Private Lenders for Mortgage Financing
Lending Resources Group (LRG) just completed an exhaustive 5 month long real estate loan process to gain private funding for assisting its client refinance 26 of his 44 homes in Milwaukee, Wisconsin. The ups and downs and twists and turns that this process took are far too voluminous to describe. However, there are several salient factors that helped reach a successful financial solution.
The Steps needed for Private Funding
One important hurdle to overcome was the value of these properties. It was originally stated by the private lender that they would not refinance any properties valued at any price that is less than $50,000. That amount was later changed to $40,000. The client paid approximately $20,000 to have 35 of his 44 properties that he believed worth more than $40,000 appraised. The lender’s appraiser valued the first 10 properties with an average of approximately $55,000 each. This led us to believe we shouldn’t expect to have a problem valuating the remaining 25 properties at $40,000 or better. As it turned out, the appraisers – there were 2 for the remaining 25 houses – only gave values of $40,000 or better for 15 out of the other 25 remaining properties.
Their assessments seemed to be very inaccurate in some cases; 4-plexes with the same or greater square footage adjacent to single family houses on the same street being valued at $20-30,000 less. Nevertheless, our hands were tied and we had to accede to the lender’s appraised values. The result was a much reduced loan amount which compromised LRG’s client’s obligations to pay the lienholder’s mortgage as well as back taxes that he inherited when he purchased the properties several years ago.
The private lender indicated that we would be ready to close this transaction once the appraisals were completed. This was towards the end of December 2014. However, that wasn’t close to being the case. First, the lender required the client to get every tenant of the 26 houses to sign a 6 month lease. In addition, the client needed to have every tenant sign an acknowledgement there was no lead based paint in these homes.
Then, the private lender requested a letter from the first lienholder stating the amount that was owed by the client. Once that was done, we were again then led to believe that we were headed towards closing. The client produced a letter showing that the lienholder reduced the payoff by $150,000. The lender fired back that they wouldn’t lend more than 85% of what was owed. All of a sudden the lender was using some left field rule that essentially aimed not to lend on the amount owed if that amount was reduced, and this was in addition to the reduced values of the houses with a maximum loan amount of 55% of the aforementioned values. The closing was delayed through the end of January due to these factors.
Final Thoughts from the Boutique Real Estate Brokerage Agency
There were several other problems that caused this closing to be delayed and almost resulted in not closing at all. However, in the end, the client was put into direct contact with the lender to ultimately put to rest any concerns the lender had regarding taxes owed, acceptable mortgage terms, the lienholder’s mortgage, and more. The result was a successful close of escrow on March 2, 2015. The client was able to repay a large portion of his debt to the first lienholder as well as a large portion of back taxes that were owed. This refinancing prevented these houses from being foreclosed. LRG is now trying to brokerage the client’s refinance for his remaining 18 houses with another private lender.