You may be able to structure it where it's quicker and easier if you lend the money to an LLC (as a commercial loan) where the borrower isn't considered an owner occupant. And with a commercial loan, in most states you're allowed to escrow the deed, which is called a deed-in-lieu of foreclosure. That way, a HML doesn't have to go through the foreclosure process and they can record the deed back into their name upon a default. The default timeline in my state is 60 days, for example, where as a normal foreclosure in my state is at least a year.
Personally I usually don't lend to an individual. This is actually pretty commonplace with HML's. Plus, usury laws won't apply in most states if you're lending to an LLC, which allows you to charge the going HML rates.
@Sheila Roby That really depends on the HML. The main things we look for are the value of the property, exit strategy, and the amount of the down payment.
@Samuel Lee Normally you can get that number using the comps and the amount of rehab you do. The tax value doesn't factor in a whole lot most times but some people swear by it. As a HML we normally formally get an ARV with a certified appraiser doing a thorough inspection with the scope of work provided. They then compare it with the comps and there ya go. Long story short, look at the comps within a half mile and what has actually sold in the past 6 months.
@George Taylor I'm familiar with coming up with comps and ARV's. I'm just wondering what the norm is for the amount the ARV should be compared to the purchase price of the home the person who borrows money from me. Is it $50k more than the original sales price or $100k? I'm sure every lender is different but I'm just trying to get a general idea when underwriting future deals. I'll have th borrower put 30 percent down, check previous performance flipping, and I'm just not sure about the ARV number I should expect.
It is always good to know how the foreclosure process works. This way you know what you are up against. Better yet, just make really smart loans with a company that seriously does their due diligence when originating loans. This will lessen your risk dramatically.
@George Taylor I'm new but I have located a few foreclosures that I would like to make an offer on. I already have a buyer that I can transfer the property to to fix the property up. My question is: I must approach the current home owner to purchase the home? OR find private money or a HML to purchase the home - what is the first step? and how quickly does all this happen? I must write a proposal to all...
@Judy Rae are there companies that can originate and underwrite loans for me? Using my money as the borrowed money? Also, can you tell me what your company looks for as far as ARV?