Investor · Cranford, NJ · Member since 2012 · 303 posts · 153 votes
I am in the process of trying to close on the sale of a property, and the bank has been a huge hassle. The home was under contract for $155 per sq-ft which is totally in line with all comps and lower than some provided buy the appraiser, but since the house was larger than most in the area they demanded we lower our price by over 20K (original contract price was 267). We agreed to simply change the contract price to the appraised amount because most of my cash is tied up in the project and I want to keep rolling rather than fight over a few dollars.
Now on the scheduled closing date the ban says they cant close until I give them my HUD1 statement as well as a list of all repairs and upgrades I made to the property. We have owned the property for over 6 months, so no 90 day issues.
Permits may not have been filled for the work and I do not want to get into issues.
We agreed to adjust our price to the appraised amount and it has been over 90 days, can the bank ask to see any of this? What is my best option, I just want to close this deal so I can move on, but also dont want to open a can of worms trying to rush to close.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y
Bryan, with all due respect, we are not talking bout spec buidling vs. rehab flipping here so what you do in Austin is irrelevant and stating that one should ask for all lender requirements upfront before entering escrow is not possible, suggesting such a thing shows the lack of experience in this topic. Regardless of what is in the PA, it is quite standard for any lender to potentially ask for Huds, repair lists, and possibly receipts beyond appraisals. As a rehab flipper, you know this going in to the deal.
The OG poster asked what he should do as far as this particular lender's request for a Hud1 and referenced a concern over not having permits done. To answer that question, he should provide the Hud1 and a list of repairs completed, itemized in general format. For example, new windows, new paint, new flooring, etc. I seriously doubt the lender will ask for permits, the buyer's inspection would show any inefficiencies in the workmanship and the ledner/buyer would ultimately ask for the repairs on such items.
Taking this any further than that is what I would consider pointless and arguing over playing hard ball or not is a poor decision in my mind. Just provide what they need so you can get the puppy sold and move on. Now if they are trying to re-negotiate the contract price beyond the appraisal contingency and/or inspection contingencty, then I think the OG poster has additional issues and depending on the contract, I am not sure the buyer or the lender can adjust price below the appraisal, excluding requests for repair credits from the inspection.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
I don't think they have any legal right to request this info. OTOH, they don't have to provide the loan.
Sounds like you're falling into a common misperception of thinking $/sq.ft. is a good metric. No appraisal I've seen works like that. There's an adjustment if your house is bigger than the comps. But its usually at a much discounted rate vs. the average $/sq.ft. A third seems typical around here. So, your extra footage would be worth $50 or so vs. comps.
No permits sounds bad. I was seriously burned by a rehabber who failed to get permits, to the tune of $20,000. The borrower defaulted after getting caught, and my partner and I spent a lot of money correcting the errors. Many of which had nothing to do with anything the rehabber did.
Banks are terrified of getting scammed by straw buyers that are part of a quick flip at a highly inflated price. If this is a reasonable transaction, they should be able to see that you bought it and fixed it in a reasonable fashion and the new valuation is reasonable. They want documentation to verify that. Sorry, but you're paying the price for bad actors in the past.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
13y
Originally posted by Jon Holdman:
Sorry, but you're paying the price for bad actors in the past.
Perhaps. I would fire them. Next!
They aren't the only bank around. They hired their own appraiser to give them an opinion of value. You shouldn't have to show them anything to justify your value.
Ask the bank to provide you a copy of:
1. Their bank charter
2. Documentation showing their depositors have provided funds legitimately
3. Their loan documents comply with all pertinent laws
If they fail to provide items 1-3 tell them you see no reason why you need to supply documentation about your business operations. There are other banks and other buyers.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Certainly, Bryan Hancock. But Steve Wilcox writes: "I just want to close this deal so I can move on". So, there's a choice. Provide this documentation and try to close this deal. Or, tell the buyer and their bank and move onto the next deal.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
13y
Perhaps.
The bank may actually want to write the loan and may back down. I certainly wouldn't provide them the information. I'd tell them to take a hike.
This demonstrates why some on the forums make people use their preferred lenders when buying their properties. It may reduce your buyer pool, but it certainly reduces BS like this during contracting periods. It is ridiculous for the bank to need other information when they already had the buyer hire THE APPRAISER THEY CHOOSE to give an opinion of value.
Investor · Cranford, NJ · Member since 2012 · 303 posts · 153 votes
13y
Bryan and Jon thanks for the advice, I think that I will tell the bank to prove they have the funds set aside in escrow for closing (supposed to now be 1/03), tell them I will not give them anything and that if they cant close I will cancel the contract, hopefully the buyers (retail buyers) will put some pressure on their people to get it done, or make them switch lenders. I am concerned the bank really just wants to try and beat down the price even further than what it has already appraised for. If they wont proceed I plan to tell the buyers they must switch lenders, or they can keep looking elsewhere.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Originally posted by Bryan Hancock:
Perhaps.
The bank may actually want to write the loan and may back down. I certainly wouldn't provide them the information. I'd tell them to take a hike.
This demonstrates why some on the forums make people use their preferred lenders when buying their properties. It may reduce your buyer pool, but it certainly reduces BS like this during contracting periods. It is ridiculous for the bank to need other information when they already had the buyer hire THE APPRAISER THEY CHOOSE to give an opinion of value.
Bryan: Lenders are on the look out for a "pattern of flipping" as they think it's a red flag for possible loan fraud. The additional documentation they are asking the OP for is not about the appraisals or current FMV but rather the property sale history. They are asking for a HUD1 because they want to check out the previous sale: the transfer, the type of sale, the parties involved. My experience with lenders asking for that kind of documentation is that they often don't know how to read it or evaluate it, so it can be a waste of time if they are going to deny the loan anyway.
The lender can ask for anything they want to confirm that the sale will pass underwriting. While controlling the deal by choosing the buyer's lender sounds good, it not always that easy to make it work out that way. The best and highest offer often wins out over analyzing the borrower's lender choice. Even lenders that agents and brokers have had good luck with in the past will sometimes come up with unexpected demands.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
13y
Bryan Hancock I don't know how many flips you have closed in this lending climate. Your advice makes it sounds like not very many.
Banks are INSANE right now. I've had them ask for some ludicrous requests. After you get over the pain in the *** you have a decision to make. Firing the bank makes you have to restart the same process with someone else who will likely have their own annoying requests.
1. Who cares if they get a copy of your HUD1? I have had banks ask me this for many times.
2. The reason they are asking for a list of your repairs is because they are planning on funding and selling the loan. When the secondary market loan Buyer does their due diligence they will say Party A bought this house for 150k and is now selling it for 250k what happened. The lender will than provide the appraisals and the list of repaired items and answer that question. I've never had them check permits.
Just be thankful they're not asking for: a licensed plumbing contractor to certify your exterior irrigation system, a third appraisal, a 2 year roof certification after the home inspector takes a picture of a couple missing shingles. (All things they've asked for from me).
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Actually, Steve L. I think you and I are in agreement that lenders are going to ask for nutty things. And you have to suck it up and go along or let deals fall through. I'm not a fix and flipper. I've only had one fix and flip deal and that was from taking back a property from a defaulted borrower. And we had hassle after hassle trying to get the deal closed.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
13y
The OP actually pointed out the underwriting issue. And missed the point. The home was purchased and repairs may have been done without proper permitting. The 90 day rule is title seasoning, there is no rule or guideline for rapid property appreciation except banks do not like it.
It is unclear what the purchase price of the home was and what amount went to repairs, but yes it matters. If you purchased a home that needed a large amount of repairs to bring it back to market and you didn't properly pull and file permits you failed to document why the property value should be more than it was 90 days ago (or whenever you purchased it). Home prices do not have wide swings of appreciation so any value over 3.5% from the prior sale in the short term will be analyzed.
I would say they are looking for you HUD to see what size of a profit you are trying to make. You may not like that but more likely, that is what they are trying to size up. If you are being greedy they will continue to drive the price down. What's greedy? Who knows, but other guidelines mention 20% gain. You sort of illustrated you were positioned for a large margin, you waived 10% with minimal hassle.
IF this is the story, then this bank and most other banks will likely produce similar results. Loans are not simply a borrower and an appraisal with a number. What supports the increase in value on the property? If the answer doesn't include physical improvements, you likely will have a hard time. If the answer includes physical improvements, you need to be practical about your value increase, YOU set the market when you bought it. If you didn't take the steps to protect your additional capital into the property, well this might be where the lesson comes in.
To play devils advocate to the debate, who is doing the wrong thing here? The bank protecting its loan (investment) or the investor who didn't do things properly to support a market value increase?
BTW, banks do not "order" appraisals any longer, lenders and banks have to work through Appraisal Management Companies.
Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
13y
Originally posted by K. Marie Poe:
My experience with lenders asking for that kind of documentation is that they often don't know how to read it or evaluate it, so it can be a waste of time if they are going to deny the loan anyway.
Sometimes, when the other party, the bank in this case, asks for something, the best answer is "is that the only thing that you need in order to fund this loan (or complete the sale)?
Otherwise, as Marie points out, the other party is just looking for an excuse.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
13y
I haven't been selling flips. We've been building new construction homes and none of this nonsense has applied.
I don't give a f how crazy the banks are being. I wouldn't give them a copy of any of this unreasonable crapola. To each his own I guess, but it is freaking ridiculous for banks to want these items if they're hiring their own appraisers to establish value.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Bryan Hancock Your main concern in denying the additional docs seems to be valuation. The lender is doing more than establishing value when asking for additional documentation. A cautious lender can't know the whole story from an appraisal. I find it hard to believe someone with your experience doesn't see the issue from the the lender side????
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
Kevin Yeats
Originally posted by Kevin Yeats:
Originally posted by K. Marie Poe:
My experience with lenders asking for that kind of documentation is that they often don't know how to read it or evaluate it, so it can be a waste of time if they are going to deny the loan anyway.
Sometimes, when the other party, the bank in this case, asks for something, the best answer is "is that the only thing that you need in order to fund this loan (or complete the sale)?
Otherwise, as Marie points out, the other party is just looking for an excuse.
Thanks for this suggestion. I appreciate a good way to cut to the chase with a lender.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
13y
Originally posted by K. Marie Poe:
Bryan Hancock Your main concern in denying the additional docs seems to be valuation. The lender is doing more than establishing value when asking for additional documentation. A cautious lender can't know the whole story from an appraisal. I find it hard to believe someone with your experience doesn't see the issue from the the lender side????
See what issue? The issue of me needing to prove I'm a non-criminal so that the BUYER can get their financing?
Why can't the bank prove they're non-criminals by supplying the documents stipulated above as well?
Handyman · Joliet, IL · Member since 2009 · 19 posts · 0 votes
13y
I'm a little confused. Lets say my sister wants to sell me house or anyone for that matter, she can't pay the taxes or keep up maintenance on the property or whatever. So I make an offer of 30K, she agrees and I get the property. I do some small repairs touch it up a bit paint landscaping, etc.. A month later I put in on the market, it appraises for 105K.
So now a retail buyer with their bank try's to buy it and the underwriters are going to not approve a loan because I'm making too big a profit???
I'm not trying to be condescending or rude just trying to learn. I ask this only because in a couple of weeks I'm going to start submitting some offers and there are some hud homes (very few) that come close to these types of numbers in my target market.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
13y
Cool how on page 580 of the Fannie Mae Underwriting they talk about how in new construction, an appraiser may use a copy of the HUD-1 Settlement Statement from the builder's file. Hmmm. I guess the builder (seller) would provide this.
The answer to "...there is no rule or guideline for rapid property appreciation except banks do not like it" is on page 294 in the Fannie Mae underwriting.
The Fannie Mae Red Flags under C. Rapid appreciation says "We Recommend Careful Review of the Following... examine the most recent prior sale price in relation to the current appraised value." To do a careful review, why wouldn't they ask for a HUD-1? Page 509... under "Examples of Unacceptable Appraisal Practices" says "failure to adequately analyze and report any current contract of sale, option, offering, or listing of the subject property and the prior sales of the subject property and the comparable sales"
Underwriting doesn't say anything about being a non-criminal.
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
13y
This whole thing can be summed up as follows; the bank (lender) has no legal relationship with and owes nothing to the seller. The lender's entire relationship is with the borrower. The lender can put ANY requirements on the loan due diligence they want.
If the seller can not or will not meet the demands or requests or the buyer's chosen lender, he can either ask the buyer to consider finding a new lender, or accept that the buyer can not perform and sell the property to someone else.
If it is apparent that all lenders are requesting something from the seller either he can not or does not want to deliver, then he may have to deal with cash buyers only, and usually be willing to provide a discount for all cash ( in a tight lending environment).
The non permitted work done does raise a serious issue, concerning liability, both specific to the local and state laws regarding such matters. If the lending institution requires the seller to sign a statement that to the best of his knowledge all work was done in compliance with state and local regulations, will he sign it?
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
13y
Virtually all "retail" lenders use Fannie Mae or Freddie Mac underwriting. Banks originate then sell the loans to Fannie and Freddie. The FNMA underwriting document is only 1287 pages. Just read it and then you know the rules.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
13y
I find it humorous when investors get irritated when a lender does not agree with their evaluation. There is no banking conservative conspiracy in the world. As a buyer/investor you are conservative as a seller you are liberal. If this was your capital at risk, you too would practice conservative investment protocol.
A bank asking for documentation such as the HUD or improvement costs is not wacky, it is prudent. It also is not uncommon and has been happening for years, it is not some recent invention. Check your contract, you may forfeit any claim to earnest money by not cooperating with the banks requests.
When the property sold the first time around, the market was made on the home. It is more likely the repairs do not warrant a large value increase or as larger as being asked for. This is clearly illustrated by the initial $20k reduction.
The OP describes the home as priced below most of the homes on a PSF but has more SQF than most homes. So it would seem from a far, the home is a bit of a market anomaly. It does not sound easily homogenous with the local market. The appraiser clearly had issues with it as well, as the OP states the appraisal had homes with a higher SQF. So the appraiser had to make adjustments for the PSF and SQF to create a more congruent set of comps. The OP had a sale price which was higher than the appraised value by $20k.
As to jumping through hoops for a buyer's bank/lender. Well, as implied but let me say it more clearly, if you want to sell at the same price you purchased it for, you will have little to no hoops to jump through. When you seek to gain and perhaps gain excessively you have to prove it.
If I was underwriting this deal, i would be following the same steps. Artificial market inflation is not anyone's friend. I think the common knee jerk reaction to the attitude toward banks/lenders and appraisers is a little less than fair. I also tend to think most investors are over confident in their evaluations and just make more noise than the other two.
Asking a bank to issue some document to prove its capacity to lend is a little silly. BTW, you can look up the liquidity of banks on the web. So it is not the same as asking a private party for proof of capacity.
This situation is as clear as day, the issue here is the price of the home. Is not the first and will not be the last. A bank will not fund a loan until it is ready to fund a loan, you can stomp your feet and pound your chest all you want, it tends to just be a waste of energy.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
13y
Originally posted by Joe C.:
Joe, your example is an ARM Length transaction. The asset did not go to the open market and the two parties are related. So the $30k you paid is not market value.
A free open market will have a seller seeking the highest price they can get and the buyer the lowest price with all other terms in consideration such as move in time, location, etc, etc.
The definition of market value is the price a seller and buyer agree to in a open market arm's length transaction.
When you purchase distressed real estate, that typically means some sort of repairs are need to bring the real property to be comparable to the majority populous of the homes similar to the real property in a repaired condition. You can not this by seeing that there is not an easy way to recover dollar for dollar you repair costs to bring the asset back to market. Painting a house and cutting the lawn is typically not going to give you a gain in the short term.
And there in lies the art of the fix and flipper. Find the right property and conducting the right repairs while keeping the top side of the market in sight and not over capitalizing the project. When you purchase the home the first time, that is a market transaction, you just set the market value of the home it the condition the home was in. To some extent, if it is not in enough disrepair at that sale, your repairs may not be recoverable in the short term.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
13y
Originally posted by Dion DePaoli:
A bank will not fund a loan until it is ready to fund a loan, you can stomp your feet and pound your chest all you want, it tends to just be a waste of energy.
No feet stomping or chest pounding. I would simply fire the buyer's lender. They can have their earnest funds back if they so-choose.
