There Was Foreclosure, Property Sale At Auction

Category: Finance, Mortgages.

Real estate financing has become more challenging as a result of the sub prime. lender problems during the past year.

For many" rehabbers" , punch number one was the misfortune of following the. trends for one month too many. Even though the typical home seller is. facing significant home loan lending challenges, the property" rehabber" was in. some cases the victim of a two punch combination. The result was basically paying too much for their rehab property without realizing it at the time. Of course this involves complex issues. The second punch, for many the knockout, came when they could not refinance. their property with the same lenders they had been using for years. One of the issues was with the. professional property appraisal.

The buyer/ investor researches properties that will provide a satisfactory profit after buying and fixing up the property at a cost no greater than 70% of the After Repaired Value, (ARV) . Typical rehab real estate financing works like this. The ARV is determined by an appraisal that is done before any funds are dispersed by the lender. Which repairs are to be done to maximize the value appreciation of the property? This process confirms several important things. What is the total cost for the projected repairs? Finally, what loan to value, L- T- V, ratio will the lender authorize for the investment?

What will the value of the property be after the repairs are completed? Processes closely resembling that system have been used successfully for years, that is until 200Beginning in 2006, many lenders typically involved in rehab refinance made a critical change in the system. This change in procedure was implemented. without warning to the investor or their rehab lender. The appraisal used to determine the value of the completed rehab property was. frequently ignored or disallowed. The results of this unilateral change in procedure is an unfortunate series of" falling dominoes" throughout the real estate financing marketplace. Too many investors also made the mistake of filing for bankruptcy in an attempt to delay the foreclosures.

For example, investors that could not get their properties refinanced were. frequently forced into foreclosure. That created a. "double whammy" they really did not need. It depends on the situation. What happened to the private and hard money lenders that funded the investor's rehab deals? In some cases the properties were completed as planned and the typical options were pursued. Real Estate Owned, (REO) and re- sale, or some other acceptable alternative for the conversion of the property into a performing asset. There was foreclosure, property sale at auction.

Everything worked out OK. Instead of a nicely completed rehab, there were many instances where the work. was poorly done, or not done at all. There were also some cases when the work was not completed as planned. In cases like that someone often got creative with the rehab funds and made some really bad decisions. It should also be obvious that some of the really bad results were caused by. selfish and greedy hucksters, cheaters and serious, liars fraud artists. These were the kinds of decisions that resulted in significant value reductions to the property.

The responses to these conditions led to circumstances where the lenders were. sometimes only willing to refinance properties for about the amount the investor. had invested! That left the investor with principal and interest payments due to their lender that were greater than the amount he or she could get in refinance funding. They got no credit for the rehab at all. Even with the required second appraisal that estimated the property values after the repairs, in many cases the appraisal was completely ignored. While it is true that property values can be influenced by many factors, appraisers provide a necessary and valuable service to the real estate industry. I maintain that behavior like this is an affront to the profession of property. appraisers, and to private and hard money lenders.

There is a very special relationship between the first and the second appraisal. Repairs and other considerations are spelled out as conditions to be met for the estimated value recorded as the ARV. The first appraisal provides a conditional value, based on specified improvements being made. The second appraisal confirms whether the conditions described in the first. appraisal have been satisfied. When. their relationship is affected the way it has been for the past year, it creates. problems that should never exist, and makes real estate financing difficult if not. impossible through traditional channels. They are supposed to work hand in hand.

At last count more than sixty of the so- called sub- prime lenders that were directly involved in the kinds of transactions described here are out of business or have suspended their sub- prime lending operations. You. can actually take control of the funding for your property sale. The point of this article is to make you aware that alternatives do exist for real. estate financing that are" outside the box" of prime and sub- prime lenders. You can structure. the financing so there is only one appraisal required. You can fund your buyer and get your cash at closing in many cases. It is essential for our. purposes. The solution to the problems described above is the new application of a very old and dear friend.

Copyright 2007 TDO Properties, LLC All Rights Reserved. Say hello to the new and improved seller financing, where no banks are needed when you sell or buy. This article may be distributed and used for web site content as long as the text. and links remain in tact.