All Forum Posts by: Michael Morrongiello

Quote from @Don Konipol:

Zsa Zsa Gabor faced almost exactly the same situation.  Her solution was to marry Conrad Hilton. 

Don, yes - Yes TOO FUNNY, and All kidding aside; I guess she could consider "marrying up"
Sadly these types of family dynamics happen all the time

To be clear FBO this a RESIDENTIAL use House. Its occupied by the Wife and Her Children who wish to STAY there. (Thus  cannot be considered commercial or commercial income producing)

Chris - agree with all of your points. The parties are in agreement about what the husband will take if he can get his $550K in cash out.  The BIG issue is the EX-Wife who wishes to maintain a life style she clearly cannot afford and wants to STAY in the home with the Children BUT cannot AFFORD to make the payments on such DEBT that would allow for that (thus her need for $300K +/- in extra proceeds that would in essence be used to make those payments for the 3 years)

Sadly yes there are consequences when families break up, separation's and marital divorce happens.

Even though WE are NOT originating a loan here; it would be the EX-Husband who would be "originating" the Loan (by taking back the Deed of Trust and Note) in order to SELL his 50% interest in the house, the TIE IN is with our BUYING or INVESTING in the purchase of the DOT and Note to generate CASH to him, and CASH OUT to Her is where
this becomes a "Gray Area" of whether it violates any of the CFPB Consumer Financial Protection Bureaus requirements and could be re-characterized as a high cost LOAN IN DISGUISE

ALTERNATIVE THINKING
We are thinking a better way to go here IF the EX-Wife agrees; it to
SELL the house NOW, pay off the EX- Husband and enter into a 3 year LEASEBACK with the buyer of the home.  She will now have the funds to pay the RENT and also can maintain her lifestyle.  What she will have to give up though is a LESSER Sales Price that will have to be accepted for the home sale Vs getting TOP DOLLAR estimated to be $2M to $2.2M + .
She will have to ACCEPT LESS since the Investor BUYING the home and agreeing to lease it back will have her locked in for the next 3 years.

Situation:
Have a family that is going thru a DIVORCE and that owns a $2M+ valued home. Home is located in a VERY HOT Market place.
They only owe about $270,000 on a 1st lien that dates back to 2021 which is at 2.875% Interest and will remain at that FIXED Interest rate for 4 more years. The loan amortizes out over 360 months but is a FIXED / Adjustable rate Note  until 1-2029 (THEN it will have interest rate changes every 6 Months thereafter) . SO They have a TON OF EQUITY.

Current Payment P & I payment is $1,200/ Mo

Husband and wife are on TITLE - their Dissolution of marriage calls for the WIFE to pay $550,000 to the husband and then she can KEEP the 100% of the home. Husband is willing to accept the $550K but IF it cannot be paid then a FORCED SALE OF THE HOME MUST HAPPEN.
Time is running out

Wife and 3 Children LIVE in the home and want to CONTINUE to live in the home as the Children are entering or in High School
(a painful time to have to move or relocate for all) - YES lots of emotions all around involved.

Wife does not EARN enough income (working for a non profit group) to be able to afford large loan payments.

She has been trying to BORROW the funds she needs $550K to pay off the Husband and another $300K of additional funds (Totaling $850K) so that she has the EXTRA borrowed funds to be able to make 2-3 years of payments on the financing (versus raiding her retirement account). Given that she is a CONSUMER it may be difficult qualify her ABILITY to REPAY.  
Even Hard Money lenders (with 10% to 12% interest rates might have issue with that)

PROPOSAL MADE and SEEKING OTHERS:
Have the Husband agree to SELL her his 50% interest in the House on TERMS to the WIFE who wants to STAY in the home and where he would carry back a WRAP AROUND Note - lets say for $1,425,000 at 7.0% with I/O INTEREST ONLY repayment terms of $8,312.50 monthly and a 36 Month Balloon payment when the entire $1,425,000 would be due. THIS $1,425,000 WRAP AROUND Note would be INCLUSIVE of the existing underlying 1st lien ($270,000 @ 2.875%) . This first lien will pay down to about $245,000 thru amortization over the 36 months.
The WIFE would be the DEBTOR responsible to make the I/O payments of $8,312.50 each month and the future balloon payment due of $1,1425,000

Q- How does the Husband get his funds out to complete the Divorce?
A- The thought is He SELLS his $1,425,000 WRAP AROUND Note at a DISCOUNT to an INVESTOR who agrees to fund around $900,000 In Cash. From that $900,000 in Cash paid for the Note, the About to be EX-Husband receives his $550K that he agreed to accept to SELL his 50% interest in the home. The EX-Wife now owns 100% of the Home. $300,000 of the proceeds paid for the Note will go toward helping her make the $8,312.50 I/O payment each month for the next 3 years. (in essence she is borrowing excess funds to help make the payments)
$8,312.50 x 36 months = $299,250 allocated to MAKE the payments on the $1,425,000 Note obligation.

Benefits for the (EX) Husband;
* he gets his $550K he agreed to accept
* his children and (EX) wife get to STAY in the home as a family unit during the very formative High School days

Benefits for the (EX) wife:
* She gets to stay in the home with the Children thru the High School Days
* She has the extra $300,000 in funds (borrowed) thru the sale of he Note to help her make these payments for the next 36 Months
* She did not have to borrow HARD MONEY rates and its doubtful a lender would even make a LOAN Here given her inability to repay it.

Benefits for the Note Investor: 

* They fund $900,000 +/- to purchase at a DISCOUNT The WRAP AROUND $1,425,000 I/O 7% Note with $8,312.50 monthly payments and and only have to put out $900,000 (since its sitting behind and WRAPPING a $270K 1st lien). They will get monthly payments of $7,112.50 NET To them each month (remember $8,312.50 is coming in on the WRAP AROUND Note of $1,425,000 but $1,200.00 is still DUE and GOING OUT to pay the $270K underlying 1st lien. ) and then when the $1,425,000 Note matures in 36 Months they will also receive approx. $1,180,000 to THEM (this is the $1,425,000 DUE on the WRAP AROUND Note - MINUS the $245K due on the 1st lien payoff -leaving $1,180,000 to them)

Q- Who would buy such a Note ? 
A- Their calculated return would be a 17.44% YTM - yield to maturity on their $900,000 invested.

QUESTION; WHAT issues or possible "Loan" issues or wrinkles does anyone see here ?
Remember its the (EX) Husband Taking back the $1,425,000 DOT and Note (making the loan) here in an effort for
the (EX) Wife to be able to BUYOUT his 50% interest in the home and continue to stay in the home. This is NOT a
Traditional LOAN ORIGINATION 

Brian - There are a few investor friendly title companies who can handle a SUB 2 Deal
You did get some good advice about networking and seeking help thru some of the local REIA groups. One in the SF Bay area that has been around a LONG LONG time is BAWB which stands for Bay Area Wealth Builders - they might be able to direct or assist you.

Quote from @Brian Batista:

Hi Everyone,

I'm looking at maybe taking over an FHA loan subto for a condo in Oakland, CA. The seller's title company says they won't do a subto on an FHA loan. Does anybody have a title company that is familiar with doing subto on FHA loans?

Thanks!

Dan
If you ALREADY have TITLE to the home Sub 2 their existing loan and
If the payments continue to be sent in to the lender, taxes are paid, and insurance is maintained the lender will in all likelihood continue to accept those payments.

HOWEVER if you are Trying to ACQUIRE the property and the borrower on the Note is now deceased - the ONE Big question (among others) is How do you get marketable and insurable TITLE Transferred over to you SUBJECT 2 that existing debt?

Melvin
Perhaps you can BUY their property from them on WRAP Around financing basis
You pay them on a WRAP AROUND Note (eg. perhaps $1.00 over their existing loan balance)
of where they can LEASE the home you and also give you an option to buy SUBJECT TO their loan if or when you exercise the option.

Now they can SHOW their LO- loan office that they have either SOLD the home and have financed it via a WRAP AROUND loan or have LEASED IT to you under the Lease with an OPTION and that shows INCOME still coming in to offset the debt.

Michael Morrongiello

Sort of what  I had thought - Thank you for affirming that. Yes if she has MAXED out
the Reverse Mortgage Loan Advances and the property value is < LESS than what she owes
(primarily due to poor upkeep and ongoing maintenance) - she gets NO More MOOLA $$ from the lender but then they may have trouble getting their loaned MOOLA E$$ back
in the future IF or WHEN that time comes for her to go to that great BIG escrow in the sky.

She continues to live there with no more income but as long as she pays the taxes and keeps it insured -the MAXED out lender cannot force her out....

What Happens when a REVERSE Mortgage is MAXED OUT to the owners occupancy?
Situation: Years ago the owner of a property worth $1M and an elderly property owner placed a REVERSE MORTGAGE on their property which when funded allowed her to stay in her home and receive distributions from the lender up to a MAXIMUM sum of $700K. 

The owner now has "cannibalized" with this REVERSE MORTGAGE LOAN all of those sums and is NOW maxed out with the $700K being pulled out. The value of the home is worth a little more than that as given its poor upkeep over the years its value receded somewhat. The Owner STILL lives in the home and is alive and thriving.  The property taxes are current and insurance is current.

Q- Can the REVERSE Mortgage lender - call their loan due and accelerate their loan now that its MAXED OUT?

Not sure what their rights are as a lender but the owner is fearful that now that she has REACHED the Maximum funding amount the Reverse Mortgage loan would go to - that she may be forced to sell?

Michael - I agree "semantics", labels, can often create more confusion... Thanks for pointin that out...

The PURE Option is not finalized yet. So we have not closed but expect to soon. This option will run for 27 YEARS as this property owner selling us the exclusive OPTION to buy their Home will still LIVE there. As I may have stated the OPTION to Buy - IF or WHEN we buy will be SUBJECT TO their VERY low interest rate loan (*under 3.0% Fixed and fully amortizing.

So In SIMPLE terms; you are stating that REGARDLESS of whether the FULL $60K in funds paid to the Seller for the OPTION to buy the home at $300K is APPLIED towards that $300K "Strike Price" reducing the remaining amount due to them to $240K OR if only $30K of the $60K in funds paid to the Seller is APPLIED reducing the the remaining amount due to them to $270K - the Tax Treatment for THEM (the seller) is the SAME on the $60K paid for the OPTION ? That is; They will have the use of those funds with NO TAXABLE event involved UNTIL sometime in the future,  when either the OPTION is exercised, cancelled or perhaps renegotiated ?

So No 1099 is required to be issued to them?
Q- How do THEY report the $60K we are paying them for this OPTION  when they file?

Michael M.