10k about to be lost because of lender

Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes

Originally posted by @RJ Dixon:

Hello BP world !

Name is Rj just started getting into real estate investing. I am currently working on my 3rd deal but never thought this would happen. I am currently working on a triplex that we put 10k in escrow. I was going to use a FHA loan to house hack. My lender who I worked with before did not do a great job to say the least. They extended twice and want to do it again but the seller does not want to. I have looked into hard money which I used before being what I think is my best bet. I also tried to reach out to the seller personally to get that extension. They have no backup offers but stated they have people interested. I just don't want to lose 10k. Would the seller consider splitting escrow ? Any suggestions on how to go about this ?

The numbers are

220 under contract

15k rehab

230 as is

265 ARV

Appreciate it

How many days into escrow are you and what is going on with your loan? If you were to rent out all units would it be more than the P.I.T.I. and PMI? If not this is typically an FHA deal killer. Make sure you find out exactly what the problem is from the loan officer. 10K is a lot of money.

0 Reply

RJ Dixon

OP

Rental Property Investor · Sarasota, FL · Member since 2018 · 112 posts · 23 votes

7y

@Shaun Weekes

Almost 2 months in escrow. Past all due diligence and contingencies. It all started when the lender ordered the appraisal late which then pushed everything back. Then that appraisal came back as an as is appraisal which needed it work to be completed we went ahead and completed some small work to abide by the FHA standard. After that the communication was not great as me and my agent called and emailed every day for updates. Somehow when the file got re-open the underwriter noticed that the roof was no good. That then Pushed further into the timeline as they had to find out if they can do an escrow holdback which we ended up agreeing to. Then today I get a call that said we have to order another appraisal on your other properties that you own because the rental income has not been two years. With that new news that pushed it back which is when the seller will not agree to extend it again because they are losing faith in the lender. It was also a bunch of other little things that my agent and I could not believe but just to keep this short.

1 Reply

Shaun Weekes

Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes

7y

Originally posted by @RJ Dixon:

@Shaun Weekes

Almost 2 months in escrow. Past all due diligence and contingencies. It all started when the lender ordered the appraisal late which then pushed everything back. Then that appraisal came back as an as is appraisal which needed it work to be completed we went ahead and completed some small work to abide by the FHA standard. After that the communication was not great as me and my agent called and emailed every day for updates. Somehow when the file got re-open the underwriter noticed that the roof was no good. That then Pushed further into the timeline as they had to find out if they can do an escrow holdback which we ended up agreeing to. Then today I get a call that said we have to order another appraisal on your other properties that you own because the rental income has not been two years. With that new news that pushed it back which is when the seller will not agree to extend it again because they are losing faith in the lender. It was also a bunch of other little things that my agent and I could not believe but just to keep this short.

Did you have a property inspection before contingencies expired and if so did you see all items that needed to be fixed? Also, did you actually pony up your own money to fix the place up?

0 Reply

Dana WhickerPro Member

Investor · Fernandina Beach, FL · Member since 2014 · 557 posts · 374 votes

7y

@Ralph Dixon Seems like the margin is pretty tight on this. I don't know the square footage but at that price point I'm thinking a good FL code roof is 9k or so?

If the seller would split escrow I'd think about walking. If the margin was better I'd say hard money but fees will eat you up. Tough spot.

0 Reply

Chris MasonPro Member

Moderator

Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes

7y

Lurkers: FHA loans aren't a good fit for folks with an existing rental portfolio, and aren't a good model match for fixer upper real estate... it's not really relevant in 2019 what a blogger in the midwest was able to pull off in 2012.

15 Reply

Wayne Brooks

Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes

7y

Yeah, the repair issues should not have been a surprise, knowing you were trying for fha. BTW, unless they changed the farbar contract recently, you can cancel up to 7 days prior to the current closing, under the financing contingency, unless you Specifically waived it at some point.

1 Reply

Roman M.

Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes

7y

Isn't your contract contingent on getting a mortgage? If it is and you can't get a loan then you get your money back. Just make sure you did not waive mortgage contingency clause.

Normally its 30 days for mortgage commitment but if its past that time and you did not waive your contingency right then it should still be on.

You only loose your deposit 100% if you sign a cancellation and release the deposit to seller but if you truly believe that you did everything you could to comply with mortgage contingency clause and lender did not fund due to their incompetence or because someone in their lending department dropped the ball then it's not your fault. You can fight to get your deposit back and so will have to be the same for seller.

Seller.will.have to sue for deposit or so will you if there is no mutual agreement on who gets the money.

0 Reply

RJ Dixon

OP

Rental Property Investor · Sarasota, FL · Member since 2018 · 112 posts · 23 votes

7y

@Shaun Weekes

Yes the roof had about 3-5 years left but this was a long term hold so we were just going to replace it. Inspection had no surprise. It was mostly From my understanding FHA guidelines or at least that's what they are blaming it on

0 Reply

RJ Dixon

OP

Rental Property Investor · Sarasota, FL · Member since 2018 · 112 posts · 23 votes

7y

@Dana Whicker

It was 13k because it had 2 building. A duplex and a small stand alone. Margin are real tight but it cash flows 3200$ as is. We were going in for a value add on it as well.

0 Reply

RJ Dixon

OP

Rental Property Investor · Sarasota, FL · Member since 2018 · 112 posts · 23 votes

7y

@Chris Mason

You don’t think when house hacking not to use fha ? I understand they have more guidelines but going in at 3.5% and living for free. All in cash +\- 40,000. Cash flow 1,000 a month. Of course this was a slow play when each tenant moves out update the units and bill back electric. I couldn’t swing 25% down on this as I have most of my cash tied up in another deal.

0 Reply

RJ Dixon

OP

Rental Property Investor · Sarasota, FL · Member since 2018 · 112 posts · 23 votes

7y

@Wayne Brooks

I’ll speak with my agent. Appreciate it

0 Reply

RJ Dixon

OP

Rental Property Investor · Sarasota, FL · Member since 2018 · 112 posts · 23 votes

7y

@Roman M.

Interesting. Thank you

0 Reply

Max T.

Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes

7y

@Ralph Dixon

Conventional owner occupied 5% down not much more than fha and less onerous.

2 Reply

Lynnette E.

Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes

7y

I am definitely not an expert, but have bought and sold quite a few pieces of real estate, including selling 2 homes recently to FHA buyers.

In BOTH cases, although both were in CA (but I think it was a federal requirement), I, as the seller had to sign that the deposits would be fully returned, regardless of contingencies and schedules for releasing contingencies, if the FHA loan failed to fund. I was told this was an FHA requirement to protect new buyers.

You might want to ask your realtor and also escrow if the seller in your case had to sign something similar.

0 Reply

Cody L.

Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes

7y

Originally posted by @Lynnette E.:

I am definitely not an expert, but have bought and sold quite a few pieces of real estate, including selling 2 homes recently to FHA buyers.

In BOTH cases, although both were in CA (but I think it was a federal requirement), I, as the seller had to sign that the deposits would be fully returned, regardless of contingencies and schedules for releasing contingencies, if the FHA loan failed to fund. I was told this was an FHA requirement to protect new buyers.

You might want to ask your realtor and also escrow if the seller in your case had to sign something similar.

Ironically a clause like that meant to protect new buyers makes it so very few people want to take an offer with FHA financing. Which hurts new buyers

2 Reply

Ian WalshBusiness Member

Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes

7y

Was it a direct lender or a broker? Did they issue an LOI?

0 Reply

Wayne Brooks

Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes

7y

@Lynnette E. That addendum only protects the fha buyer in the event the house doesn’t appraise high enough....not for any other missteps.

3 Reply

RJ Dixon

OP

Rental Property Investor · Sarasota, FL · Member since 2018 · 112 posts · 23 votes

7y

@Ian Walsh

This was the Vice President of a mortgage company. They sent over a mortgage commitment letter and we did nothing on our end to break it.

0 Reply

Chris MasonPro Member

Moderator

Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes

7y

Originally posted by @RJ Dixon:

@Chris Mason

You don’t think when house hacking not to use fha ? I understand they have more guidelines but going in at 3.5% and living for free. All in cash +\- 40,000. Cash flow 1,000 a month. Of course this was a slow play when each tenant moves out update the units and bill back electric. I couldn’t swing 25% down on this as I have most of my cash tied up in another deal.

You just said it's not going to close in OP. Those numbers are all fake. Cash flow is $0. ROI is 0%. And you're evidently about to be out $10k. Etc. How do you value your time...?

In 2019, in warm/hot markets, FHA is for owner occupants of turnkey single family properties.

Home Possible has another 6 months or so of steam for house hacking.

Kind of sucks, but it is what it is. :\

1 Reply

Doug Pintarch

Rental Property Investor · Harrisburg, PA · Member since 2018 · 369 posts · 406 votes

7y

Not to hijack but to sidetrack for a brief moment... @Chris Mason thank you for your "Lurker" interjections. I learn a great deal in here and these "Pop-ups" from you are incredibly helpful. It's like watching a tv series that has those added trivia blurbs added to it.

I am following this thread with great interest.

Diversion over, thanks!

1 Reply

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

7y

@Chris Mason yup, everyone should have been aware that FHA was going to crash and fail here. Property needs work, buyer has a rental portfolio. Dont know why either agent, or the lender didnt know there were going to be problems with this.

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3 Reply

Lynnette E.

Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes

7y

Originally posted by @Cody L.:

Originally posted by @Lynnette E.:

I am definitely not an expert, but have bought and sold quite a few pieces of real estate, including selling 2 homes recently to FHA buyers.

In BOTH cases, although both were in CA (but I think it was a federal requirement), I, as the seller had to sign that the deposits would be fully returned, regardless of contingencies and schedules for releasing contingencies, if the FHA loan failed to fund. I was told this was an FHA requirement to protect new buyers.

You might want to ask your realtor and also escrow if the seller in your case had to sign something similar.

Ironically a clause like that meant to protect new buyers makes it so very few people want to take an offer with FHA financing. Which hurts new buyers

I won't agree to FHA loans unless I already know the house will pass the inspection and the house will appraise at the price.

For the second house I sold with the FHA loan, the process was flawless and it closed in less than 30 days. Excellent loan officer, lots of their work closes early and they work a lot with the realtor I used for that house.

The first one was a joke and did not close with an FHA loan either. Person was an investor, was going to use the property as a rental. He had other rental property, and a nice home he actually lived in that was also financed. He ended up switching lenders and loan from FHA to conventional when he was caught. They told me nothing except that he needed an extension, then after it was way too long and they were finally ready to close, in the closing documents was a paper that said it was investment, not FHA, not his residence.

I would not have sold to him had I known his loan, prequal was a bait and switch. I was trying to close an estate and sell all property before the end of the tax year. He was in escrow from Aug to Jan, so I had to file taxes for the estate the next year too because he did not close in time. Everything else did!

But the problem was not FHA, it was a sneaky investor trying to cut down on his cash amount for the down...and lieing abut the property being a rental.