All Forum Posts by: Bradley Bogdan

So I'm working with a local non-profit to help them liquidate at least one, but probably 2 of 3 properties currently under a commercial umbrella mortgage held by a regional bank. They are looking to tidy up their affairs before dissolving and transferring assets to another non-profit I work with. 

The properties are (roughly) currently valued by looking at local comps as follows:

Property 1: $80,000 (lower than market due to very poor condition, likely appraised too high initially)

Property 2: $160,000 (currently undergoing a rehab due to fire damage, value given is ARV, repairs are covered by insurance and are in progress)

Property 3: $250,000 (currently also undergoing a rehab on a secondary structure on the property due to fire damage, but as that process has taken over a year so far and construction hasn't even begun, value given is my estimate for current value)

Properties 1 and possibly 2 are the one that they are looking to sell. The original loan documents seem to indicate that the properties are collateralized at 26% each for 1 & 2 and 48% for 3 for the total initial loan of $325,000. The current principal remaining is ~$310,000

In my last discussion with the local bank rep, he said the bank is almost always willing to discharge a property out from under the umbrella if there is an appropriate reduction in loan principal from the sale. He also mentioned that there would need to be a new appraisal to ensure the remaining properties appropriately collateralized the remaining loan.

I've got two thoughts after seeing the original loan documents:

1. That the non-profit is essentially underwater on Property 1 OR

2. That the equity in the properties has just shifted, and the bank would be willing to allow the sale of Property 1 on its own for anywhere up to 100% of the proceeds going to pay down loan principal and not requiring more than 100% 

So my questions are this:

1. How much do those original %s mean when selling a property out from under an umbrella loan?

2. If they do mean a lot, and the non-profit is essentially underwater on Property 1, would a strategy of bundling properties 1 & 2 in the same sale be a reasonable suggestion to the bank to allow a normal, instead of some form of underwater/short sale that could require an additional paydown beyond the sale proceeds?

3. Or if the numbers worked out, would it be easiest to just sell Property 2 before Property 1 to allow for additional principle paydown if the sale price of Property 1 is too low to meet what the bank would like? A sale(s) closing before the end of December is likely critical, would this likely be a slower option than bundling?

4. Am I missing something obvious?

Thank you all in advance!

@Account Closed has a good overview, though I would point out that the exact term "HAP contract" covers any agreement with a landlord, including the actual agreement signed for individual Section 8 tenants. 

I would get more information about the units and location. If its within a larger city's PHA (such as some suburbs of Dallas), there are rules being proposed that could really curtail any "premium" on local rents paid by Section 8 tenants in lower rent areas within the next year or two. The rules won't effect PHAs outside the top 50-75 in size or so, so if that 200,000 person city is the hub of the area, its unlikely to be affected. 

Are all the tenants Section 8 voucher holders (likely indicating a premium over the general market rents for the area), or just some (indicating that rents are more in line with the rest of the area as folks who are more price sensitive will rent there). 

If the complex itself is subsidized in some way (there are MANY different ways this can happen), be VERY clear on what is expected by your PHA or municipality and what the track record has been of the place. If the numbers the seller is providing look good, but the city has has constant issues with utilities, pests, etc., that should definitely be factored in. It could be an indication of delayed maintenance, or of a difficult city/PHA partner. 

If you're banking on the complex becoming approved for a general subsidy program, vs. individual voucher holders through Section 8, talk to a local non-profit developer for advice. HUD is currently being sued at the top appeals court level of federal court over the fact that the Dallas PHA has possibly been "steering" low income housing program funds to complexes in low income neighborhoods, thereby defeating a main point of funding affordable housing. Your local non-profit developer will probably have a much better bead on what that could mean for you locally (it could make getting those funds much harder in a C neighborhood), as well as the fact many non-profit developers can also manage subsidized complexes for you smoothly, as they have plenty of experience in the additional documentation, rules and inspections that Nicolas mentioned.

Good luck and let us know how it pans out!

Yeah, I have to say that rent control should really be a tool of last resort, because it doesn't work very well. I totally agree that steps should be taken to balance back the market on rents, as cities do need lower income workers to have safe, affordable housing, but in many cases, that should be accomplished by policies that encourage more housing to be built, not by a messy programmatic attempt to cap rents. Richmond doesn't strike me as an area that is constrained by a lack of physical space to build, or environmental conditions that prevent building additional units. 

Holy cow. Obviously, hiring a very good lawyer is the most important thing you can do. 

Good luck and let us know how it goes!

 I think you're probably giving the majority of folks a bit too much credit there, in my experience, deeply held stereotypes about people associated with various forms of income is a much larger predictor of such criteria. I know Daniel probably didn't mean it that way, but many people who write it in an ad or on a list of criteria do. You're factually correct about the garnishments though.

 Yup, sorry if that wasn't clear. I appreciate that you (and many others here) think it would be ridiculous to discriminate against two folks with the same level of income based on what lawful source it comes from, but it happens a lot more than you think, hence the revisions to California's Fair Employment and Housing Act in '99 to include source of income. 

I won't say it happens all the time, but I regularly have landlords tell me that they would much rather someone who's employed, or tell me they won't rent to someone on disability, etc. I haven't had any clients dependent on child support, but I could see that being a more regularly discriminated against source of income. 

All in all, just wanted to point out that, to cover yourself, your shouldn't have "employment" as a rental criteria. :-)

 Hi Ray,

No, the tenant cannot pay the difference, regardless of what they may tell you. That is actually considered fraud and both tenant and landlord can be held accountable depending on the situation. In rare cases, the PHA can approve a unit for more than what the stated Section 8 Fair Market Rent is for your area, but most of the time that isn't an option. Unfortunately, if the FMR for your area isn't high enough, Section 8 tenants may not be an option for you.

If you'd like any help determining what the actual maximum rent may be for your unit for that applicant, PM me and I can try to help you through full calculations for your area. 

Good luck!

@Daniel Miller

Just looking over your list of requirements, you can't mandate someone is currently employed in California, assuming that's where your rentals are located. You can set a minimum income, but in many places, including California, you can't discriminate against where that income is coming from (provided its over the table). That means someone on a fixed income, child support, etc. can't be turned down simply because they're not employed. 

Other than that, I'll echo what others have said. Charge folks once you accept their application, and only for the amount it costs you to run the appropriate checks on credit, criminal history, etc. I've found application fees substantially above cost (such as @John Thedford 's $75 per applicant) for anything other than high end properties can be a major turnoff for prospective tenants. 

 Couchsurfing is at least different in the respect that there is no money changing hands, but that many visitors almost certainly violates your lease if they're driving up water usage that much. Otherwise, I think you'd have a hard time distinguishing a couchsurfer guest from a friend staying the night or bringing someone home for a romantic evening, legally speaking. 

You're totally right Colin. Things are going to be pretty dismal in Greece for the average citizen for the foreseeable future. That's why it saddens me that, quite often, in these national debt/sovereignty issues, it seems to be forgotten that there are huge consequences for the populace with whatever course of action is taken, and often quite small ones for the actual decision makers. 

That's why it strikes me, as a lay observer, as a much better option for Greece to take an exit now, as the next 5 years will be rough either way. At least with a Grexit, they have some hope of returning to solid standing with a full arsenal of options to tinker and grow their economy with at the end of those 5 years, akin to Argentina's recovery. I can only see that 5 years from now in even the most ideal Euro retaining scenario would look like a sad purgatory with little hope on the horizon.

I'm not particularly familiar with the political side of the desire to keep Greece in the Euro other than the simple Europe v. Putin sphere of influence understanding, but it seemed like the IMF proposals boiled down a retention of Greece in the Eurozone to a question of "How much money are you willing to pay Greece to not defect to Putin's sphere of influence". The most recent IMF proposals essentially took the tack of saying that the Euro will continue to have these same recurring debt issues unless the union is tightened substantially, to the point of transferring wealth in some form to the poorer countries (much like the US transfers wealth from rich states to poor states), or dissolves. From that view, it seems more understandable as to why Greece is so interested in staying in the Euro at this point, but you have to wonder what the eventual "price" of keeping them in the fold will be when one side of the spectrum doesn't even seem convinced having Greece in the Euro is worth it anymore, and the other sees including them more closely as the best option. All in all, something I could follow with popcorn and great interest if it ever became a movie.