O&E reports

3 Replies

Hi all

Hoping I can tap the great collective knowledge here once more...

I own a few properties, all single family, all free and clear. I'm now starting to put leverage on them. Working through the application process on the first one, the lender has insisted I obtain o&e reports on every one of the other properties as a condition before approving this mortgage. These reports evidently cost $150 each - so if I have to do that on a number of unencumbered properties every time I apply for a mortgage on one property, this really starts to add up. Any advice on how to either reduce / remove the cost or the requirement?

Many thanks!

The Lender here sounds a bit novice might even be just a broker.  It is true a one owner Owner and Encumbrance report will cost around $100 to $150.  That said, this is not the customary path to financing a 'free and clear' property.  Typically the Lender would order from a title company a Title Commitment which will produce the same data in the report in order to obtain a Lender's Title Policy.  That is typically a cost paid at closing.  A Lender's title policy is not something that should be avoided.

Again, the Lender here, to me, sounds like a broker who is playing with ideas that do not fully understand.  

Is it safe to assume this is a Hard Money or Private Lender?  If true, is there any reason that you know of, that would prevent you from obtaining conventional financing on the properties?  

Where are the properties located?  Any other details you can share might help give further direction.

Thanks for the response!

This is not a hard money or private lender. Just to clarify - they are not insisting on an O&E report for the property I'm seeking financing on. What they're seeking is an O&E report for each of the several other properties I own free and clear. Apparently this is to provide comfort / proof that I don't secretly have mortgages in place on one or more of these other properties, which if it were true would mean I have a higher debt-to-income ratio and number of already financed properties than what's appearing on my application.

I own 5 other properties free and clear, so that adds up to a significant expense for this mortgage, and I would expect the same issue for future mortgages as my portfolio grows. Any suggestions on other ways I can get the lender the assurance he's looking for without incurring this expense?

Originally posted by @Ian Fisher:

Thanks for the response!

This is not a hard money or private lender. Just to clarify - they are not insisting on an O&E report for the property I'm seeking financing on. What they're seeking is an O&E report for each of the several other properties I own free and clear. Apparently this is to provide comfort / proof that I don't secretly have mortgages in place on one or more of these other properties, which if it were true would mean I have a higher debt-to-income ratio and number of already financed properties than what's appearing on my application.

I own 5 other properties free and clear, so that adds up to a significant expense for this mortgage, and I would expect the same issue for future mortgages as my portfolio grows. Any suggestions on other ways I can get the lender the assurance he's looking for without incurring this expense?

 
Oh, I understand better.

There are indicators that a typical conventional underwriter will look for to identify if a borrower may be hiding a mortgage liability.  Generally speaking, any cost for those types of investigations are not born by the borrower.  

A couple examples would be review of the borrower's credit report.  A review of the borrower's bank statements.  A identification report for borrower alias.  Review of tax filings.  Additionally, the underwriter can order a report from a title company which checks out all the properties.  Again, not usually a cost to the borrower.  All of that is aside from specific affordable tools and reports within the Lending industry meant to actually target and review such things.  

My objection, as you, would be the cost of said reports may not be recouped if a loan is not granted.  It really is not typically the place of the borrower to be asked to supply due diligence material to be used in underwriting as that presents a landslide of issues.  The simplest is that you get an incorrect report or an insufficient report from a lousy vendor.  The larger the Lender, the more tools in the shed to make sure they mitigate against loan fraud.

  The notion that this is a very, very uncommon practice makes me worry about who the lender actually is here and that they may not be all that experienced.  I would pause with them and shop around for another lender.  Let them know you are doing it and see if they change their request.  If you have X number of free and clear properties, that makes you a more suitable borrower, one that many Lenders would enjoy to have as a customer and one that many Lenders will reduce fees to obtain not increase them.