Okay - let's start this one out the easy way. If you are a "bird dog", "locator", "consultant" or whatever name you use to call your unlicensed, uninsured, no background check business I don't care if you like my words, ever recommend my company to your "clients" or want to get in my face for what I have said for years and will say again and again so long as it holds true. Your greedy numbers and fees are a bane to this industry and I want you OUT. Oh you tee. OUT. Your fees blow deals and make the buyers look like complete fools. Yes, I have a case in point to be submitted here today.
Phil Foolish called me back in February wanting to do a non-seasoned cash out refinance on an investment property into his IRA. After the initial interview I found out he had rehabbed the property out of pocket as well as having paid cash for the property to start with. The property is worth about $78k - a very cheap investment anywhere - and he paid $65k for the property and put another $10k in it for rehab. Not a good deal but it's his first one and he has never red my book Ten Mistakes Every Idiot ... er ... Real Estate Investor Makes. He made them all - and there are actually about 23 mistakes in the book today.
The really sad part for Phil Foolish is we didn't discover his biggest error until today - three days before closing. A few months ago we would never have investigated this far on a property which was originally purchased with cash. However, because the values are so tight and the property is located in a declining market area, we followed all the trails back to the listing. Our goal for looking at listing prices on properties that are being refinanced is usually to discover if there was any "cash back at closing" - another foolish mistake of greed that costs deals. In this case we thought we may have found it but it wouldn't make sense for a cash transaction to receive cash back at closing unless there was a more sinister plan to artificially inflate the resale value. So I asked Phil Foolish why he paid $65k for a $50k listing when he was paying cash.
"Oh, that included the $15k assignment fee", Phil beamed.
Okay so get this straight - Phil paid an UNLICENSED third party FIFTEEN THOUSAND DOLLARS (30 percent of the price of the property) for doing nothing more than assigning the deal. OH MY GOD PEOPLE! Get OUT of my industry. Buyer - you are a FOOL if you do this. NEVER pay an assignment fee of more than $1000 or 1% of the sales price whichever is less unless you just want to be an idiot. ASSIGNERS - greedy, scum of the earth low life trash. I don't care if you have been a fan of mine your whole life and I just lost you forever - you are SCUM.
Phil is not getting his refinance - well, he is, but he's getting $50k the original listing price. "It's not enough", he says.
"Okay, fine. Go away, " I reply. "You're an idiot anyway so goodbye."
"No, I need the money desperately, I'll take the $50k", Phil sheepishly replied.
So what is Ken's issue with this? Why is this a problem if the value is supported and the buyer was foolish enough to pay a 30 percent (or ten percent or 5 percent) assignment fee?
1. Assignment fees cannot be refinanced. Fannie Mae, Freddie Mac and most institutional lenders disallow those from a refinance. 2. They artificially inflate the sales price of the property actually turning this into prosecutable mortgage fraud (yes, the MBA is working on this). 3. There is no or little recourse against the collector of the assignment fee unlike a licensed, insured agent who has passed a criminal background check and met minimum requirements to obtain and possess a license. 4. There is no protection under the law for the buyer for excessive fees - such as THIRTY PERCENT.
Basically unlicensed agents make their living from emotion and greed - the two biggest killers of real estate investment wealth.
Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683
It comes up often, "can the second mortgage holder foreclose?"
Yes - but it's not so simple. In order for a subordinate lien holder such as a second or third mortgage to foreclose they must first satisfy the superior encumbrances. In plain English if I loaned a home owner $150,000 against their $250,000 home and someone else comes along and loans them the other $100,000 they did not buy the first rights to the home. I have those. If the borrower is not satisfying their loan then don't really have much choice but to file a judgment and take the borrowers income and assets - if the judge will so grant - or to satisfy my loan then take possession of the property.
The inverse is a bit frightening to the subordinate lien holders because of the way foreclosure sales work. The first lien holder (first mortgage usually) has complete foreclosure rights and does not need to satisfy any additional liens to foreclose. In fact when the property is sold at auction the first lien is satisfied in whole before any additional funds are distributed. If we use the example from above and I foreclose but the sale only brings in $150,000 - I keep it all except the fees associated with the foreclosure and sale. The subordinates get nothing.
So how do the subordinates seek relief? The borrower still owes the money. If the sale happens and the subordinates receive no relief they file for a judgment against the former borrower now become defendant. Chances are the judge will award the judgment to the plaintiff who is free to collect according to the laws of the area wherein resides the defendant.
Friends don't let borrowers become defendants.
(I am not an attorney, I just keep their kids in BMW's and Lexuseses.)
Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683
If you are selling a home or shopping for a home in most areas of Georgia outside of the I-285 counties you may be able to qualify for one of our American Dream Home Ownership Program Solutions that will allow you to get to closing with little or nothing out of pocket and get into a decent 30 year fixed rate loan with no monthly private mortgage insurance.
Unlike most other offerings from lenders and banks in the areas this loan even allows the buyer to finance up to 10% or $10,000 in repairs and/or upgrades.
This loan also allows the seller to contribute an unlimited amount to the closing costs - perfect for first time homebuyers and those moving up as well. It must be supported by the appraisal.
This is for PRIMARY residences only (no second homes or investment homes) and the buyer can be a first time homeowner. No down payment or reserves are required. Borrower must have fair credit (better to have no credit than bad credit), have been in the same line of work for at least 2 years and be able to document their income.
THERE IS NO MONTHLY PRIVATE MORTGAGE INSURANCE!
Call my office but please don't ask for me it may be months before I get back to you - sorry! Call 678-946-0100 or 866-946-0120 and ask for information on The American Dream Home Ownership Program.
Thanks!
Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062. Georgia Residential Mortgage Licensee 20014. Equal Housing Lender.
Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683
This is a story based on actual events and a listing agent who thinks my company, my service and my employee stink. My company and my service do not stink but the situation certainly does. Because of major federal laws against sharing private information I have to just take the heat ;) This is not a "rant" about a situation but rather a look behind the scenes at why one agent, based on one incident, made a sweeping negative judgment. It is also an invitation for comments so I can better serve the entire industry while avoiding the rare circumstance such as this. Frankly I don't ever want one person to think our service is substandard based on anything and certainly not when I know we have done and will do the seemingly impossible (within the law) to work on files other people would simply have denied. It's a thin line between making it happen and "should have denied them".
This really is about giving a little credit to professionals across the industry - a little mutual respect. Sure, I know every loan officer isn't a super reliable closing machine and it doesn't matter where they work. Same as every real estate agent isn't a conscientious adherer to sound business principles and practices. Slackers are found in every walk of life and every profession. I suppose there are even lazy hookers and drug dealers.
If you've read my blog(s) for long you may already know my policy on (a) screamers and (b) communicating with the seller's agent when the buyer is our client. This deal is a short sale. It goes to the courthouse steps on Tuesday regardless. The lender (according to the selling agent) will NOT extend. We've had the file since April 8th - plenty of time to get the file closed.
It's not cleared to close even yet at 1:04 PM on Friday, the 9th of May. Are we sitting around in a daze waiting? No, we're bugging the dew out of everyone who can get us the letter we need NOW. We're possibly jeaopardizing relationships we have built for years in pushing for what we need. This blog is to put some light into those nasty lenders, loan officers, and operations managers who just won't communicate and let you sniff around a bit behind the scenes of a real cluster. I'll show the things I said and the things I would like to have said and explain why I cannot.
The subject property (town home) is located in a declining market. Neither agent knew if this was a town-home or condo ... we had to dig that information up ourselves. There have been 7% foreclosures on that street. The young couple living in the home have not made a payment in 4 months. Our client, a repeat client, is in his late thirties ... I think he's thirty-twenty-seven ... and living with his mom after his third divorce. He is self-employed and always has been. He files his taxes really screwy but he does pay them, thank God. We didn't go stated because he doesn't pay his taxes we went stated (stating the actual amount on the tax returns) because he owns a business but doesn't have a business license because he does trade shows and, if you've ever sold at a trade show you know you have to buy a temporary business license at the venue. He doesn't use a tax preparer OR a CPA and files his own taxes. Said all that to say we still had to go stated because there are no W-2's.
It took almost a week to get the fully executed contract back. Yes we were already working on the file and that's a violation of one of our Operating Procedures essentially because until there is an executed contract in our hands there is no deal. However this is a repeat client so we started the process. Once we got the fully executed contract we ordered the appraisal from a third party national appraisal company who said, "We'll get to it on Wednesday". Keep in mind we ordered the appraisal on the previous Thursday - so one week.
The appraiser did not show up on Wednesday and did not contact the seller or their agent for access. We phoned the company and they didn't know anything either. On Thursday my staff member handling the transaction called every 15 minutes for an update on the appraisal. Drop dead date Friday May 9, 2008. Date we were waiting on the appraisal April 24. Still we have plenty of time. We have our DO approval and all of the stips it asked for.
The appraiser finally shows up on Friday to do the appraisal. We expect to have it emailed to us over the weekend - Monday morning, no appraisal. We begin calling the national dispatch company, since we have no direct connection with the appraiser, and explaining we're running out of time and if there is anything abnormal with that appraisal we need to know so we can make the appropriate decisions.
There was something abnormal with the appraisal we finally got on April 30th. The property is in a declining area. SOMETHING WE COULD HAVE KNOWN WEEKS AGO IF WE USED A DIRECT LOCAL APPRAISER WITH WHOM WE HAVE A RELATIONSHIP. The loan amount had to be lowered by 5% meaning our client had to come up with another 5% which he did not have ... he was already bringing 10% down to the closing. He has commodities so he had to sell more commodoties to get the 5% then we had to prove the source and show that he had been in possession of the commodoty long enough to call the funds seasoned. I won't tell you what the commodity is just to say - "there ain't no paperwork on it" and it's totally legal. Some of you may even own some.
This put us in denial status with the major national bank to whom we were selling the loan. So on April 30th we scramble to resubmit the file to two different lenders along with a new set of underwriting stips. All this to buy a cheap little townhome from a little couple who got in too deep.
Meanwhile my employee is livid and upset. Unbeknownst to the cheery little broker who is soon to enter the picture my employee has litterally done enough work on this one file to have easily closed 8 others. I have left out hundreds of details - the teeth pulling with the banks to get the correct VOD, the previous rental history from the apartments where he lived before moving back in with mom - unbelievable the extent to which my employee had to go to have a shot at saving this home from foreclosure which she takes extremely seriously.
Then it happened.
On of the new lenders, a national bank which just announced the closing of it's wholesale mortgage division, repulled credit and there was a new lien, a new eviction notice and a new 60 day late. This is the part I really want to tell the happy little Re/Max listing agent who soon found herself speaking with me - which is usually not good. More on that in a moment.
My associate had been very openly communicate with our client and his buyer's rep - whom I only recently discovered is the SON of the LISTING AGENT. Because we have WRITTEN AUTHORIZATION to share personal information with the buyer's rep we openly communicated with this man about what had happened. It seems the apartment complex had erroneously filed an Eviction for Failure to Pay which totally trashed his credit. However he did manage to go to court IMMEDIATELY and get this dismissed. Unfotunately, however, they would not dismiss the late payment which brought his middle score well below the minimum required for a stated income loan. Remember, we can't go full doc because he has no paystubs and no W2's. He makes $30k one month and nothing the next two.
So now we've been fighting these issues AND MORE that I didn't bother to include because this is already a book and it's Thursday May 8th. We're at two new lenders. One denied it in the morning and the other will not LOOK at the file until Friday. We call and explain this in detail to our client. Then we call and explain it in detail - I'm talking about a 30 minute conversation - with his agent who is the son of the seller's agent. Five minutes after my employee ends her call with the buyer's rep I hear her take a call on speaker phone that starts out like this: "Hi this is Blam Blogers (fictitious) with Re/Max (actual) I am the listing agent for the (buyer) deal. I need to get some straight answers from you."
So far that's kind of okay except I have a policy implemented EIGHT years ago that says, "Without explicit permission in writing on a specific Borrower's Authorization Form the only information we provide to selling agents is: status of the loan and expected closing date." But my associate is very concerned now that her client will essentially be out on the street, out $2000 earnest money and will almost certainly not qualify for another home with these new things he is fighting but she is sick to her soul about this house going to forclosure.
Needless to say she's on pins and needles (not to mention her pawltry commission check on this deal with a total revenue to us of only about $1300 went down even more when we switched lenders but held the rate the same) and she just finished explaining the full details to the two people we are supposed to communicate with. When I heard Blam Blogers say, "Ma'am you don't need to be short with me I'm just trying to get some answers" I picked up the phone and explained, very calmly but in no uncertain terms, that the information had just been dissiminated to the buyer's rep and my employee was not permitted, by law and by corporate policy, to go into any more detail.
What I wanted to say was, "Ma'am, you have NO IDEA what this client has put my employee through. You have NO IDEA how many nights and weekends she has worked on this file. If you only knew that we just discovered some major, MAJOR issues with his credit and he files his taxes in such a weird way and pays himself even weirder." But I can't - I mean I legally CAN NOT. All I could say is, "We are waiting on a clear to close from the THIRD lender to whom we have submitted the file with a DO approval."
So, Blam Blogers, don't judge my company and our service based on what you think because you don't even know the 100th of what hoops and pains my staff has gone through to get this file closed. Believe me - if they were all like that we'd just get out of the business.
My employee has communicated with the borrower no less than four times every day and with his agent at least every time some important event has ocurred meaning a dozen or so times in the last 2 weeks.
So if you are reading this the next time you think the loan officer is crappy remember this story - the vast majority of them don't just sit there and play solitaire when they aren't talking to you on the phone. They, like you, get paid when the deal funds. In fact you leave the closing with your check. Theirs goes in to the system and depending on when the deposit is made could be two to three weeks before they see their measly little commission. I don't write this as an attack on any person or component of the inudstry. In fact I will write Blam Blogers a letter (not an email) and apologize for everything that I possibly can - legally. All I can say is "I wish I could tell you the things I know and the order in which we discovered them - but I can not."
Obviously I'm hoping we get a CTC today and we can give it to her to give to the sellers. But who knows - loans don't close just because the underwriting engine says they can.
If you were sitting in my chair, what may you have done differently?
How can I better improve my communication to third parties without violating any of the very strict privacy laws?
THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.
EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.
