Investor · Dallas, TX · Member since 2016 · 95 posts · 14 votes
Hey guys,
I am very excited about being a broker for owner finance deals. I have been studying for months. I want to connect investors with people that have bad credit. There will be a wrap-around mortgage. I plan to follow all regulations and be compliant in every law so I don't need the regulation police on this post, please.
I need help in finding lenders which I can connect with my investors. I want to be able to refer my investors to a group of lenders I have lined up already and they can get pre-approved and we can knock some deals out. I have found one so far but not done a deal with him yet. He requires 55k combined income, 700+ credit score, and 20% down. And he is offering less than 6% interest. He has worked on wrap deals before and I know that his bank will not call the note due.
But how do I find more lenders that will not call the note due? I can't ask them, or they are obligated to tell me they will call the note due. I cannot tell them what I plan to do, or they will tell me that cannot allow that. So do I have to tell a white lie about how the investors will be holding the properties as rentals? What do I do? Tyvm
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Trevor Smith if 99.99% of wraps are never called then why are you even worried about it or asking for a lender that would PLAY BALL.. this is perfect way for a lender to lose his or her's license ( which happens often) and you to end up committing loan fraud which happens.
its not the wrap that gets you in trouble.. I have done hundreds of them over the years and started a company in the mid 80S called California wrap when it was a new instrument AITD .
where I see folks get in serious trouble with this model.. is when the person you sell to defaults and you have an underlying mortgage obligation in someone's name and revenue erodes to the point you can't pay the underlying.. its really is a house of cards.. and if you have ton's of liquidity its no issue.. but most that try wraps are usually not there with liquidity and see this as a way to get into property with little to no money and no credit and it just leads to some pretty bad situations.
this is just the bad credit little money lease option to purchase model that is prevalent in Texas I guess and other states.. that is a loser all the way around.. its just glorified rental business nothing more nothing less and you make it way more complicated than it needs to be.
Investor · Lubbock, TX · Member since 2015 · 9 posts · 7 votes
10y
So do you need lenders that lend more leniently? Or that will do wraps? I have a guy in Lubbock that has a program that allows for lower credit scores to apply if you want his info.
Hi, thanks for asking me to clarify, perhaps I confused others as well.
I am looking for lenders that will do wraps. I don't mind high lending requirements. I can find investors with good credit and good jobs. But I want to be able to tell them with confidence that the note is not going to be called when we do the owner finance deal.
Investor · Lubbock, TX · Member since 2015 · 9 posts · 7 votes
10y
ok, I'll ask some of my guys, but off the top of my head wraps in general aren't allowed anymore, but where you would have the most luck is with a local portfolio lender that can look at you specifically and look at the asset. If they are required to check off the boxes then they won't have to flexibility to do what you want. The smaller local guys that are underwriting deals themselves is where you will have the most luck. Especially on SFR. Now commercial, I have a really good guy for that. He's strict, but on the stuff he can actually do, he's got really competitive programs. Hope this helps.
Investor · Dallas, TX · Member since 2016 · 95 posts · 14 votes
10y
@Jordan Madewell I really appreciate your help! That is very kind of you. Please let me know if your contacts are interested in working with me.
@Account Closed I think you are right. So a better question is this: How do I find lenders that will secretly play ball? Or how do I negotiate working with them and know that we are playing ball without bringing it up?? I don't mind telling them the house is going to be a rental. I don't mind telling my investors not to ask the lender about doing a wrap.
But I need to feel confident that the due on sale clause is not going to come up. I can handle it if it does--We will undo the wrap and I will cover the payments for the investor until the house sells and we pay the lender off. But I want to be 99% sure it wont happen.
Investor · Dallas, TX · Member since 2016 · 95 posts · 14 votes
10y
@Account Closed I'm not sure if your question was rhetorical. I will tell the borrower it is fine because they will get their down payment back when we sell the house. But that sucks for him. What if it doesn't sell? I would have to cover the payments until it does. That is what I want to avoid! But you're not giving me any help!
Is there a way to keep the home insurance in the name of the investor? Then the lender would never even need to know.
Investor · Dallas, TX · Member since 2016 · 95 posts · 14 votes
10y
@Account Closed
Yes good point. What if there was a document drawn up by an attorney that stated that the investor will keep his name on the insurance, but in ever receiving a claim payout, he is required to spend it for the reasons that the payout was awarded? We can make a paper trail of signed documents that the buyer/tenant would have to take to court in case the investor tried to keep the payout. The buyer/tenant could have a slam dunk case. All of this would be completely without the lender's knowledge of course.
Investor · Dallas, TX · Member since 2016 · 95 posts · 14 votes
10y
@Account Closed
Okay let me clarify. The original borrower that is borrowing from the lender is the investor. He will have great credit, good job, etc. The buyer/tenant is the one that will have a wrap mortgage that he owes to the investor.
I propose that the original insurance stay in place in the investor's name. He signs documents and gives them to the buyer/tenant that will give the buyer/tenant a slam dunk case in court just to assure to him that the investor could never pocket the insurance claim for himself. But all along, no name is changed on the insurance, and the lender never needs to know about it.
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Trevor Smith if 99.99% of wraps are never called then why are you even worried about it or asking for a lender that would PLAY BALL.. this is perfect way for a lender to lose his or her's license ( which happens often) and you to end up committing loan fraud which happens.
its not the wrap that gets you in trouble.. I have done hundreds of them over the years and started a company in the mid 80S called California wrap when it was a new instrument AITD .
where I see folks get in serious trouble with this model.. is when the person you sell to defaults and you have an underlying mortgage obligation in someone's name and revenue erodes to the point you can't pay the underlying.. its really is a house of cards.. and if you have ton's of liquidity its no issue.. but most that try wraps are usually not there with liquidity and see this as a way to get into property with little to no money and no credit and it just leads to some pretty bad situations.
this is just the bad credit little money lease option to purchase model that is prevalent in Texas I guess and other states.. that is a loser all the way around.. its just glorified rental business nothing more nothing less and you make it way more complicated than it needs to be.
Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
10y
@Trevor Smith you're better off finding private lenders to purchase homes for cash and seller-financing to your end buyer. Having an investor in the middle has no value-add. Let the private lender be your investor. You will have to sell properties at a discount.
You have something against the term play ball, I get it. This term offends you. We don't have to use it. The reason I'm worried about it is for obvious reasons--because I've heard the horror stories of a note being called due and I want to avoid it. If I am required to inform the lender when the loan is wrapped lest I commit fraud, then I will inform them with the first check from the new buyer. All I was looking for in this thread is a way to know if that lender is going to call it due or not. No one has given me ANY answer whatsoever. The only strategy so far is to cross your fingers and I was hoping to find something better.
If you have done hundreds of wraps, and you're familiar with the pitfalls that other people have suffered, then you could be an invaluable resource for me and I would appreciate your help. Can we talk on the phone?
Hi Gautam. You may be right. Believe me, if I had an army of private lenders to help me, I would use it not only for owner-financing but everything else including flipping. I don't have a single one and I don't know how to get them. And what interest rate would they want? 10%? That is the same interest the buyer will be paying so there is no cash-flow there.
But if you know private lenders that would loan me money at a decent rate or even partner with me, then I would give you a referral commission and a big hug.
What I don't want to do is spend thousands of dollars every month on marketing, trying to scrape a good deal away from the clamoring masses of other investors here. Yuck. That is not what I want to do. And flipping requires good deals, and good deals requires scraping and scouring.
This brokering strategy does not require good deals. The buyers can choose a home at retail prices.
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Trevor Smith Ok I see what your trying to do... your trying to borrow from a lender.. for the purpose of wrapping to bruised borrowers so you can make the delta between bank rates and owner finance sub prime rates.
this model is flawed to the extreme.. for to many reasons to count..
how are you going to get bank loans from banks in the first place ???? you will need a whole lot of liquidity and capital behind you .. there are no lenders that will play in this sand box.. this is a very POOR use of your credit or borrowing ability if you can indeed get lenders to lend you multiple loans.. regardless of if you can wrap them or not..
I see this scheme come up when folks read from some guru pitch..
We did the wraps as a very well cashed up company.. and we had commercial lines of credit in excess of 10 million to play with.. that's how we did it.
Property developer and building contractor · Lampasas , TX · Member since 2016 · 148 posts · 81 votes
10y
I am no expert, but looked into them specifically in Texas..... see the bottom 2 paragraphs concerning legal compliance "IN Texas" from this attorney.... (Of course you could NOT notify, but again,,,, that increases risks...) ....
Thank you Rob Harris! This is really appreciated. You actually added value to the thread and addressed my question.
As it turns out, I am actually finding several lenders that have told me they have done wraps in the past or that they do wraps, and are ready to help me. So there may not be any need to find lenders without ever broaching the subject and simply cross my fingers.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
10y
Sorry, but the site regulatory police are dang sure going to post when you continue to post attempting to circumvent laws and place ideas in the minds of other members.
Obviously your "studying" for months has been nothing more than your attempt to justify in your mind how you can continue your unethical and illegal quests, for one thing you're stuck in this justification of helping those you don't qualify, in reality, you're seeking a predatory advantage of skimming money out of that borrower end buyer!
Any idea of what insurance fraud is? Do you understand the theory of "insurable interests" and the position of an insured? No, I'm sure you don't.
And no, you are not in compliance with all laws as you're not aware of all the applicable laws, neither is some cow poking, big hat, no cattle mortgage broker.
You'll be much more successful if you'd put half the energy you expend on trying to out fox the rules and laws into choosing a path of investing and operating that is easier and compliant. IMO
Now, I guess it back to folklore, deal dreams and really bad ideas. :)
I was so relieved that you hadn't poked your head in where it wasn't wanted until now. I thought I had almost made a post without your godlike infallible wisdom telling me what to do. Hey, but let's go with what Bill says and spread fear around like the plague, and you know those millions of people that can't get homes? Screw 'em. If the banks can't help them, why should we? Because Bill is afraid. Guess what Bill?? YOU don't have to do it. No one is going to make you do owner finance okay??
That predatory thing you think I'm doing? What do you call land lording Bill? The land lords are taking money from people in hopeless situations to pay for their own mortgages. What do you call that? The American way? I will allow them to pay the same price and not be a suck-up lowly tenant their entire lives. I have rented my entire life and I know that it makes you feel like a lesser person. You feel like you hold no cards, and you are literally buying someone else's house for them. It's awful. But you're scaaareedddd...so let's make everyone else scared too. Those people with bad credit, fu*k 'em, right?
You're making assumptions about me and I don't know why. I don't know why you assume I am a scheming predator. I have said nothing to indicate that. Maybe you have known such people in your time, and now you have become impatient, judgmental, and presumptive in your old age. You're a sad grumpy old man with nothing better to do. If it didn't infuriate me so much, I'm sure I would take pity on you. I have every intention of qualifying my buyers. The last thing I want is for them to default! I want everyone to benefit. Why would I want anything less? I'm going to be responsible if they default because I am going to guarantee payments to the investor for any gap in payments. I will also be responsible for covering payments during the sale of the house if the lender calls the note due. If it is called due, we will have to sell the house to pay them off. Who is going to be making those payments during that time? I will be. So I come here to try to mitigate that risk, and you treat me like sh*t and I'm sick of it. You don't know anything about me. You don't even bother to ask me if I'm going to find qualified buyers. For some reason I can't explain, you assume I am a total creep. Do you have some kind of vendetta?
If you don't think people with bad credit can be qualified buyers, then you're more prejudicial than I thought. There are a dozen reasons why someone with a good income can have bad credit. And there is no reason why they shouldn't have the pride of ownership if they are hard-working Americans, or hell...even if they are hard-working non-Americans.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
10y
Yes, I'm guilty of assuming, it's based on what you have posted and the way you post, my impression. No, nothing personal at all, it's just that you're in way over your head attempting to be an underwriter. Now, I never questioned your intentions really, they say the road to hell is paved with good intentions. There may well be predatory aspects you aren't aware of while you think you're "helping" someone.
No fear mongering intended, it's just information you and others need to be aware of, you're going to do whatever you want to anyway, I'd bet on it.
Wow, making guarantees to investors, that sounds simple to do, it's not at all simple!
You can ask an FBI Special Agent how to make such guarantees using other investors money, I'll just say it, paying loses with other peoples borrowed money is considered a ponzi scheme. They don't care what your intentions are. Google "Reserve for bad debt" or "Loan loss reserves" start reading as to the theory not so much as to compliance requirements for different lenders.
"My old age", LOL, I'm not old, my dad is old.
Impatient? Yes, like a father telling his son not to touch a hot stove even if it's turned off.
Judgmental, absolutely, I pass judgment on activities, not people personally, it hate the sin, not the sinner.
Presumptive, I'd say that is simply reading between the lines based on experience and knowing what needs to happen or not happen going down some path dreamed up by those who are unaware. If you really want to help home buyers, go to the HUD Credit Counselor's web site, start there.
I actually liked this post you made. You managed not to accuse me of anything or insult me. I am shocked. Did someone sit you down and tell you not to be an ***hole?
Really, if all your posts were like this last one, you'd probably get a lot further in making your point and bringing people to your side. You will get a lot more bees with honey.
Do you think a real estate investor should sleep so much better because he goes around finding people in pre-foreclosure, offering them squat for their house and stealing all their equity, and then feeling like a saint because he did the generous act of saving them from foreclosure? Then he goes on to rent the house to a low-income couple that is destined to be renters because of their socio-economic background, and has them pay for his house for him. That investor is a self-diluted and unethical thief. You are telling me that I'M trying to be predatory??
Finding cheap houses to buy from desperate people and then renting(having them buy your house for you) them to other desperate people is the cornerstone of real estate investing. But all of THAT doesn't rub you the wrong way, right? Only owner finance seems wrong to you. When in fact, my strategy is the only one even trying worth a damn to help anyone but himself.
Tell me, what fully ethical and better way do you propose I make money?
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Trevor Smith its evident you simply do not know what you do not know.. and only experience will teach you these things.. the model you think is some noble pursuit its flawed to the extreme.. there is a reason people need to rent their whole lives.
We HAVE vehicles for those with low dollars to buy homes.. FHA is only 3.5% down and Farm loans in rural communities are Zero down.. I have sold many many homes to my clients over the years using both. And if you don't have good enough credit income and that LITTLE amount of cash to own a home then I believe you need to shore up credit save some cash.. you should be a renter.
It is not a god given American right to own a home if you can't take care of your credit.. And all you need is decent credit and a good stable job and you CAN buy a home... And its not a god given American right for illegal aliens to buy a home in America.. this whole scheme is very prevalent in Texas and is totally predatory. Not saying you would be the predator but this is what happens I have seen many post from those in Texas and looked at their websites..
If you are buying a home today and selling it right away on a wrap.. then your doing basically zero equity wraps.. those are a total loser and when you put your good credit up > I assume if your getting the loan you have good credit because bad credit folks can't get a loan.. And this is not an owner occ loan.. so you need 20 to 30% down on each one.... and if you tell the bank its owner occ and then resell right away your committing loan fraud..
so your only play here is interest rate delta.. which gets eaten up when your end buyer defaults and because your playing in the sub prime sand box with poor credit folks you can count on this happening period end of that discussion.. Again based on my experience.
You also have to qualify them for the QM rules.. I am a NMLS licensed Mortgage banker so I am aware of the current rules..
As I state if you have the credit and cash to buy property the wrap to homeowners is a VERY POOR use of your credit and borders on suicide financially.. so that's all I am trying to point out your not the first person to think this is a great idea..
Now the guys down in San Antionio that were on this site were really bad.. they took homes that were as is POS and sold them to Hispanics on owner carry back some wraps some sucking CA investors into the deals.. they marked the houses up 100% .. this is predatory..
Thank you for your post. I disagree with you on many things but I appreciate your informative and respectful discussion. I'm sorry how long this post is but I am passionate about this.
I will not be telling any banks the house will be owner occupied. It will be sold to an investor as an investment property, and yes, the investor will be putting 20% down. I am still trying to find my way of doing things, and I think I will be putting all of the down payment from the buyer toward the house also, not keeping any of it. So in that sense, the investor will be putting only 10% down because 10% will be coming right back to him. This will keep me from having to mark the house up 10% in order to keep that 10% for myself. Or even 5%(putting other 5% toward the house) which I considered. I don't need 5% or 10%. That would just be greedy. Instead, I am going to charge a flat rate. I am asking myself what the investor would be willing to pay. Because he is also using my services, I think he should pay something, and not just the buyer. The investor is going to get monthly cash flow with no land lording, no repairs, and doing no rehab. I think that is worth something. I was thinking $2,500 from each of them. But I will have to find out what people are willing to pay.
What credit score does one need to get an FHA loan? 640? Why would I want to find unqualified people to buy houses? It's like you guys think I am literally insane. I don't know why. Why would I sell a house to someone that doesn't have 3.5% to put down?? That is not even just a terrible idea, that is purely insane. The people I sell houses to will make plenty of money and have at least 10% to put down. If they don't make enough money, then I can't help them. This strategy is for people with bad credit, not with bad everything else. They can't have bad income, bad down payment, bad everything. They can have ONE bad thing--bad credit. And even then, I sure as hell want to know why it's bad. They need to have a good reason. And those good reasons do exist, contrary to what your impatient ears would say. You are too impatient to bother with any of it. And that's fine. Like I said to Bill, no one is going to make you do it. You are off the hook.
How do you figure owner financing is a poor use of your credit? It is cash flow(the #1 thing that everyone on this entire website wants) with no land lording, no property management cost, no repairs,vacancies, taxes, insurance(literally everything that everyone does not want on this website). How the heck does that seem like a bad use of credit? This is the absolute best way of using your credit that I can imagine. The worst case is that you keep the house that you bought. And now it can be rented, resold owner finance, sell the note, resell conventionally.
I plan to be completely transparent. If I have a viable service to offer, then it will sell itself. I will not have to hide or sugarcoat, or lie about anything. If it is not a viable business model, then people will tell me to get lost, and I will have to find something else, or adjust it. In another post regarding podcast #70, Bill Gulley made a sarcastic comment about how the broker/investor(myself) would never disclose all factors to all the parties, but I plan to do exactly that. I will pitch everything with transparency and adjust the terms until people like it. If I ask 100 investors to pay $2,500 for this opportunity, and all 100 of them say no, then I will make it $1,500. Then $1,000. I will adjust until I have a service that is helping everyone involved. Also, you guys act like doing a wrap is inherently illegal because of the DOS clause. The clause doesn't say it is wrong, or illegal. It doesn't even say the banks dislike when you do it! It says they may invoke it if they wish.
I realize the regulations for loaning to people are strict. And you see this as being a deal-breaker. But why can't it be done? Why is it impossible to loan to someone with bad credit ethically so all parties benefit? Can you not imagine that being possible? It is just completely beyond your comprehension?
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Trevor Smith yup saw a guy do this in Oregon and he ended up in Jail.. just saying..
its just your idea and others money.. your competing with a lot of experienced folks that have track records of success, investors who can afford this if they run it by their financial folks will not get a green light.
your tying up the investors 10% even if you can find 10% down folks and their credit is tied up.. the first thing your investor is going to ask is what happens when the buyer defaults. And they will default. bad credit people have bad credit for a reason they can't manage their cash flow.
But anyway... you forewarned.. there are other ways to give back.. this is not giving this is a profit center for you.. using 100% opm... why would anyone need you .. that's the question an investor will ask.
