Just had one hell of an experience with a deal here in Corona, California. Had to share the story and find out who else has ran into this questionable program.
The story begins with me locating a very beat up home while in the area with friends, looked like a perfect flip so I reached out to the owner. Within days I had the house under contract and ready to go. They'd move out of state and left the place in pretty rough shape.
The contract was negotiated at the mortgage balance due to the comps and need for repairs in the area. We'd got our EMD in and were ready to close when title discovered a tax lien on the property. This lien originated in 2012 to the tune of $2131 until 2033.
The seller was oblivious to this lien and stated the windows were done for free through an energy upgrade program sponsored by the WRCOG (Western Riverside Council of Governments). They had stated they would increase the value of the house which would raise its taxes and that would pay for the upgrade. Total cost for the windows was $14,000 but once financed over 30 years it would come out to just under $40,000 at 9.51% APR
I was really amazed that a program like this would exist and started reviewing all the contracts, now it made sense why there was an incomplete building permit for windows on the home that the contractor (Windor of Anaheim) never completed.
This Hero program through Renovate America is pretty one sided. Since its a first position tax lien Freddy and Fannie won't support loans against these homes, as a first position tax lien there is no risk of default so there is no requirement for an appraisal to ensure you're not placing the under underwater. There is a 90% debt to value rule but there is no appraisal or verified method used to determine this number. No requirement that the contractors show a completed final building permit before getting paid. Since few lenders will support passing this bill onto the new owner if the home is sold it ends up with the current owner paying off this assessment but not before about $5-6000 in fees and pre payment penalties are included in the tab.
I'm amazed a program like this can be sponsored by local governments, council members and mayors sit on the board for the WRCOG and seem to be blind to the deceptive methods used to get these projects sold by local contractors and Renovate America.
So you've got a local program in Southern California that sells highly marked up energy efficient repairs without ensuring contractors complete the work or performing an appraisal to ensure they aren't putting the owner underwater. They don't have to as there is zero risk due to the first position of the lien.
Talk about a brilliant but predatory business model....
Has anyone else had deals grenaded by this program? We've had to move on to a short sale as its the only way to get the price down to make it possible and you better believe these folks still get paid their full amount so they could care less.
@Tim G. :
Wow! That is terrible! Haven't heard of the program before, but that is something we will watch out for! Thanks for sharing.
Best $$$ to you!
That's pretty awful! Good to know. Thanks for sharing. Best of luck with your investing!
My wife and I are selling our home and are going through that right now. The work, we signed up for, costs 9761 dollar. When we asked our title agent look into it, it came up 13000 and the APR is 9.66%. The number still doesn't look right. The company basically charge us 4000 in interest. This is a 5 year loan.