this was a cash out refi with my aunt and they can't do a refi rate and term with me now.

Basically, they're suggesting that the HUD shows me paying cash. My aunt's loan to me was a cashout refi. And now they're gunshy on pulling the trigger to close. The lender is having "a meeting" today to decide.

Everything else is golden. My numbers met all the guidelines. The house even appraised out at 150k so I'm just under 60% LTV which is tremendous given how appraisers are really sticking it to us here in Illinois.

Is there anything I can point to that would help ease the lender's concerns? I've done 6 of these with my aunt's financing and have NEVER had anyone suggest her loan was a cashout.

For the most part, nobody cared what her loan was as long it was a recorded mortgage and they were refinancing her loan rate and term.

The worst part is that I have another house under contract that I won't be able to close on if this refi doesn't go through to free up my aunt's financing.

Suggestions?

David Evanson

Foreclosure Specialist · Eugene, Oregon

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Dec 16 '11, 08:39 AM

You say you have done five others. What do the HUD 1's look like that is different from this one? If it's a mistake on the part of the Escrow officer, just get a corrected/amended HUD one rushed through and then get it to the underwriter. If it will show that the proceeds came froma source that they then recorded a deed of trust on, thatd should do it. if they in fact did not do the recording of the deed of trust, but instead you did it outside of escrow, that could be a problem.

Mike Hasemann

Real Estate Investor · Manteno, Illinois

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Dec 16 '11, 08:58 AM

All the other deals were done the same way. My aunt lends me the money to close and we draw up the mortgage/note separately. I've never had any broker or lender ever suggest this is a problem in the past. Its a rate and term refi of an existing mortgage/note. What does it matter how I closed on the property? I'm not asking them to do cash out now? How did all the other banks do this before? The most recent one was May 2011 and they had no problem with it.

Dave T

Real Estate Investor · South Carolina

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Dec 16 '11, 10:57 AM

My guess is that you are working with an underwriter/processor that does not want to make the loan.

Talk to the loan officer and have your loan assigned to a different processor/underwriter. If that does not get you anywhere, pull your loan application and go to a different lender.

George P.

Real Estate Investor · Baltimore, Maryland

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Dec 16 '11, 11:04 AM

Why HUD? What about conventional loan?

Mike Hasemann

Real Estate Investor · Manteno, Illinois

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Dec 16 '11, 11:14 AM

My previous post might not have been as clear as possible. Its not a HUD loan. The HUD reference was to the HUD settlement statement from the initial purchase.

Yea. My mortgage broker is trying one last thing but they just won't budge. Its amazing that I keep coming back for more. At some point, I just want to quit and tell these banks that I hope all their foreclosures go down the toilet in price.

Its amazing that the banks sit there and say that there is no loan demand out there. What they mean to say is that their guidelines are so nonsensical that even their own underwriters don't know they exist - as evidenced by the fact that my file went through 2 reviews of underwriting plus a final round to get me to final conditions (3 reviews) and none of them had said this was an issue. Only the "final final" review before my clear to close did this become an issue. I was little 2 days away from my closing.

This one is painful.

I'm really losing faith in being investor. I've got 14 houses now and may just sit back now and limit myself to 1 a year or so. At some point, the aggravation and anxiety just isn't worth it to me anymore.

David Evanson

Foreclosure Specialist · Eugene, Oregon

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Dec 16 '11, 09:46 PM

Do you have many of the houses with loans on them? I personally have ten houses. All of them have some financing on them. I was trying to do a 5 or 6 property rate-term refi and met every criteria, and the underwriter just came on and on with excuses. They finally basically said because I am a real estate investor, they feel I am too much of a risk. I think if I either had a day job with a large pay check, like maybe a doctor with the same high income I have, or maybe did not have so many houses, they would have felt comfortable signing off on it. I have decided to take the package of 5 or 6 houses to the commercial division of a bank. They can sometimes get done that way.

Andy Collins

· Dallas, Texas

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Dec 17 '11, 05:37 AM

financing is the biggest headache I deal with,,most of the guidlines you are talking about aren't with the bank, but with Fannie,, some of the rules make no sense,, and one mystake can make it so that you can't go conventional, but there is always a portfolio loan from a bank (a loan they don't sell), but you won't lock in the rate for 30 years

Dave T

Real Estate Investor · South Carolina

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Dec 17 '11, 08:15 PM

If you have more than ten financed proeprties, you can't get another conforming loan or even refinance an existing conforming loan.

If you have more than ten financed proeprties (including your primary residence), you are on the merry-go-round for a loan that you are just not eligible for in the first place. Does not matter whether the financing came from a private lender or an institutional lender. Best to talk with a commercial lender if refinancing is that important to you.

Mike Hasemann

Real Estate Investor · Manteno, Illinois

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Dec 19 '11, 08:40 AM

I currently have 7 financed under my name. The other 7 are under my corporation with portfolio loans from local banks.

I even had one bank do a 3 property blanket loan for me which was fantastic. Took me 6 months to find it. But about 3 months after they closed, they were put on the Watch List and stopped doing their investment loans.

The other banks that I did those commercial loans have all stopped doing them as well. Here in Illinois, the housing market has taken a beating so banks are all undercaptitalized and/or completely spooked when you mention investment property loans and in-house.

Sad but true. This one though is really strange. I'm not sure if it was a fannie guidleline or not to be honest. This one is very strange. As I said, I literally completed one of these refi's back in May with the exact same scenario and they had no problem with it.

This bank's objection may be an overlay or a different interpretation. I think their issue is that they view my initial loan with my aunt as a cash out refi because the HUD settlement statement says I paid cash for the purchase.

I tried explaining that I paid with my aunt's cash that was loaned to me - as evidenced by the mortgage note - so it was not a cash out but they simply don't want to budge.

What is frustrating is that they had the original HUD settlement for over 2 months and never said it was an issue. I'm asking for my appraisal fee to be refunded just because I believe they should have known their own guidelines before they approved me so I wouldn't have wasted so much time and expense.

Not to mention the fact that my other deal just fell through because I couldn't free my aunt's funds up to use to close on that one.

Dave T

Real Estate Investor · South Carolina

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Dec 29 '11, 09:41 PM

Originally posted by Mike Hasemann

This bank's objection may be an overlay or a different interpretation. I think their issue is that they view my initial loan with my aunt as a cash out refi because the HUD settlement statement says I paid cash for the purchase.

I tried explaining that I paid with my aunt's cash that was loaned to me - as evidenced by the mortgage note - so it was not a cash out but they simply don't want to budge.

What is frustrating is that they had the original HUD settlement for over 2 months and never said it was an issue. I'm asking for my appraisal fee to be refunded just because I believe they should have known their own guidelines before they approved me so I wouldn't have wasted so much time and expense.

I talked to an underwriting manager at Wells Fargo and got some clarification that may apply to your situation.

If you have not yet met the lender's title seasoning requirement for a rate and term refi, your loan application is processed as a cash out refinance. For most lenders the title seasoning requirement is one year. How long has it been since you purchased this property and what is your lender's title seasoning requirement for a rate and term refinance?

Another "issue" arises if the lien appears on your title abstract but there is no corresponding mortgage on your credit report. Another reason this may look like a cash out refinance rather than a rate and term refinance.

When the lender asked why you needed the loan, what did you tell them? Did you tell them that you needed the loan proceeds to purchase more property?