Putting Profit in your Pocket Through Probate Properties

Putting Profit in your Pocket Through Probate Properties

Putting Profit in your Pocket Through Probate Properties 

Leads are the lifeblood of any business and there are all kinds of ways to generate them. But this way is a guaranteed winner!

Target marketing is how we maximize our marketing dollar by selecting a very specific audience and marketing to them. This means identifying people who most likely need to sell their house. People need to sell their houses quickly for ALL kinds of reasons but one that is often overlooked is when a property is going through (drum roll please)…PROBATE.

Probate Is The Legal Process That Takes Place After Someone Dies.

Here’s what it includes:

PROBATE PROCESS

And these are just to name a few. The probate process can be simple and pain free or it can be downright messy and complicated. Don’t let that scare you though because sometimes the messier it is, the better the deal it is!

The person in charge of the probate process, and who typically makes the decisions regarding the house, is called the executor. You will also see him or her (it is usually one person but not always) called the petitioner or the personal representative.

This person is often one of the heirs and is the person named in the Will that will handle the probate from start to finish. If there is no Will in place then this person is usually appointed by a judge.

The responsibilities of a petitioner can be quite time consuming and burdensome which makes them great candidates as motivated sellers. Here are a few of the petitioner’s responsibilities:

  • Petitioner's BurdensFiling papers in court
  • Managing the assets
  • Proving the validity of the will
  • Presenting lists of property to the court
  • Paying off debt still owed by the estate
  • Distributing all assets to the heirs as dictated by the will

The executor (or petitioner) is the person we want to locate because he is typically the one that is handling the affairs in regard to the property and will sign all of the paperwork to sell the house.

It Can Complicated But It’s Worth It

Sometimes, all of the heirs have to be in agreement before any paperwork is signed and sometimes they have the authority to decide for themselves.

Vacant HouseOnce we locate the executor it is now time to pre-screen him or her and go take a look at the house. Probate properties are often a “perfect storm” for a great deal.

Most of the time they are vacant, are outdated, have no mortgage, and the personal representative needs to sell it to pay off debts the estate owes and pay the attorney handling the probate. The deceased owner was typically elderly and had the house for a long time which means in many cases the mortgage has been satisfied.

It also not uncommon that the person did absolutely no updating to it and had a hard time maintaining the property which will make it perfect for a rehab and flip or even a wholesale deal to sell to someone else.

So How In The World Do We Find These Precious Deals?

Most often we need to march ourselves down to the courthouse to obtain the information. Probate records can be found at the courthouse in the county where the house is located. Usually we will need to use the computers at the courthouse to find the information we are looking for.

While this may sound inconvenient and time consuming, it will produce quality leads which other investors are missing out on because they don’t want to do the work!

Look For Two Kinds of Probate Cases

There are two main types of probate cases when it comes to those involving real estate: Formal Administrative and Summary Administrative.

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Formal administrative cases are the most common type of probate case. Formal cases are done when the assets in the estate are more than $75,000. These types of cases are usually taken care of with an attorney and last longer than the summary administrative cases.

On the other hand, summary administrative cases can be used to probate an estate when the decedent’s (the person who died) assets are $75,000 or less or they have been deceased for more than 2 years.

This type of case may be done with an attorney or may be handled by the executor and the heirs themselves. This type of case is typically shorter and less complicated than its counterpart, the formal administration.

Once we find all of the formal and summary administrative cases for a given time period we can now begin to locate the “Golden Docket,” the Petition for Administration. It is is the golden docket because it contains all of the information we need to know to send the letter.

Four Pieces of Information You Need To Send Out a Good Letter and Generate a Quality Lead:

  1. Deceased Name
  2. Deceased Property
  3. Executor’s name
  4. Executor’s mailing address

Once you have all of this information you can now send out the letter. The letter should be personalized and mention the passing of the heirs’ loved one. It should also have the property address in the body of the letter and it should list all of the benefits that we can offer.

When It Comes To Probate We Can Offer Some Things Typical Retail Buyer Probably Won’t

  • An all cash offer that will make it easy for the personal representative to disperse
  • Handling of paperwork (the executor will appreciate this as for last few months they have been handling all of the probate paperwork
  • The heirs can leave whatever they don’t want, in the house
  • No need for the heirs to clean up the house

If done right and consistently, the time and effort it takes to collect the information will be well worth it.

Once you start sending out the letters, the phone will be ringing with motivated sellers who have vacant, outdated, free and clear properties that need to be sold NOW!

And don’t we investors love those 5 words in one sentence: motivated, vacant, outdated and free and clear?! They are the words of a great lead and a profitable deal.

Ten No Money Down Techniques to Buy Real Estate

Ten No Money Down Techniques to Buy Real Estate

Transaction engineering for the real estate investor is akin to a carpenter having a well-equipped toolbox or a surgeon having all the necessary operating instruments to get the job done correctly, safely, and in a way that everyone involved benefits. In our business it includes acquisition, property management, asset protection, negotiating, and tax planning to name a few. Today I want to introduce 10 no-money-down techniques (note: no-money-down means none of your money) that you can use alone or in a combination because no two real estate deals are alike.

I encourage you as you read this to think to yourself “how many techniques, how many tools, can I add to my tool belt that will allow me to effectively deal with and profit from every opportunity that comes along?”

Many investors use the same technique to do every transaction they find – they are doomed. Only occasionally can they find an opportunity where they can employ the single technique they’ve learned.

You’ll learn to recognize opportunities others don’t even see!

When other investors don’t know what to do, you’ll be able to pull a different tool out of your tool belt, a different technique or a combination of techniques, and be successful when they weren’t. And when you master these techniques, you’ll recognize opportunities and complete transactions others don’t even see!

To begin building your buying machine you must learn how to generate leads, identify motivated sellers and then buy below market with deep discounts using cash, private money, or hard money.
Another favorite is to use existing financing by acquiring the property “Subject to.” With this technique, you take over the payments on existing debt without originating a new mortgage. Options and Lease Options are another pair of great techniques to control properties without ownership and still generate great profits.

An opportunity for creating the deal after the deal…

Seller financing is my all time favorite. Sometimes it even presents an opportunity for creating a Deal After the Deal for increased profits. All of these transaction techniques can be structured as no money down. Consider split funding (some money now and some later); with or without payments; with or without a balloon payment, or virtually any combination you can negotiate.

When it comes to selling properties creativity is again your best strategy. How do you sell in a tough market? What do you do when the banks won’t lend? You become the bank! It is the most powerful way to build a fortune, while helping other people resolve their problems or achieve their dreams. And you won’t do it with adjustable rate mortgages or other exotic forms of financing that got this whole economic mess started.

Market your properties to a broader buyer base

We can sell or lease properties to create either cash or cash flow. Lease Options and Rent to Own programs can help more people qualify for home ownership while reducing vacancies. Selling homes with Owner Financing, Wrap Around Mortgages, and Agreements for Deed can help you market properties to a broader buyer base than the traditional buyer who will get a traditional bank mortgage. These creative techniques also help you overcome seasoning issues and maximize cash flow.

Well there you have it, at least 10 creative ways to buy and another 5 ways to sell without using banks. All the traditional avenues remain available but doesn’t it make good sense to have alternatives that work in any market? Using these creative techniques in an ever-changing array of combinations can give you hundreds of possibilities.

If some of the terms above are unfamiliar to you, don’t worry, you’ll have an opportunity to learn about them and put them to good use during our Quick Start Workshop Series. You can visit www.InvestorTrainingSecrets.com to learn more or better yet come to our next workshop!

Creating Your Real Estate Money Machine Workshop

“Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy.” Dale Carnegie

Creative Financing Without Risk or Headache

I am often asked the best way to acquire investment properties; my answer is usually, “It depends.” Those who know me know I have a sense of humor… but this answer is not intended to be either evasive or funny.

My favorite acquisition technique is with owner financing, but that usually requires a free and clear property. How many of those free and clear properties come along with a motivated seller attached? Certainly there aren’t as many as I’d like. Then there’s buying with cash…I’d rather save that resource for the killer deals that have to be closed quickly in exchange for a massive profit.

For houses with an existing mortgage, my favorite way is to purchase the property “subject to” the existing mortgage. It’s a great way to buy pretty houses without spending a pretty penny. Simply put, I step into the seller’s position and begin making their payments at an agreed upon date. The ownership of the property is transferred to me or my entity and the mortgage remains in the seller’s name until I, or more typically my tenant/buyer, pays it off when they obtain new financing and purchase the home.

Close in a matter of days.

Why is this a good deal for the seller, you ask? The first thing you have to remember is that successful investors only deal with motivated sellers! This is a good deal for the seller because I can close within a matter of days as there’s no lengthy loan qualification and approval process. Additionally, I can typically pay them a higher price because I don’t have any financing costs.

Banks want payments, not houses.

When a loan, which is an asset, becomes delinquent, the lender’s income stream is interrupted. When their assets become non- performing, the lender is required by the Fed to increase their reserves. These reserves reduce the amount of capital available for new loans. So, does the bank prefer payments or would they rather foreclose and take the house back? The easy answer: with foreclosure costs running at about $40,000 per house and defaults at historically high levels, banks want payments, not houses!

Broadest range of exit strategies.

Finally, why is it good for the investor? First, we have no funding cost. Second, since the loan is not in our name it doesn’t appear on our credit report. Third, our creditworthiness doesn’t come into play because we are not qualifying for a new loan. But the best reason is that “subject to” transactions offer you the broadest array of exit strategies!

No limits.

Additionally, even if you have a super credit score, most lenders will limit you to a maximum of number of 4 loans (if you can get them) and you’ll be required to make a substantial down payment (25$– 30%). If the loans aren’t in your name and you don’t have to qualify for them, just how many of these transactions will you be limited to? That’s right, no limits! I met an investor from Ohio who has over 200 properties; not a single mortgage was in his own name. That’s quite a retirement portfolio he’s built.

My preference is to be a “transaction engineer” rather than a specialist in any one area of investing. I love finding profit opportunities in all types of transactions from pre-foreclosures, renovation projects, owner financing to split funding. But a core element of my acquisitions strategy is using “Subject to” transactions and it should be a critical part of yours.

To your success…

Augie

Save Seller Financing – Did You Post Your Comment? Do It Now!

Only a few days remain to post your comment on the proposed rule changes that could be the death knell for seller financing.  You can post your here http://1.usa.gov/pF9Fv0.  The comments I submitted can be found  below:

The SAFE ACT intended to protect consumers from big businesses and I applaud these efforts whenever they accomplish what they set out to do.  My concern is when unintended consequences arise and citizens, American property owners as well as future American property owners, can actually be harmed. I am requesting that private individuals be exempted from the proposed rules changes and submit the following comment.

1. The seller did not construct the home to which the financing is being applied.
2. The loan is fully amortizing (no balloon mortgages allowed).
3. The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan.
4. The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps.
5. The loan meets other criteria set by the Federal Reserve Board.

Under this Act the only buyers who will be able to use seller financing are the buyers who can already qualify for conventional financing with perhaps the exception of how much of a down payment they need.

Seller financing has always been the alternative to government regulated financing. It is a meeting of the minds between two private individuals who negotiate an arm’s length contract to purchase property using an installment sale.
Seller “financing” provides housing for millions who otherwise could not qualify for conventional loans.  It additionally, provides an outlet for properties that do not qualify for conventional or even GSE programs such as older manufactured homes that provide entry level and retirement housing for many Americans.

Homeowners are neither bank officers nor mortgage lenders.  By requiring them (many if not most of whom who take back a mortgage are older Americans) to qualify buyers using bank standards means they will simply refuse to sell with owner financing.  Thus millions of people will be deprived of home ownership.  This will have a near term negative impact on the current economy by reducing the number of sales which pay transfer taxes to our state and county governments and long reaching effects in terms of preserving property rights as well as one’s ability to freely buy and sell property.  Even the Wall Street Reform Act saw fit to allow up to 3 seller-financed transactions per year without MLO requirements.Why should a buyer be required to divulge their income and assets to the very person with whom they are negotiating the terms of a sale? This is not required when there is a 3rd party lender.  Requiring the buyer to turn over all their financial information to a stranger opens the door for identification theft and fraud.  It also deprives American’s, both buyers and sellers, to use their free will to honestly come to a meeting of the minds and transact the purchase or sale of a property in a manner beneficial to the principals (not a 3rd party lender who may have no vested interest).

This also opens the door to an additional risk; predatory borrowing. This is where an unscrupulous buyer knowledgeable about the Dodd-Frank Act leads an uninformed seller (and this will be the majority of sellers) into negotiations not in compliance with the ability-to-repay requirements. That buyer lives in the property trying to resell it for a profit and if they are not successful within three years they rescind the sale and get all their money back.  This will jeopardize the ability of many deserving people who may never qualify under bank standards (Federally mandated or not) to ever own their piece of the American dream because no one would accept that risk.

By not allowing a property owner to negotiate a balloon payment, there is a good chance that a seller 55 years or older will die before receiving all their equity. Many seniors have invested in real property with the intent of selling it using seller financing (an installment sale) in order to supplement their income in retirement, but also with the hope that they would not be stuck with a 30-year investment. The Dodd-Frank Act does the same thing insurance companies do that sell 30 year annuities to seniors. Our government has criticized this deplorable practice because seniors will die before they receive all their investment.
The restriction of no balloon doesn’t affect just seniors, it has financial consequences for anyone using seller financing. Under the Act community banks are allowed to originate fully amortizing loans with a five-year balloon. The rationale is that they hold these loans in their own portfolios and the government recognizes their need to hedge against inflation and rising interest rates. Yet, the Act does not recognize that private property owners who have 100% skin in the game need the same protection. If there has to be a restriction it should at the very least be the same allowance given to community banks of a balloon in 5 years.I have heard the suggestion that a seller financing the sale of his or her own property would completely avoid the issue of licensing by retaining the services of a licensed loan originator. If a mortgage loan originator (MLO) fails to properly follow the ability-to-repay guidelines the buyer still has three years in which to rescind the sale which leaves the seller at risk and will most likely bankrupt them.  As I am sure you can see, the unintended consequences of these proposed rule changes, if accepted “as-is” without exempting individuals will negatively impact millions of American families.

This could be financially devastating to the seller. Let’s not forget that today’s buyer will be tomorrow’s seller. These sellers are a diverse group. They come from all walks of life: low income, high income, non-English speaking, seniors, widows, minorities, but this requirement places the same standards on individuals as banks and mortgage lenders, only with more risk – the banker is in the business of mortgage loan origination and factors that risk into his business plan, whereas the individual seller does not have capital reserves and doesn’t do this as a business. Also, unlike a bank, they do not carry errors and omission insurance.

My mother is 80 years old and owns two properties; a condominium and a co-op.  Neither of these will qualify for bank financing in the current market.  At some point she may need to sell and convert these properties into an income stream to provide for her long-term care unless she can find a cash buyer.  A cash buyer will likely force her to accept a substantially lower price because she’ll have no other option available to her and she’ll be at risk that for up to 3 years, that a case of buyer’s remorse could reverse her sale.  Is that in her best interest?  Additionally, as her and many other seniors in a similar situation exhaust their reduced assets, the government will be forced to pick up the tab for her care, further exacerbating the federal debt or reducing the quality of life for America’s elderly.On behalf of my family and families across America I am asking that you clearly distinguish between banks who are lenders who actually lend money and property owners who are principals in negotiating an installment sale in order to collect their equity in the sale of a home.  In a seller financed transaction both parties are consumers neither of whom need be disadvantaged by these proposed rules.

Please feel free to contact me directly at Augie@PACTProsperity.com

Your decisions will impact millions of American families. Thank you for your consideration.

Your Property Rights Under Attack – Action Required NOW

This just in from The Paper Source Journal – Proposed changes to Regulation Z could threaten the future of property ownership in the United States.   Imagine selling a property and giving the buyer three years to change their mind?

RED ALERT — Seller Mortgages May Be Effectively Outlawed…You Must Act NOW!

by W. J. Mencarow

July 13th, 2011

From THE PAPER SOURCE JOURNAL, July, 2011:

The Federal Reserve, which received sweeping new authority under the Obama regulatory reauthorization, wants to effectively eliminate seller-held (a.k.a. purchase money) mortgages. It will do this by enacting a rule for the Dodd-Frank Act prohibiting property sellers from taking back a mortgage unless the buyer essentially can qualify for conventional financing!

What’s more, Ma and Pa Homeowner, who create 95% of seller-held mortgages, won’t be able to qualify buyers under the same underwriting standards that banks are required to perform, and therefore the cash flow notes won’t be created.

If this is enacted it also will remove access to housing for millions of Americans, because seller “financing” is the only way people who can’t qualify for conventional loans can buy a house.

Moreover, it would allow a buyer a three year right of rescission (they can cancel the sale) if the seller did not properly qualify them. The right of rescission also applies to anyone who buys the note.

We have precious little time to try to stop this. The deadline to comment is FRIDAY, July 22. See the information below, then go to snipurl.com/AbilityToRepay Please do it TODAY!!

(Thanks to Ric Thom [www.SecurityEscrow.com] for alerting us.)

Submit your comments at snipurl.com/AbilityToRepay — scroll down that page for the comments link.

THE DEADLINE IS FRIDAY, JULY 22!

Here Are Some Points You Can Make In Your Comments:

  • Seller “financing” provides housing for millions who otherwise could not qualify for conventional loans.
  • Homeowners are not bank officers or mortgage lenders.  By requiring them (many if not most of whom who take back a mortgage are elderly) to qualify buyers using bank standards means they will simply refuse to sell with owner financing.  Thus millions of people will be deprived of home ownership.
  • Why should the buyer be required to divulge their income and assets to the very person with whom they are negotiating the terms of a sale? This is not required when there is a 3rd party lender.
  • Requiring the buyer to turn over all their financial information to a stranger opens the door for identification theft and fraud.
  • This also creates the opportunity for predatory borrowing. This is where an unscrupulous buyer knowledgeable about the Dodd-Frank Act leads an uninformed seller (and this will be the majority of sellers) into negotiations not in compliance with the ability-to-repay requirements. (An example of that could be a balloon, an interest rate greater than 1.49% above a standard mortgage, or the seller did not know how to calculate the income-to-debt ratio correctly, or know what residual income means). That buyer lives in the property trying to resell it for a profit and if they are not successful within three years they rescind the sale and get all their money back.
  • By not allowing them to negotiate a balloon payment, there is a good chance that a seller 55 years or older will die before receiving all their equity. A lot of seniors have invested in real property with the intent of selling it using seller financing (an installment sale) in order to supplement their income in retirement, but also with the hope that they would not be stuck with a 30 year investment. The Dodd-Frank Act does the same thing insurance companies do who sell 30 year annuities to seniors. Our government has criticized this deplorable practice because seniors will die before they receive all their investment.
  • The restriction of no balloon doesn’t affect just seniors, it has financial consequences for anyone using seller financing. Under the Dodd-Frank Act community banks are allowed to originate fully amortizing loans with a five year balloon. The rationale is that they hold these loans in their own portfolios and the government recognizes their need to hedge against inflation and rising interest rates. Yet, the Act does not recognize that private property owners who have 100% skin in the game need the same protection. A  five year balloon is predatory lending. If there has to be a restriction it should at the very least be the same allowance given to community banks of a balloon in 5 years.
  • There are a lot of small builders that have a spec house or two that they can’t sell unless they offer great terms using seller financing. Otherwise they have to let these properties go back to the bank, which does not help housing or the economy.
  • It has been said that a seller financing the sale of his or her own property would completely avoid the issue of licensing by retaining the services of a licensed loan originator. If a mortgage loan originator (MLO) fails to properly follow the ability-to-repay guidelines the buyer still has three years in which to rescind the sale which leaves the seller at risk and will most likely bankrupt them.

My Comments To The Federal Reserve

By Ric Thom, www.SecurityEscrow.com

The Dodd-Frank Act does not exempt property owners who wish to use seller financing (installment sale) even though no money is lent, there is no table funding, and under the Truth and Lending Act they are not considered creditors. The Dodd-Frank Act (ACT) does exempt property owners who offer seller financing from having to become Mortgage Loan Originators (MLO) provided they only sell 3 properties or less in a 12 month period and they follow the restrictions below. Yet, the Act subjects the property owner to the same liability as an MLO:

Title XIV Section 1401 (2) (E)

1. The seller did not construct the home to which the financing is being applied.
2. The loan is fully amortizing (no balloon mortgages allowed).
3. The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan.
4. The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps.
5. The loan meets other criteria set by the Federal Reserve Board.

Under this Act the only buyers who will be able to use seller financing are the buyers who can already qualify for conventional financing with perhaps the exception of how much of a down payment they need.

Seller financing has always been the alternative to government regulated financing. It is a meeting of the minds between two private individuals who negotiate an arm’s length contract to purchase property using an installment sale.

The following is a breakdown of these restrictions. I listed them in order of greatest impact on property owners, buyers and the economy:

The seller determines in good faith and documents the buyer has a reasonable ability to repay the loan. The implication is that the seller must use the ability-to-repay underwriting requirements when offering seller financing consistent with the Dodd-Frank Act which amends the Truth in Lending Act. This new, proposed rule is 169 pages long: snipurl.com/fedrule

The Consumer Financial Protection Bureau has spent a lot of energy developing a new, easy to read, two page mortgage disclosure form. It is unreasonable to expect sellers and buyers to fully understand and apply this 169 page rule. If buyer’s and seller’s negotiations deviate in the least the buyer has up to three years to rescind the sale and demand back all money paid to the seller, or anyone that the seller might have assigned rights and interest to, or any bank that takes the note as a collateral assignment.

This could be financially devastating to the seller. Let’s not forget that today’s buyer will be tomorrow’s seller. These sellers are a diverse group. They come from all walks of life: low income, high income, non-English speaking, seniors, widows, minorities, but this requirement places the same standards on individuals as banks and mortgage lenders, only with more risk – the banker is in the business of mortgage loan origination and factors that risk into his business plan, whereas the individual seller does not have capital reserves and doesn’t do this as a business. Also, unlike a bank, they do not carry errors and omission insurance.

Unlike banks and mortgage lenders, both the buyer and seller are consumers. They should both be equally protected. The buyer is purchasing real property and the seller is investing in/creating a financial product where they receive their equity over time. The seller is relying on the buyer to make monthly payments and maintain and protect the property. Terms are not dictated to either party, but rather they are negotiated between the parties.

Requiring the buyer to turn over all their financial information to a stranger opens the door for identification theft and fraud.

Furthermore, why should the buyer be required to divulge their income and assets to the very person with whom they are negotiating the terms of a sale? This is not required when there is a 3rd party lender.

This also creates the opportunity for predatory borrowing. This is where an unscrupulous buyer knowledgeable about the Dodd-Frank Act leads an uninformed seller (and this will be the majority of sellers) into negotiations not in compliance with the ability-to-repay requirements. (An example of that could be a balloon, an interest rate greater than 1.49% above a standard mortgage, or the seller did not know how to calculate the income-to-debt ratio correctly, or know what residual income means). That buyer lives in the property trying to resell it for a profit and if they are not successful within three years they rescind the sale and get all their money back.

The SAFE Act does not put in place the ability to repay requirements, or any other requirements, unless the individual habitually and repeatedly uses seller financing in a commercial context. It is HUD’s position that Congress never intended under the SAFE Act to restrict private property owners from using seller financing, unless they did it as a business.

The loan is fully amortizing (no balloon mortgages allowed). By not allowing them to negotiate a balloon payment, there is a good chance that a seller 55 years or older will die before receiving all their equity. A lot of seniors have invested in real property with the intent of selling it using seller financing (an installment sale) in order to supplement their income in retirement, but also with the hope that they would not be stuck with a 30 year investment. The Dodd-Frank Act does the same thing insurance companies do who sell 30 year annuities to seniors. Our government has criticized this deplorable practice because seniors will die before they receive all their investment.

The restriction of no balloon doesn’t affect just seniors, it has financial consequences for anyone using seller financing. Under the Dodd-Frank Act community banks are allowed to originate fully amortizing loans with a five year balloon. The rationale is that they hold these loans in their own portfolios and the government recognizes their need to hedge against inflation and rising interest rates. Yet, the Act does not recognize that private property owners who have 100% skin in the game need the same protection. Obviously the Act does not recognize that a five year balloon is predatory lending. If there has to be a restriction it should at the very least be the same allowance given to community banks of a balloon in 5 years.

The loan has a fixed rate or is adjustable after 5 or more years, subject to reasonable annual and lifetime caps. This restriction is reasonable, but it will eliminate the ability for any buyer to wrap an existing obligation that has an adjustable rate even if they believe they can afford any rate increase. This is again inconsistent with the SAFE Act.

Moreover, if the seller does not know about the ability-to-repay requirements and that they are not able to have a balloon, they certainly will not know that you have to have a fixed interest rate for the first five years.

The seller did not construct the home to which the financing is being applied. There are a lot of small builders that have a spec house or two that they can’t sell unless they offer great terms using seller financing. Otherwise they have to let these properties go back to the bank, which does not help housing or the economy. There is also that group of unemployed construction workers who built their own homes when times were good and now need to sell. This takes away their ability to use seller financing.

Builders are in the business of building; not of originating loans.

Using a mortgage loan originator to facilitate a seller-financed transaction creates additional risk and expense for both the buyer and the seller. It has been said that a seller financing the sale of his or her own
property would completely avoid the issue of licensing by retaining the services of a licensed loan originator. If a mortgage loan originator (MLO) fails to properly follow the ability-to-repay guidelines the buyer still has three years in which to rescind the sale which leaves the seller at risk and will most likely bankrupt them.

Furthermore, there is no provision in a MLO’s errors and omission insurance that covers seller financing. None of the continuing education classes or the exams that an MLO must complete has a single chapter or question regarding seller financing.

Who is supposed to pay the MLO? MLOs can charge a flat fee or up to 3% of the transaction. The only advertisements I have seen so far advertise a flat nonrefundable fee of $450. This fee has to be paid in advance, which makes sense, because why would a MLO spend hours and hours on an installment sale transaction which might not close? If the buyer pays the fee, then this is a forced origination fee never before imposed on buyers seeking seller financing. Why should the buyer have to pay money just to have an offer presented to the seller?

A lot of buyers use seller financing because they are low income individuals, and seller financing, up to now, has been an inexpensive way to purchase property. If the seller pays they will have to pay money for the simple act of the MLO forwarding them the installment sale offer. If the seller receives multiple offers this could easily run into thousands of dollars in MLO fees just to sell their property.

A lot of sellers are also low income individuals. The MLO will have to be a part of every offer and counteroffer because the sale and terms of an installment sale are one and the same and cannot be separated. For instance, the buyer might be willing to pay a higher interest rate if the seller is willing to come down on the price and down payment.

A lot of seller financing takes place in rural areas that are underserved by mortgage lenders and banks. It is going to be very difficult to find a MLO in those areas who are also willing to take the risk facilitating a seller financed transaction.

This has the potential of pushing seller-financing underground – not a desirable result.

The Dodd-Frank Act allows a property owner to use seller financing without having to become a mortgage loan originator as long as they don’t use it more than three times in a 12 month period and comply with the above restrictions. In the SAFE Act there are no restrictions to the number of times seller financing can be used as long as you are not in the business of being a mortgage loan originator. The coauthor of the Dodd-Frank Act, Representative Barney Frank, sent a letter to HUD on July 22, 2010 urging it to place the maximum amount of seller transactions that an individual could do before becoming a MLO, or
having other restrictions on them, at five in a 12 month period. I would propose that the Dodd-Frank Act adopt that same number and place no restrictions on seller financing until 5 is surpassed. The only restrictions that should apply to 5 or less are those restrictions that the states already impose either through state statute or case law.

Under The Act loan officers at community banks do not have to become a Mortgage Loan Originator if they originate 5 or less transactions in a 12-month period. The rationale is that this is burdensome, costly and there is not enough volume to create a systemic risk. Ma and Pa on Main Street should be granted those same allowances. The Act puts more restrictions and risk on Ma and Pa than it does on financial institutions.

In watching the debates in Congress last summer it was repeatedly said that the Wall Street Reform and Consumer Financial Protection Act would not negatively affect or over-regulate Ma and Pa on Main Street. If this doesn’t negatively affect and regulate seniors, minorities, and lower income individuals on Main Street I don’t know what does. These restrictions will all but do away with seller financing, which will have a negative impact on housing, existing property owners, those desiring to be property owners and the economy.

Ric Thom is owner and president of Security Escrow Co. He is recognized as one of the leading authorities in seller financing on real estate contracts. www.securityescrow.com

Many thanks Bill Mencarow and Ric Thom and to all of you who submit comments seeking protection to property owners who are also consumers and who also deserve to be protected, not penalized for providing seller financing.

When Banks Won’t Lend

One of the greatest challenges facing agents, investors and even the general public today is the fact that qualifying for a bank loan has become increasingly difficult, if not down right impossible for many American families.  In spite of historically low interest rates many deserving families are being turned away.

What if we didn’t need the bank’s approval?  What if there was another way we could help sellers sell and buyers buy?  How would that impact your bottom line?  Not to mention, start a housing recovery that will lead this nation out of the current economic mess.

So the $64,000 question is, “How do we do it?

Answer:

  • Stop letting banks kill your deals
  • Stop letting bogus appraisals kill your deals
  • Learn legal, ethical alternatives to bank financing that work

There are alternatives to banks.  Don’t get me wrong, they are a good solution for some people but in today’s economic climate they aren’t the solution for a great many.  My grandfather used to say the only time you can borrow money from a bank is when you don’t need it.”

I’m excited to tell about a great Alternative Financing Workshop that is being offered in Celebration, Florida on July 28th at The Bohemian Hotel. With more loans getting declined than approved, NOW is the time to learn the tools, tips, strategies and techniques for buying and selling houses using alternatives to bank financing

As a result of this workshop you will be able to:

  • Pre-screen sellers who are able to provide financing alternatives…even when they weren’t aware of it!
  • Offer different buying solutions, even when the buyer cannot qualify for bank financing today
  • Earn commissions on a new set of transaction types
  • Close more deals!

Take action now and register at www.alternativefinancingworkshop.com :

Using these very same techniques I have bought and sold hundreds of houses and have become a nationally recognized speaker, author and real estate trainer.  Because I believe there is more than enough opportunity for everyone I have trained thousands of agents and investors across the country.

Most recently, I was honored to be designated as the national trainer for the CARI designation, Certified Agent for Real Estate Investors, by the National Real Estate Investor Association. In spite of all of this, my primary business remains houses and I continue to use these very same techniques day in and day out.

So take control of your business and join me for the Closing More Deals With Alternative Financing workshop and go to www.alternativefinancingworkshop.com.

You’ll be glad you did!

To your success…

Augie

PACTProsperity.com is a well-known and well-respected company specializing in Home Study Programs, Seminars and Workshops aimed at helping Real Estate Agents and investors succeed in today’s market.  We are here to help you take your results to a whole new level!

Please visit our website for additional information www.alternativefinancingworkshop.com.