I Closed On a Cash-Out Refi and Now Lender Wants It Back

[Seth Hochberg]

Hi all, I'm a BRRR investor in Baltimore City and have a surprising situation I've never been in before. I need help knowing what my options are. A few months ago, I purchased a property in Baltimore City in cash, and renovated it. I was working with a lender (whom I've worked with before) to do a cash out refinance. A few days ago, I closed on the cash-out refinance and was wired the money the next day. I still have all the cash in my bank account, but was ready to spend some of it this weekend (pay back debts, down payment on the next property, etc).

The point of contact from the title company just told me that this lender is just realizing that the property is subject to ground rent. Originally (a few months ago), the lender told me I would need to redeem the ground rent, but when looked into it, I learned it would take 4-12 months to redeem because of the gross understaffing in the SDAT office. When I shared that news with the lender, they said "Luckily, according to my guidelines, ground leases are acceptable". I have this in writing via email. There was no other mention of ground rent after that. 

But just now, the point of contact from the title company, just said that because of the ground rent lease, "the lender may want to rescind the loan and reclose. Are you able to send the wire back?"

I absolutely do not want to do this, for obvious reasons. Am I obligated to wire this money back to them? This seems unfair, since it was 100% the lender's fault. I don't mind redeeming the ground rent, I just don't want to wait 4-12 months before I get this money back. What are my options? Thanks in advance.

[Nashid Ali]

Wow. I would say this is a question more for a real estate lawyer....which I'm not. However, I'm in complete agreement with you that the lender failed to do his due diligence and had ample opportunity leading up to settlement to discover the ground rent. Again, I'm not a lawyer and would recommend consulting with one first before doing anything, but I'm incline to believe that your obligation in this transaction has been completed. Game over. I would began focusing on your next project.

[Douglas Mallett]

Quote from @Seth Hochberg:  

Are you able to send the wire back?

I wish the English language had a single succinct word for 'absolute comedy gold'...

Anyone?

[Seth Hochberg]

LOL thanks for the replies @Nashid Ali, @Douglas Mallett

The title company agreed with me and negotiated with the lender on my behalf. The compromise was that instead of wiring them all the money back and reclosing, I would wire the title company the money right now to redeem the ground rent ~$1200. I might be able to argue that I don't have to redeem the ground rent, since the lender missed it, but this is a much more reasonable request, so I went ahead with that. Super great of the title company to vouch for me, and really bizarre of the lender to make such a request. All in all, my title company gained a loyal customer, and my lender lost one.

[Asher Coleman]

Wandered in here because I'm sniffing around for opportunities in Baltimore and wow. This is quite a story. Seems like you handled it well, @Seth Hochberg!

[Jack Seiden]

Quote from @Seth Hochberg:

Hi all, I'm a BRRR investor in Baltimore City and have a surprising situation I've never been in before. I need help knowing what my options are. A few months ago, I purchased a property in Baltimore City in cash, and renovated it. I was working with a lender (whom I've worked with before) to do a cash out refinance. A few days ago, I closed on the cash-out refinance and was wired the money the next day. I still have all the cash in my bank account, but was ready to spend some of it this weekend (pay back debts, down payment on the next property, etc).

The point of contact from the title company just told me that this lender is just realizing that the property is subject to ground rent. Originally (a few months ago), the lender told me I would need to redeem the ground rent, but when looked into it, I learned it would take 4-12 months to redeem because of the gross understaffing in the SDAT office. When I shared that news with the lender, they said "Luckily, according to my guidelines, ground leases are acceptable". I have this in writing via email. There was no other mention of ground rent after that. 

But just now, the point of contact from the title company, just said that because of the ground rent lease, "the lender may want to rescind the loan and reclose. Are you able to send the wire back?"

I absolutely do not want to do this, for obvious reasons. Am I obligated to wire this money back to them? This seems unfair, since it was 100% the lender's fault. I don't mind redeeming the ground rent, I just don't want to wait 4-12 months before I get this money back. What are my options? Thanks in advance.

 Title insurance should probably take care of this.

[Jay Hinrichs]

Quote from @Seth Hochberg:

LOL thanks for the replies @Nashid Ali, @Douglas Mallett

The title company agreed with me and negotiated with the lender on my behalf. The compromise was that instead of wiring them all the money back and reclosing, I would wire the title company the money right now to redeem the ground rent ~$1200. I might be able to argue that I don't have to redeem the ground rent, since the lender missed it, but this is a much more reasonable request, so I went ahead with that. Super great of the title company to vouch for me, and really bizarre of the lender to make such a request. All in all, my title company gained a loyal customer, and my lender lost one.

thats reasonable solution.. I I dont mind funding with ground rent outstanding its always such a small sum .. but I just got referred to a BRRR investor that had 4 homes in Balt city ready to close and the lender pulled out last second.. so they called me :) AS the closing attorney knows I will do these deals.

[Tim Jacob]

Its typical for them to withhold some money for ground rent.  Not all of it.  They want to make sure if it stays unpaid they can pay it for you.  Its close to the redemption amount bc that's what it would cost to pay the holder after legal fee add ons though it only started at less than 100 dollars

[Tom Gimer]

The post-closing redemption may make the lender feel better, but it doesn’t solve much. If the borrower defaults and the lender forecloses, the interest foreclosed will be the leasehold (unless the legal description in the DoT expressly includes after-acquired property…. which is highly unlikely).

[Steven J. Sless]

since you need a new lender, we are here to help you with any of your needs, Trius Lending Partners. Look us up, we would never end up in a situation like that with you. 

[Chad Davis]

@Seth Hochberg We are an experienced Baltimore lender and ground rent is something we see often. This should not have happened and glad you found a solution.