All Forum Posts by: Daniel Hennek

John, 

Respectfully, you are interpreting this all wrong.  Once you have an "accepted" offer you have an "executed" contract, a meeting of the minds subject to performance of the contract, or working through the clauses.  One of the clauses is for inspection and you should go read what it says.  Check out your last contract carefully so you can clear this up for yourself.  Renegotiation "in contract" is not invalidating a contract already executed and working through the performance stage.  You don't go back in time, you are simply working through a clause.  Read the part about how certain sections don't invalidate other sections of the contract.  Read carefully.

Your reference to an attorney indicates you have a lack of confidence in your answer.  People who disagree with you on this do not lack that confidence. We know through our experienced reading contracts carefully and interpreting them correctly.  For experience professionals this is a silly conversation.

Kevin,

You're right about interest rate being a small part of the equation for private money/Non-QM; there are way too many other significant factors to really care about the rate.  Many people don't get that so I understand why you mention it, but there are also private money lenders doing all the same stuff you're talking about for lower rates and longer terms (12 months) because they understand that having just a slight edge is going to get them some business.  The non-QM space is growing at a very rapid pace right now, non-QM lenders are popping up like weeds in spring these days.  My point was to continue looking around because the landscape is changing quickly in the Non-QM territory and you can save money or get flexibility.  There is a much broader range of Non-QM products now that span a range of borrowers and lenders are trying to find niche products to attract brokers to match them with clients every day.  Sure you like the way you're setting up deals because it's working for you and most successful business owners will understand where you're coming from. I'm simply suggesting you might be able to save enough money to make it worth looking around or talking to a good broker in your state.

The world of private money/Non-QM is entirely different than Qualified Mortgages.  Lenders are doing a lot of stuff, they just have to make sure they follow the Ability to Repay standards. The knowledge about how to create non-QM products that follow ATR standards is expanding and giving rise to products with so many varying features or UW criteria it'll make your head spin.  They are opening the box on everything they can from "1 day out of BK with 680 fico" features to "2 month bank statement as income" features...

My point is that I get you that it's not about rate for non-QM; for Qualified mortgages it most certainly is about rate/fees. What it's about for non-QM is fitting the loan with the borrower. If I've got a program that someone can do with 90% LTV, 2 month bank statements for income, First time buyers welcome, 1 day out of housing event with 680 fico, 1 day out of BK with 680 fico, then a rate doesn't mean anything. Closing in 5 days vs 20 or 30 matters. Everything is a factor in the bottom line equation with a private money/non-QM mortgage and there are many lenders out there that understand this is a competition and they're coming up with better stuff all the time. If you like 100% financing and that works for you there are plenty out there competing for your business.

 A lot of people think that "as-is" is the end all phrase and that when a buyer agrees to it they are committed no matter what.  Well as the attorney mentioned above that isn't how it works.  Read your contract and you can see how it works in your state and what is agreed to, all your answers are there in the contract.

As Charles mentioned what if a survey finds out someone's driveway runs across your property?  The whole point of an inspection contingency is to give you the out that you are looking for in this case and that's why the contract was written that way.  If your agent thinks it is unethical to do what's right for you then I suggest finding a new agent that represents your best interests and can read and write contracts properly.

You are most certainly not out of line looking out for your own best interests.  However, as just mentioned above it depends on the market you're in and whether or not it's worth risking the entire deal.  If the deal doesn't work for you without the reduction then you already have your answer...

Break down the math; it's really that simple.  When people are saying "it depends on your business model" that is really all they are saying.  Everyone does things just a little different so all you need to do is account for all the math involved and see what comes out at the bottom.

Commissions are often times 3% of the sales price for each side of the transaction. Brokers will usually take between 15-30% of that from their agents depending on their business model. Then there are all the expenses you'll have to pay to get access to MLS, join any trade group required by your broker, carry E&O insurance, etc...If you only do a few deals per year the money you get back from being your own agent might not be worth the time you put into it.

Typically, when I hear of a person wearing multiple hats I think they must not be good enough at any of them to really make a living, or to make what they want to make.  Just think about this, if you're selecting a real estate agent are you going to choose the person who makes a living at it and does it every day all day long, or the person who is also serving in other roles to make their living?  

I think you're making the right choice to focus on the investment first.  If 2% of a deal is going to break it then your margin is too thin anyways.

Best advice I can give anyone getting into the real estate industry as a professional is to read.  Read every day, a lot.  It's a very simple concept that few people understand because reading is laborious and most people don't like to consume that much content.  Read the complicated stuff; loan guidelines, regulation updates, law, etc...

You definitely want good training but many companies just claim it because they know that's what people are looking for.  If you find a broker that you think might be a fit make sure to ask for one of their newer agents to talk to and see what their experience is like.  Are they getting the support they thought they would?  Are they making sales?  Are sales managers holding them accountable and supporting their day to day efforts? Mostly just find out if they are experiencing what they expected based on what the recruiter told them.

Understand your disclosures inside and out.  Clients are going to ask you very basic questions about disclosures that can make many people stumble and look unprofessional so don't be that person.  Study your disclosures and know what they say and why they say it.  Think of what those clauses are trying to prevent as you're reading them.

And lastly, read more...

Good luck

Bobby, 

This is the exact type of situation where a mortgage broker can help you out immensely.  This is why mortgage brokers exist in the first place.  Finding products to fit borrowers is a time consuming task.  The banks and private money lenders out there target mortgage brokers and advertise to them constantly.  I'm not in Florida so this isn't an attempt at selling you, but I've got a list of lenders begging for my Non-QM business daily.  They all want brokers to sign up with them and they're always looking for new brokers to contact.  If you've got a good broker around you go talk to them about what they can find.

During the crunch back around 2008 and the following 5 years the broker model struggled because many banks closed their wholesale lines down but the mortgage broker business is booming again because many people are starting to understand the value of an independent mortgage broker.  The way brokers are paid is roughly the same as any bank pays its employee MLO except most brokers are able to select lower margins and sell lower rates/fees because they have lower overhead and less risk in their business model so it makes ensuring low origination costs easier.  I suggest talking to a local broker, there are many reasons I set up a brokerage instead of continuing to manage a team inside of a bank or "direct lender", but mostly it comes down to being able to offer better rates/fees, a more diverse product line, and ensuring more control over the process because I can take my business elsewhere if underwriting turn times hit the ceiling or other service issues arise.  Some people think banks treat their own loans more favorably than that of their broker partners, but that's backwards and shortsighted to think so. If I'm worth a $100,000 or $200,000 a year in revenue for them why would they do anything to jeopardize that business?  It's much easier for me to move future loans to another lender than it is for an employee of any company to take their business elsewhere.

Let the broker shop your loan for you; they are way better at it.  Take some extra time to yourself and stop calling around.

Benjamin clearly demonstrated that there are lenders willing to accept a previous lenders appraisal.  There are also plenty of lenders that will not for various reasons that mostly come down to how an organization decides to deal with compliance.  

There is no law that tells a lender they need a new appraisal in a case like this so it really is up to the lender how they decide to do business.  There are thousands of "this way" or "that way" decisions to make while setting up an origination platform so it's up to the person doing the deciding and everyone else in the company must do it that way regardless of what's allowed by law or other lenders.

My suggestion is to have the borrower call around.  It still might be cheaper to go find the best mortgage broker and pay for another appraisal if they won't take the one you've got.  You're talking $400-500 and leaving out the part of the equation where this decision could lock your client into the lender they work with.  Why would you go with a lender based on taking an old appraisal if their rates and fees are higher?  In an industry where origination margins can vary from 1% up to 4% on the back end it could be a way bigger difference than $400-500; It could be multiple points on the loan or a rate up to half a percent higher from some lenders.  There is huge variation in the margins lenders decide to charge but none of them want you to know it.  Finding the best low margin mortgage broker in your area is almost always the best way to get maximum service with the best rate/fee combination.

Also, you should know and be able to tell you clients why closing costs are allowed to change and what costs are not allowed to change.  Understand how rate locks work and learn to advise your clients on the benefits and drawbacks of rate locks.  If a client is backing out of a loan because terms changing then something went wrong along the way with communication.  Lenders are not allowed to just change terms that they estimated in good faith and they are required to estimate them in good faith.  The only thing that usually happens to change costs or terms is that the rate isn't locked or pre-paids were miscalculated.  When the rate isn't locked many loan officers fail to completely explain the rate lock process and advise their clients how to navigate it with them.  When pre-paids go up people are usually irritated because it was a miscalculation.  Clients usually understand they still owe the money for taxes or insurance they are just pissed at the loan officer for failing to properly estimate it.  In both of these cases it is definitely a mistake on the part of the loan originator but if you know this stuff and can explain it to them they will have another advocate in their corner looking out and heading off problems before they make a mess.

It's not necessarily fraudulent if you don't disclose it.  Read your loan documents carefully and read your personal guarantee documents carefully; you probably don't need to disclose it if its actually business debt.  If the debt is an obligation of the business and NOT yours personally and the business typically pays that debt as a business expense then it's an expense of the business and almost any lender would not require you to count this debt as your personal debt thus counting it twice.  Is your Personal Guarantee in the form of equity on another property you own?  Is it an unsecured guarantee?  There should be paperwork you can reference that tells you what kind of guarantee you will be committing to and what its terms are.  Personal guarantees are only activated if the business begins to default; if that is the case then you would probably count it as personal debt on a loan application because upon activation of the personal guarantee that business debt becomes personal debt.  However, if the business is up and running and paying that debt then it's business debt and the personal guarantee would not be active so it would not be a personal debt.  If Lenders are looking at your obligations they are going to tell you what to provide them with and that's often times going to be business tax returns as well as personal.  They'll calculate that business debt into the whole equation through the business tax returns and resulting income from the calculation.  So, if you're worried about fraud just remember to read carefully and talk to your lender about what to disclose.  Your mortgage loan originator is going to help you comply with the law, talk to them about it.

As mentioned above it only becomes a conflict if the proper disclosures are not given or disclosure is given in the wrong order.  If the seller is not informed properly of the situation it can give rise to a situation where the seller relies on your representations as a real estate professional and/or shares confidential information with you thus creating an implied agency relationship.  If you do not give them a fair and accurate representations that are also in their best interests because you have an interest in the property then it can raise liability and ethics issues.  State's have agency laws to protect consumers from unscrupulous business practices like this that use a position of trust to gain confidential information.

For example:  A Realtor who is also an investor gets a listing presentation set up like mentioned above; they go to the listing and represent themselves as a listing agent only.  The house has a market value of about $250,000.  The Realtor tells the client they can sell it for $240,000 but it might take 6 months.  The Client then begins to reveal confidential information about their position because they now trust the Realtor and are assuming this person is talking to them as their agent.  The client reveals that they really need to sell it as quickly as possible and might take as little as $210,000.  The Realtor in this situation then tells them they "have a client" who might be willing to affect a quick sale.  Because the Realtor went into this posing as a professional that simply wants their listing and nothing more they now have personal confidential information about the seller's position that any other buyer would not have, and they have that information because they created an implied agency by acting as if they were there to represent the seller and the seller's interests.  

Be very careful not to create an implied agency relationships with potential sellers. Some licensed real estate agents have the strategy of using a listing presentation as a pretense to get confidential information for buyer's they represent. That is unethical and against the code of conduct for the NAR and against many state laws. Be sure to read and understand your state's laws with regards to agency and be sure to immediately inform the seller's of interest in the property that may conflict with theirs. These types of situations are often navigated improperly by inexperienced professionals. Be sure to involve your broker on deals like this because I guarantee you they want to know about it because you're putting their butt on the line too.

Starting out investing you need to learn a lot.  The more difficult the situation is the more difficult it will be for you to learn from it and make some money at the same time.  You may learn a lot from a difficult situation but that usually comes from losing a bunch of money in the process.  The safer and more practical strategy would be to find something that is easier to manage so you can find your legs.  You've probably already learned your lesson about renting to family or friends; there are many more to learn that you won't see coming so being more conservative can help ensure your success by allowing for more margin for error.