All Forum Posts by: Doug Woodward

Thanks Chris!

I did consider offering a second, but I wasn't sure how that would be perceived by the lender(s).  We are about to pay off one our previous loans next Friday when we close on a flip.  We performed very well for them, but as I stated previously they have experience with us in the first lien position.

To make up for the increased risk, I had also considered adding points, increasing the interest or even cutting them in on a small percentage of the profits in addition to any interest.

I just want to do right by them as they have already told us they are in for more deals, but I was thinking that we couldn't be the first ones to ever be in this situation and was wondering if there was anything that was sort of the standard.

We can provide the cash ourselves, and maybe we should, but I have the cost of funds figured into the deal and we still come out incredibly well on margin, so the preference is just to pay for the use of someone else's money.

We have a flip property that we close on this Friday.

ARV (by Subject To Repair Appraisal) = $440K

Purchase Price = $230K

Repair Estimate = $100K 

We have secured private money to take the property down @ 10% and no points, but this is the first time that we have used this investor and when we met him and his wife for lunch today, he asked if we would be supplying the cash for the repairs.  

For a variety of reasons (we are set to close in two days, we have not yet proven ourselves to this investor, etc.), I quickly responded that we could and he responded with that is what they would prefer, which I totally respect.

This is our 4th flip and we have not used any of our own money for purchase or repairs.  We have only used private money to finance 100% of our previous deals.

We do have the ability to fund the rehab, but philosophically it is not our preference to tie up that much cash, for what in this case will be a longer rehab.

We also have the ability to raise the $100K from either another source 100% or a few different sources participating with $50K a piece.

My question is this -- since we have previously raised all of the funds used on a project from a single source, we have been able to secure their investment with a first lien/ deed of trust.  In this case, the first lien will be held by the investor supplying the acquisition funds -- so what sort of security could I offer the investor(s) who would be willing to provide the $100K rehab funds?

I have some ideas, but I would rather hear from someone who has dealt with this successfully previously.   

Best Regards,

DW

Thank you for the feedback. After numerous conversations with other investors and two different title companies, I wanted to provide an update on what we did. Neither the title company that originally opened title for the wholesaler nor the title company we normally work with were open to holding the remaining balance (less the property tax payment) in escrow. Their responses were very similar as to why. The long and the short of it is that the time frame, amount etc. are all too unknown for them to escrow funds. In other words, they felt like the amount which was needed to be paid to prevent the tax sale may not even represent all of the property taxes due. Additionally, the uncertainty around the amount due the IRS may represent an amount greater than our total agreed upon purchase price. In the end, just too many unknowns for them to feel comfortable about holding the balance in escrow.

This may have a happy ending after all, though. The other day the seller had mentioned that she had been contacted by a company willing to make her an 18% interest loan to pay the taxes and stop the sale. I had her call them back to make sure that it was a simple interest loan with no prepayment penalties. It was. She agreed to take the loan today, thus giving us the time to curate title and hopefully get to closing conventionally in the next few months.

Wayne, I credit your suggestion for helping us arrive at the solution.  Thanks so much.

Thanks Steve.  The last info from the title company was  that IRS lien is $31K, but it also said plus fees. If it goes above $35K, we would still be OK on our numbers to some level.

It sounds like you are confirming that this deal is a bit of gamble, which we knew it was going to be heading into it.

I really appreciate you presenting something much simpler than what I was trying to make it,

Best,

DW

Steve, That sounds logical and I am inclined to agree with you on knee-jerk, However, when wrapping or seller financing, my understanding is that the mortgage supersedes any claims against the buyer from the IRS.  So, my question is -- it just a matter of order (which lien came first), or does the type of lien take precedent? 

Wayne, Thank you for the response. I really appreciate it.  Based on your feedback, I sent a text to the seller almost verbatim.  She replied that she was good with every aspect of it, including waiting on her portion of the sale proceeds until after the IRS debt was satisfied. So, she and I are on the same page.

The attorney at my title company didn't respond until today. His response was as follows: "You will have to buy this privately. I can do this at my office on Monday afternoon. She signs the deed, you give her $, pay collection agency for the taxing authority as well. Make sure the property is taken off auction Tuesday. There is no guarantee of clear title."

I am much more comfortable with your suggestion that the proceeds remain in escrow (less the amount that I have to pay to the taxing authority) v. "give her the $", and I have sent him that message back to which he has not replied. This got me thinking that making the tax payment would also entitle us to put a lien on the property for the amount of the taxes that we are paying -- is this correct?

If so, is my lien superior to the IRS' lien or subordinate to it?  Just curious.

Thank you again for taking the time to respond.

Best,

DW

Brand new to Bigger Pockets. Through show 19 so far, but first post.

I just got a property under a standard 1-4 residential TREC contract in Ft. Worth, TX for $45K. It is schedule for a tax sale on June 5th (next Tuesday). It was originally brought to me through a wholesaler who stepped out and put me in direct contact with the seller when they realized how tight the timeline they were dealing with was.  I called the wholesaler's title company this morning to see if they had gotten far enough to be able to issue a commitment that would allow me to close on it by Monday. After originally saying that they were ready, they came back and said that there was a federal tax lien and that would take them at least 30 days to curate.

I called the law firm handling the property tax sale and they said they could not put a hold on the sale even if I sent them the contract for purchase. Further, they said the only way to stop the sale was payment in full (~$10K) by Monday, June 4th.  I have the cash on to make that payment.

My question is -- does it make sense for me to switch this around and make it a seller finance purchase with $10K down used to pay off the taxes. I would then stretch the remaining $35K over 30 years or due upon settlement with the IRS, whichever comes first. I'm spit-balling here. I have never purchased via seller finance before, but the seller is motivated to get her IRS issue cleaned up -- roughly $31K.

I know this is a risky proposition on the $10K, but I think I am willing to gamble on this to give us enough time to work through pay-off arrangements with IRS if it is the best way to keep control of the property until we can get to clean title. We just flipped and sold a property directly across the street for $119K, and we have another property up the same street currently under contract -- so we know and like the neighborhood.

The other way, I have thought of to handle this is to have the seller take a loan (from a 3rd party) to pay the property taxes (if she is willing to take the loan) and keeping our current TREC contract in place buying us the time to work through the IRS issues and go to conventional closing once those issues are resolved.

Lastly, I am not very knowledgeable regarding tax sales, but my understanding is that the property owner has some amount of time to "redeem" the taxes that were purchased for a premium of like 25%, but I don't really want to potentially lose control of the property or add in any unnecessary costs.

Eager to hear any other thoughts or suggestions.

Thank you in advance for your feedback!