All Forum Posts by: Dion DePaoli

Equity is the term used to describe the junior interests of an asset. Equity is junior to liabilities related to the asset. So in real estate, you as an owner, would have a junior interest to any liabilities secured by the real property (if those exist). In that, we get the layman explanation. Equity is the net remaining interests after all superior liabilities. Those liabilities are not limited to just mortgages. They can include any liability such as other types of liens (tax, mechanic, etc).

So, while the example above is not wrong, it is not fully inclusive of the idea. If a homeowner has a home worth $100k with a mortgage of $50k, they may still have less than $50k in equity (or 50%) depending on the other liabilities, say mechanic lien for $10k, so they would have $40k or (or 40%).

Most often, the quick and easy idea, like above, is used in conversation missing the details of the additional liabilities to establish a "true" defined amount of equity.

Throw some examples out of confusing statements for some more commentary.

@Jerry W. and @Bill Gulley have you guys ever heard of such things?

This seems a bit off and a bit wacky. A buyer would generally have no affinity to a Seller's bankruptcy plan. Buyer makes offer subject to Trustee approval related to how they are administering the BK plan. Essentially what I am saying is, I have never heard of and can not begin to understand what a "Bankruptcy Release Fee" actually is or means.

That seems like somebody is trying to establish floor on the fee paid for the sale. Is somebody trying to wholesale this to you? Can you be sure you are dealing with the actual owner on the other side?

Did you ask who you actually pay the fee to and when it is due?

The limiting of who can purchase does not make much sense either. A LLC can purchase but a corporation can not? Neither can a partnership? None of that makes a lot of sense either.

In regards to using some other state's approved real property contracts. Just do not do that. Request the standard/proper state forms for where the subject property is located.

I have never heard of these things and they sort of make me believe somebody is trying to do something behind the curtain. Perhaps I am incorrect. Curious if any other folks have seen these types of requests too.

Overages on what?

You want a client with an overage or you want to sell a client an overage?

Are you refering to a loan balance?

You are going to have to give a bit more detail if you want an type of answer. You are not using common terms so it is difficult (thus the questions) to tell what you mean.

No problem.

I do not want to gloss over Marie's question as I alluded to it in my post. A responsible lender is not going to give you a six month term here. That is pie in the sky thinking based on the numbers here. $45k in rehab is not going to be some quick overhaul. Bare in mind, you need to do the rehab and like sell the property (or refinance) in order to pay the loan off. The lender should really be setting you at 10 or 12 months in my opinion. Remember a general rule of thumb is to capture the value of a property in a market properly generally the marketing time required is around 90 to 120 days. So, based on this deal, you are done with rehab in 90 days and you sell or refinance in 90 days.

In my opinion, that is a risky "fire drill" in regards to time allowed. If I were you ask for 12 months and let the lenders counter offer you. Plan for the worst and hope for the best.

One other idea to watch for, look for inflated interest upon maturity or default. If they are demanding high interest, such as here, they don't need to jack it up further if you can't pay the loan off by maturity. Not overly common but also not uncommon.

Good luck.

That is true to some degree at face value. The details matter. The title company will still go back in time on title to review ownership and encumbrances. Foreclosure should generally wipe out those interests. If they find, for instance, a party who had an interest in the property but was not named in foreclosure they may call to cave that interest out. Does it happen? Yes. Often? No.

When you purchase title insurance the agent will send you a preliminary commitment. This will show the exemptions to coverage. It might be overwhelming to look at but it really is just a list. Read through it. Any carve out could be cured by you or the title agent and problem would be solved. They do not just write you a policy and then you are stuck with it from day 1.

Use the title agent/company to help guide you. If they can't or are unwilling find a new one. This is their job. For the most part, chances are you will not have much to worry about.

Just saw this when I posted. The idea that you already own the house does change my interpretation here.

I still do not like this offer. It is poorly written. I see what they are trying to communicate if it is a refinance.

The loan amount is sum of the $45,000 plus the 20% contingency. That contingency is still $10k. They still want to write the note for a total of $54k. So you will pay interest on the contingent amount ($10k). That is not a good deal or structure.

The idea still inflates their dollars lent causing you to pay more interest. The $10k in the note would mean you need to pay it off. It does not appear you can use it in this structure.

The problem is they are not adjust for their perceived risk in the right places. The interest rate and loan to value should be adjusted. (Well, think the rate is still too high no matter what, I think you can find 10% and 12% all day long). Point is, this extra $10k, if they need it should be reduced in LTV. Problem is then you don't get your requested monies.

They could have set aside the $10k as an interest reserve so the +/- $5k in interest you will pay over the life of the loan comes from that $10k but should be marked as non-accrual. It does not explicitly say that.

I am not a fan of this deal. I am not a fan of the way they presented terms to you. I do not see between the lines that the lender is trying to make sure the deal is a win win. Yes, they have some risks but so do you at 55% LTV. Granted you are only into this for $8k so they need to offset that. I really just don't like the way they did.

I would shop around still.

Marshall, that is not a good deal.

I will translate:

The loan will be made for $46,250. Somebody did bad math. They are implying the loan is at 55% LTV (Loan to Value [of property]). The property is noted as being worth $85,000. The loan amount is 55% of $84,090.91. The proper math based on the statement is $46,750.

The next line is the rehab reserves. They will capitalize $45,000 for rehab purposes. It appears they have mandated a 20% contingency on top of the total amount estimated for rehab. There is absolutely no need for such a thing. Experienced folks would never agree to this feature. Since they will be the ones funding the rehab capital, they are actually driving the cost of the loan up for you. I really do not like this idea. This screams somebody is taking advantage of you or they don't know what they are doing.

If the lender capitalizes 55% of the purchase ( per their numbers 54.41%) and then capitalizes the total rehab for $45k, you will have a loan amount of $91,250. It is not clear if the rehab dollars will accrue interest, but that would be customary so we will assume so. The plus 20% means, they are actually writing you a loan, secured by the property, for $100,250. So they have an additional $10k in there that would likely accrue interest that frankly they didn't actually give to you to use but it appears they want interest on. That does not fly.

The interest of 1.5% per month is actually 19.56% annual interest. That is pretty high for residential hard money compared to what some other folks are willing to lend at. It is not clear, now that I wrote that, what the type of property is (commercial/residential) or what inherent risks come with but since you are new to the game, I will assume it is not all that bad of a property. So I do not see where that type of high rate is warranted.

The loan will have no prepayment penalty and with that sort of interest, it should not.

The loan matures in 6 months. I am guessing, since it is not explict in the post, the loan will be interest only. (If it was not your payments would be amortized over term either not given or the 6 months, which would make this a tough loan to pay). So at the end of the six months, you pay off the entire balance of the loan. So we are back to, what the heck happened with this extra $10k?

If they write the note for the $100,250k, then you will have to pay that at maturity. Yet they didn't "really" capitalize the $10k. You can't touch it or use it. From the post, it seems pretty certain they are writing that amount into the loan. This is why they show you the total cost on that line is $54k. If this were some other type of reserve not included in the principal balance of the loan, it would need it's own line to explain the details of how that would work. So, therefore, somebody wants you to pay an extra $10k that you technically didn't borrower and couldn't use.

Moral of the story, as I said, this is NOT a good deal. It is actually worse than a bad deal. The person who created these terms does not really seem to know what they are doing in structuring the loan to reduce their risk it seems. If the above is addressed and you find that is not what they meant, I would still have issues with their failure to do simple math to calculate the loan amount. I would also have a big problem with their inability to properly communicate their terms.

Moral of the story. I recommend you find someone else.

Jeff,

A Sheriff's Deed is a term used to identify the type of deed that is issued after a foreclosure sale. Not all states have a formal Sheriff's Deed. Some issue Certificate of Title to evidence ownership.

Redemption rights vary from state to state. Some redemption periods are prior to sale and some are post sale. If the redemption period expires prior to sale then the borrower can not redeem at all. Foreclosure is the legal act of extinguishing the right of redemption. If the redemption period is post sale, then the borrower (or heirs, etc) may redeem until that time has elapsed.

Some states, like yours in Michigan, have different times depending on different property types (such as residential, commercial, agricultural, etc). Recently many states have also included the idea of abandon or vacant properties with their own timeline, usually quicker in nature to occupied properties. For these official timelines, you can visit the state website and look up the periods.

If the asset has a post sale redemption period, you would be entitle to the full amount of purchase price paid at auction. Recovering capital expenditures into the property, which gets redeemed, can be a little hairy at times but if you can prove the injection properly, the county will include those monies. Some folks simply wait until the period expires before injecting any additional capital into the property.

What is involved in foreclosure is also a state by state variation. The basic idea there is we have two types of proceedings. Judicial and non-judicial. Judicial goes through court and non-judicial relies on a Power of Sale and does not go through court. In some states with non-judicial foreclosures a judicial preceding may be allowed or required depending on details. The basic idea is prove the borrower has defaulted. Prove the borrower has been notified they have defaulted and the proper amount of time to cure the acceleration of the loan. Then receive permission or use the permission already granted to auction the property off in public. There is a whole forum here dedicated to foreclosure which which has more details than I am giving here.

Can you get title insurance? Sure. Provided title is insurable. Just because foreclosure took place does not mean title is clean, although in many cases that is what happens. However, in the case of a junior lien foreclosure, the first lien will still be present so their right and interests in the property are superior to those than can be given by a junior lien. Additionally, Super Liens, like RE property taxes would need to be brought current. Super liens always have priory over other liens.

It is a highly recommended to always get title insurance. Especially (I hate to say always and then especially since always is a better answer), in foreclosures assets. As mentioned above, foreclosure legally extinguishes all parties interested in the property right of redemption. From time to time, a party might have been missed in the foreclosure action and thus you would want to insure against their future potential claim. For the most part, obtaining a deed from a foreclosure auction and obtaining title insurance is pretty common and any title company or agent will be able to help you.

The question is a little awkward. It's hard to understand what you are looking for. Home owners current and past would be public record or services that spider crawl public record. Family members - not sure there is such a thing. The client idea throws a wrench into the questions and really doesn't make sense. If they are your client, simply ask them. If they are someone else's client, not sure there is such a thing.

What are you looking for these lists for?