rules in California PML, residence?

Question

Hi,

I was on the forums a bit a couple years ago. My fiance and I were looking to invest in one REO and rent it out. A lot has changed since then, for one, my fiance died.

Before he died I found a PML through a friend who was interested in lending us money. However, I'm now interested in selling my place and buying a new one that I'd reside in. I understand this changes things and that there are regulations which discourage this. Are there ways around it? I will be looking at rank fixers, houses on post and pier foundations and raw land, none of which can be financed conventionally here. Many people in my area start with PM and fix things up and refinance through a conventional loan. Not sure how they do this...

Bill Exeter · Answer

I just wanted to weigh in here quickly.  It was not initially clear whether you were talking about your primary residence or investment property and there was one comment about possibly structuring a 1031 Exchange.

I wanted to clarify for other readers that the 1031 Exchange would not qualify here since you are discussing your primary residence.  I just wanted to make sure that future readers understood that.

Lynn Harrison · Answer

Thanks for the clarifications.

So... If I find someone who will lend to me, by law, can this person legally write up the contract? As an unrelated party? And receive a fee for that?

Jon Holdman · Answer

Mortgage brokers have to comply with the SAFE act, even if the money is coming from private individuals.  I would consider this guy a hard money lender.  A private lender is someone you personally know who will lend you their money.  Because of the SAFE act provisions, this broker probably won't lend on an owner occupied property.

Lynn Harrison · Answer

Hmmm... There is a guy here that a lot of people go through to get PM. He may be a mortgage broker ?? Basically, people with money that they want to invest go through him to find people to lend to. It's called Private Money, not Personal Money. Higher interest.

Eric Black · Answer

If it's a PML then traditional lending regulations wouldn't apply as far as I know. I PML can lend money to whomever it wants for whatever purpose it wants. I'm not a lawyer so you would want to check with one but I know if I lend you money it can be for whatever reason I choose, I just can't earn more than 10% total profit (in CA) unless the loan is originated by a licensed loan originator.

Lynn Harrison · Answer

Thanks Eric. I think there are new regulations for PML's that make it more difficult if it's a primary residence? Are there work arounds in California?

Lynn Harrison · Answer

That's something I could rent part of to someone else. Not rent myself.

Eric Black · Answer

Hi Lynn,

Even if you have to use PM you should be able to find someone who will fund that deal with no problem, if you can't find a conventional loan.

I would strongly recommend finding a duplex, if you can. With putting that much down the person renting the other side should be able to cover all your costs and then some.

Best of luck!

Lynn Harrison · Answer

Hi Eric, thank you.

I own a mobile home and am pretty sure I have a buyer lined up for next fall. I live in it. I want to buy a property that I would live in as well. I am anticipating having 57% to 70% down payment and buying something that I could rent part of either as storage or tenancy. Lynn

Eric Black · Answer

Hi Lynn,

First and foremost, I am truly sorry to hear about the passing of your fiance. I can't imagine how difficult that must be. Our prayers are with you.

I'm a little confused by the rest of your post. So you want to sell the house you live in or did you and your fiance buy an REO as an investment? It's unclear. Are you saying you want to sell your investment property and buy another property to live in? You should be able to do a 1031 exchange on the sale and subsequent purchase but I am not an attorney or CPA so you should consult with one before doing anything. If you can't get conventional financing then you would have to take the tax hit on the sale of your investment property. Buying with PM and then refinancing later could be an option but you need to know exactly why the property can't be financed with conventional financing now and what, if anything, can be done to make it qualify for conventional financing later and then evaluate.

If I am not understanding the situation please clarify.

rules in California PML, residence?

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