There is no "Due on Sale" Jail

There is no DUE ON SALE Jail

 

A great legal scholar, friend and mentor of mine, William Bronchick wrote a great article, years ago addressing the due on sale clause.   Find that here. 

The Due on Sale Clause, aka The Acceleration Clause, written into most mortgages (post 1982), says they have the right to call the loan due, but not the obligation, if the title is transferred and the loan is not paid off.    

There is a lot of case law, cited in Bill's article, where under certain circumstances lenders can not call the loan due (immediately due and payable). 

Great news.  This means we can buy a house using and leveraging the existing the financing.   We follow best practices given the legal rights granted in laws like the Garn St. Germain Act. 

Anytime a seller says "I can't sell my house because my lender won't allow it", I will refer them to this blog posting.\, and Bill's great article, find that here. 

 

 

Real Estate's Pandemic

I'm not sure if you've heard there is something going on in the news right now.  Covid19 - maybe you've heard of it. 

One thing I can say for sure about recent events, it has certainly changed things.  We're no longer doing many of the things we loved, and even some of the things we didn't love, we're no longer doing (like taxes).   

Let's break down how this is an opportunity to soar and thrive in this unknown marketplace.  I'm super excited for the opportunities.  Fundamentals don't change.  If you have a market, (supply and demand), then you can make a living and do very well.  

Fundamentally, you need to understand both sides to serve that market.  Both supply and demand.   Your house seller holds the supply, and your buyer holds the demand.  In many ways, the demand side is easier to understand, and since it's the driver for your exit strategy, I like to start there (ref: Start with the End in Mind).  

What do buyers need right now?   #1, they need a place to live.  #2, your home needs to suit their needs, #3, they need to be able to buy it, pay for it, afford it, etc.    The first two points are obvious, and they will take care of themselves as buyers self select out of the market or out of your potential pool.  In many respects, point #3 is the one you can control the most. If banks begin to pull back funding options and raise their standards for lending we will see a housing pandemic much like we saw in the past (circa 2008). This will be the perfect opportunity to dominate. Get a financial calculator and begin offering your houses with seller financing. This will put you above the rest and give you a chance to thrive.

In the next post, I'll discuss the seller side of things. What are ways in today's market, where seller financing will be your solution for success?  

How to Avoid Junk Title Fees

Have you ever wondered why there are so many junk fees on your settlement statement?  Besides the junk fee of the listing agent, take a look at all these fees from a recent transaction.     All of this $24,000 comes off my sale price.   That is ridiculous!   

$595.00          Broker Commission (Listing)
$11,564.00  Commission Listing
$8,260.00  Commission Selling
$400.00          Home Warranty
$1,793.00  Pay First Half Taxes 2020
$25.00          Seller Closing Admin. Fee - Net Proceeds and Document Handling to Burnet Title
$110.00          Seller Closing Admin. Fee - Payoff Verification & Processing to Burnet Title
$150.00          Seller Closing Admin. Fee - Pre-Sign and/or Power of Attorney Service to TitleSmart 
$30.00          Seller Closing Admin. Fee - Preliminary Services to TitleSmart, Inc
$395.00          Seller Closing Administrative Fee to TitleSmart, Inc.
$161.00          Water Bill Current and Estimated Final to City of Apple Valley

What a scam!   $24,000 to the title company for what?   I think title insurance is important, but the rest is really junk.  Obvy I need to pay the taxes and the water bill, and the home warranty was a negotiation point in the PA, but with commissions and the title fees, that's over $20,000. 

Good news, there is a solution to these fees.    You don't have to pay any of them!  None!  (except the taxes and the water bill).    If you sell your house by yourself, you avoid all of those fees.  And good news, a company like mine, or any company just like mine, can help you because we buy houses.   I can't remember the last time I had to pay these fees.  What a waste.  Good job Title Smart and Burnet Title.   That's a good little scam.   #avoidtitlefees

I'm Not Gonna Give it Away!

One of my favorite topics to discuss is sales and negotiation.    The seller who says "I'm not gonna give it away" really means, I'm unwilling to consider an offer that low.

Of course I've never asked anyone to give their house away, however, it's an interesting concept.  A gift?  Is that what the seller thinks?  Would that be a taxable event for either party?  (there is an answer to that question, but I digress).





I'm not gonna give it away....  

Without knowing anything else about the context of the offer or the response, this response tells me a few things.  This response means you're out of rapport with the seller.  This means they consider your offer to be out of line.    So what should you do?  Well, one thing would be to anticipate this objection and explain how you approached the offer.

Ultimately I have to laugh when I hear this response.  If I wanted you to give it away, I wouldn't have offered anything at all - I would have just asked you to give me the house.  I've certainly bought houses for the existing debt, and in that way, I have had houses "given" to me, with certain caveats.

Here's the best way to respond to this or any objection:  call them by name, agree, and ask questions.

Something like this:  Well Mr. Seller I agree, I wouldn't want you to give it away.  I think what I hear you saying is you think my offer is too low, is that right?  How low too low is it?

Lease Options (Seller Financing Part 3)

My Favorite Strategy is Lease Options!  

Think of Lease Options as the best of both worlds.  It is a benefit for everyone involved, seller, investor, and end buyer.  They are so versatile and can really be used all over the place.  When both buying and selling. 

What is a Lease Option? 
Ok, think of this in two pieces, and oftentimes there are two different documents or vehicles to effectuate the transaction.  There is a Lease and there is an Option.  Together, they make up the Lease Option.  Often times the Lease document, does not reference the option.  It's just a simple lease, that has payment amount, dates, default terms, and term of the agreement.  

Then, you have the option.  Think of an option like a purchase agreement without any recourse if the buyer doesn't buy.  It's basically an agreement that the seller must sell and the buyer has the opportunity or the "option" to buy the property with terms (within this period of time, and if the buyer follows these terms).  One of those terms could then and often times then, references the Lease.  Hence the Lease-Option.  My other post about Options will go into further details on how to structure Options for both parties.  

Why Do This?  Why would you finance your buyer?  Simple:  to sell it. 
Why does the buyer need this?  Simple:  they can't qualify for a new loan  

It benefits both parties.  From the seller's perspective, they get a house sold fast and oftentimes at a premium.  You may have a property that won't sell for some reason  Seller financing gives you an advantage compared to the house for sale down the street.  Of all the buyers out there, only 35% of them can qualify for a new loan.  That leave 65% of other people who want to buy and want to build equity and realize their American Dream, (buy buying a house), but they can't qualify.  These are good people who maybe have had some life event that caused them to have poor credit.  Or maybe they work for themselves and don't have 2 years of W2s to submit to a lender.  

Speed and higher price.  Those are the two benefits for the seller.   The benefits to the buyer are obvious.

Investing in New Construction

This morning I got a call for an opportunity on land and new construction.   There's one reason I don't like to invest in new construction and that is because I see it as speculative.  Land isn't my favorite either, and the two of them go hand and hand.   

First,  I like to have a very defined end to my investment.  New construction opportunities have a few different variables that are outside the control of the investor, namely the municipality.   I don't like giving the success or failure to a government official.  The permit process can be variable for a new construction project.  Oftentimes, the permit process for rehabs are usually rubber stamped; however, not so much for new construction.  There are code issues, zoning issues, neighborhood politics, and all of that adds time to the project.  

Next, I don't like the length of time for new construction projects.  I believe this adds unnecessary risk to the portfolio.  Short quick in and out projects are the best. 

Lastly, this comes down to personal reasons, I don't feel comfortable taking over the project if needed.  Since I've never built a house I'm not sure how to move the project forward.  Of course I can get a builder involved and get some experts on the team; however, did you know when you foreclose you don't own the architectural plans?  Those are copyrighted and owned by the borrower.  What a nightmare and one that I'm not interested in getting involved with.