Who can do it...and how would you

Question

Evening BP community...question for the Lenders in the room that are smarter than me...

So I have a potential deal...and this is how I would like to structure it...if possible

350K purchase price on a SFR...80 % conventional...20% seller carry back @ 6.5% 30yr interest only with a 5yr call...and perhaps a 2yr prepay to guarantee yield to sweeten the deal for them...is this structure possible in today's financial world...is there a better way to structure the deal...

This would be a fix and hold that would require around 40/50k in rehab...my numbers will work and have a little cash flow...which is damn near impossible in CA these days...

How whould you do this deal...is there a better way to structure it...

Thank you all for you input...and BTW...if your a Lender in CA...or lend in CA...reach out...thanx again 🤙🤙

Tom Gimer · Answer

Adding an aunt to title does not invalidate an owners title insurance policy. The insured still owns the land.

Also, tenants in common are not automatically 50/50 unless there are no percentages stated in the deed. T/C can hold in any percentage they want... Aunt could be added as a 1% owner.

I actually like the gift of equity idea. Family getting creative to get funded for an investment opporunity... how is fraud even being mentioned here? Either the lender blesses the arrangement or they don't.

Peter Walther · Answer

I don't understand the question, are you asking does a lien holder have an insurable interest in the land?

David M. · Answer

@Peter Walther

So, how do you address "insurable interest," a very important aspect to insurance?

Peter Walther · Answer

In my opinion an Owner's title policy is only invalidated in cases of fraud or mistake in its issuance, otherwise it continues on under its terms and conditions until coverage is terminated as provided in the policy.  I believe an Owner's policy language provides that the coverage continues even after the Insured conveys title to the extent the Insured may have liability for warranties contained in the deed of conveyance or holds on interest in the property by virtue of holding a purchase money mortgage.

I also believe a lien holder's interest, such as the OP's aunt, is considered to be "on the title" while not holding title.

While a Notice of Sale is commonly used in NJ to notify the world of an upcoming sale of the property it is not ubiquitous since the Notice is not used in many states.

Ryan Taylor · Answer

@David M.

Thank you for that David...perhaps I'm just not convaying my message clearly...I understand what you are saying regarding title and its functionality...I dont feel I'm being "cavalier"...I have nothing but concern for the deal and how to make it win win...after all...this is the "Creative Finance" forum...but again...thank you for your feedback and knowledge...this conversation has been insightful and given me other ideas. 🤙🤙

David M. · Answer

@Ryan Taylor

That's pretty cavalier...

Title Insurance policy would/should into effect when the property closes, in escrow.  It can't go into effect prior to closing since the incorrect owner would be insured, in which case the policy is invalid.

When Title changes hands, yes, the Title insurance becomes invalid.  The incorrect party is insured.  Its a fundamental aspect of insurance (at least in this country).  Besides, I'm sure there is a clause in the policy.

"Anyone" can't "exactly" just go on Title via the County Recorders office.  It has to be deeded.  Shortly, prior to closing a Notice of Sale is recorded which alerts everybody that a transfer is about to take place which stop/prevents/alerts nobody else to try to affect the Title chain (I forget the exact mechanism for this).  As part of Closing, the seller signs the deed and "deeds" the Title over to the buyer.  Remember, in this country there is no actual "Title paperwork" that you hold in your hand to show ownership.  Its the deed which is the transfer of Title.  That why its commonly referred to the "chain of Title."

I still don't understand why she would go on Title.  Nothing in your OP suggested this or required it.

If you tried to put her on Title before closing, that would be silly because assumedly she is already the Title holder being she is the seller.  If you did it afterwards, you would invalidate the Title Insurance policy (as mentioned above), effectively transferred Title via a deed (no other way to do it) in which the mortgage could be called in via the Due on Sale clause (granted pretty rare, but the point is you just violated a term of your Note), and for some strange reason you went in a roundabout fashion to move the TItle from the Aunt, to yourself, and then to the Aunt and yourself as Tenants in Common which is an automatic and only 50%/50% split.  And, while I'm not a professional, I think since you are planning of all of this and should you try to execute it it could be mortgage fraud --- not saying you are trying to commit a crime, we are just brainstorming here...

Does this make any sense?  Your attempt to be creative is trying to do an endrun around just about everything that ensures proper ownership of real property.

So...  I agree that non-conforming loans is your best bet.  Any chance the aunt can refi or heloc the house for the 20%?  She would "gift" it to you, let the funds seasons, then you go for the purchase/loan?

That being said, what are you really doing?  You just need $50k or about 15% of your "purchase price."  Can you get it from anywhere?  Refi / hloc this house (with her income or yours)?  or another?  Then, rehab the property.  Now you could potentially pull even more out.  She could almost just "give" the Title and then you refi and probably be able to pay her back...   Yeah, there are some details to work out here, but I don't have enough info on your available finances and what the group is willing to do...  If you family can/will trust each other, then "simple" creative financing is possible, and much easier.

David M. · Answer

@Ryan Taylor

I am not a professional, but that does seem pretty grey in terms of being mortgage fraud...  And how does she go back on Title?  That's not a carryback, and doing so really does invalidate your mortage application as well Title Insurance, etc.  She can always record a Note/lien and take second position, but out of curiousity at this point (after all of this) what's the point?

Ryan Taylor · Answer

Thank you for that Chris...

So what I didnt mention is this is an aunt...

What if said aunt "gifts" the 20% as an equity gift...then after close...she goes back on title to secure her interest...as well as a personal note at said terms...what do you think

Chris Seveney · Answer

@Ryan Taylor

I am not sure a conventional lender will allow a 20% seller carryback. May have to go non qm route or some other type of loan. If owner occupied even more difficult.