FHA Flip Rule Waived for 1 Year!

This will be music to investor’s ears everywhere!  We no longer have to wait and plan to hold for 91 days to contract and sell fix and flip projects to first-time home buyers.   This will translate to lower holding costs, more projects, and higher quality inventory for buyers.  Some investors may choose to pass along the savings to buyers, many will likely choose to retain better margins on properties in this competitive environment.  Thank You FHA and HUD!

90 Day Flip Rule

“Section 203.37a(b)(2) of the FHA regulations, 24 CFR, is hereby:

• Waived for a period of one year,
• Effective February 1, 2010 through January 31, 2011,
• Arm’s length transactions only
• Specific appraisal conditions must be met if property value increases more than 20%

Read the Press Release about the Waiver online at the Official HUD and FHA 90 Day Flip Rule Waiver Announcement

Read the actual Waiver of Requirements 24 CFR 203.37

If you have questions of FHA’s Property Flipping Waiver, please email FHA at: info@fhaoutreach.com or visit: http://www.fhaoutreach.gov/FHAFAQ

4155.2: 4.7

Congratulations investors and real estate investor associations that on the successful grassroots lobbying and information dissemination that helped make this change possible.   Let us all continue to work together to rebuild the housing market from the ground up and remodel the housing stock that has been neglected to improve our neighborhoods and communities.

One of the Craziest, Weirdest Wholesale Deals Ever

This is a wild story, even for seasoned real estate investors. It’s a bit long, so you might want to get comfortable, grab a cup of coffee or a beer (depending on the time of day). Read it and weep. And then cheer at the end.

One of the biggest challenges in the business of real estate investing is finding title companies and escrow officers that understand our business. I just finished working one of the craziest wholesale transactions of my career, and the difference between the level of service offered by the big brand name title company and a small investor friendly title company was astonishing.

The name of the famous title company shall remain under blogging disguise from Google search and alert bots, and named in pictures only (worth a thousand words, what good return on investment!). But I will gladly name the unprecedented service offered by Fernon Meeks of Axis Title and Escrow in Denver for saving the deal and making some amazing moves. She is an investor herself, who decided to get into the title business. Her motto, by the way, is “We Stay Open so You Can Close.” I can vouch for that. (You rock, Fernon).

Real Estate with Lots of Hair

Now, I will admit that this deal had a lot of hair on it.  So I did cut some slack to folks.  Here are a few of the crazy circumstances:

• The property was foreclosed by the lender at the Denver Public Trustee and then listed as REO;
• It had numerous encumbrances wiped at foreclosure, but a federal criminal restitution lien (wow) remained attached to the property, with twelve month redemption rights. (hmm, this 10 foot pole is kind of heavy!)
• The property had been placed under contract 3 or 4 times already and fallen out due to title issues (big surprise) and also unsuccessful wholesalers who could not find a buyer etc. It got a lot of attention because it is in the hot Highlands / Jefferson Park neighborhood of Denver.
• The REO listing agent was in the process of being fired because so many contracts had been placed on the property that did not close.
• It was being “flipped” using transactional funding (flash cash) to an end buyer. Thanks to Short Funding for killer service too.

Is that enough craziness for a title examiner and escrow agent yet? Here’s more:

• The bank REO asset manager / listing agent had actually double contracted the property! Once to our company and again to the wholesaler who ended up having the only contract that would close (because if the contract fell, the bank was jerking the listing agreement). We had been in back-up position twice and legal stuff was flying everywhere.
• The wholesaler who had it under contract, and then re-contracted to us, had borrowed the earnest money from someone who sounded like a crazy mafia Italian guy (who called me checking up on the deal!).
• At this point all earnest money was hard (non-refundable to all parties). So if anything went wrong all the parties were like dominoes falling down, and would be pretty upset.
• Oh, one last thing. The wholesaler had “misread” one of the Amend-Extend agreements from the Bank REO and thought he had a discount that was invalid. So, his specific performance contract to me was for MORE than he was buying it for.  Bad Dog.

What Else Could Go Wrong?

Like I said, lots of hair. But here’s the real kicker, and where the title company tale starts. After all the crazy lien stuff was negotiated and resolved, and we figured out a way to resolve the double contract and back-to-back closing, it was discovered that the legal description of the property was incorrect. What else could possibly go wrong?

Next was the blame game for who screwed up the legal description. The listing agent blames the title company. The title company blames the public trustee. I’m sure the public trustee would have blamed the previous owner, but alas, he was in prison for mortgage fraud! How in the world do we get this deal closed?

This is point when the title processor decided to stop returning phone calls and emails and the deal went into limbo. Behind the scenes, and in preparation for closing the Side B to C transaction, Fernon at Axis was researching the problem with the legal description. She told me later that it had been incorrect for more than 10 years and at least one sale transfer.

So, we needed a survey, fast! The big title company ordered it and received a corrected legal description. Yeah!  BUT, now the title examiner was complaining that his commitment did not match the new (correct) legal description. Dumb investor to smart title company lady:   “That should be an easy problem to solve, Miss. Just change the title commitment to match the survey, right?”

To my absolute disbelief, the big famous title company was not willing to do this (I still don’t understand why). Instead, they called the surveyor and asked him to “correct his survey to match the title commitment!” Excuse me? You’re planning to use the WRONG legal description on my deed and your company will be “insuring over” the defect? Wow.

Thankfully, small customer service driven title company closer was privy to all this and was in the background preparing a title policy that included the service of filing the “accurate” survey at the County. This procedure would finally have the property and the legal description match, and insurable title from Side B closing forward and forever more. So my initial policy from the big bad title company was moot.

The Closing Finish Line!  After all was said and done:

• The wholesaler got back his borrowed earnest money back, and paid back the mafia guy.
• Wholesaler’s buyer agent reduced her commission (bless her) to account for mystery discount to get deal closed.
• Transactional funding company covers the short-term loan to wholesaler for Side A of the transaction
• I receive deed and title commitment insuring over improper legal, but re-insure with a new title company that makes everything legitimate and insured.
• I sell the property to the final end user, who was extremely patient throughout the entire process, and he now owns a great rental property.
• I take the rest of the week off, (we concluded at 4:30 p.m. on Friday).
• I send Fernon at Axis Title Company a really big thank you card and a bottle of wine.

End of crazy title company tale:  Small, investor friendly title company 1, big famous title company, zero.

Did I mention I love this business?

ARV – CAP RATE – HUD – MLS – NNN – REO – OWC – ETC…

Real estate investors, brokers and agents are as guilty as any other industry practitioners at using jargon and abbreviations that seem commonplace to us, but are often confusing to our clients and customers. As a reminder to slow down and explain these important terms and concepts, especially to new clients, here is a list of the most common jargon and simple explanations:

• ARV – After-Repaired Value. The estimated resale or new appraisal value of a property after remodeling or repairs are complete.
• CMA – Comparative Market Analysis.  A report run by a real estate professional to estimate the value of a property for a listing.
• CAP  (Cap Rate) = Capitalization Rate.  A measure of the quality of an income property investment based on income and expenses expressed as a ratio. (NOI/COST=CAP)
• COCR – Cash on Cash Return.  A simple calculation of the return on initial cash invested relative to annual cash flow. (cash flow/initial investment).
• DBA – Doing Business As.   Business name registered as ancillary to the actual entity or person filing taxes or bank account deposits.
• DOT – Deed of Trust.  Document filed by a lender to publicly show proof of loan or lien on real property.
• FHA – Federal Housing Administration. The federal agency in the Department of Housing and Urban Development that insures residential mortgages.
• HOA – Homeowners Association.  A group that governs a subdivision, condominium or planned community or other real estate with a common purpose.
• HUD – Housing and Urban Development.  The United States federal department that administers federal programs dealing with housing.
• I/O- Interest Only (loan). A type of loan amortization in which the principal balance of the loan neither increases nor decreases.
• IRR – Internal Rate of Return.  The average annual compound rate of return received by an investor over the life of their investment.
• L/O – Lease Option.  A written agreement between a property owner and a tenant that allows the tenant to use a property in exchange for rent, but it also gives the tenant the option to buy the property for a certain price within a specified time period.
• LLC – Limited Liability Company.  A legal structure for businesses which is designed to combine attributes of corporate and partnership structures.
• LOI – Letter of Intent.  A document outlining an agreement between two or more parties before the agreement is finalized.
• LTC – Loan to Cost.  The ratio of the price paid for a property to amount of the loan used to finance the purchase.  Often used to calculate a purchase AND repair or build costs.
• LTV – Loan to Value.  The amount of money being loaned (borrowed) against the appraised value.

• MLS – Multiple Listing Service. Local or regional service that compiles available real estate for sale by member brokers including detailed information, generally computerized and online.
• NNN – Triple Net Lease.  A lease in which, in addition to the rent, the tenant is required to pay for property taxes, insurance and maintenance.
• NOI – Net Operating Income.  Annual income after all expenses (property taxes, ins., & maintenance) except debt service (mortgage payment).
• NOO – Non-Owner Occupied.  Homes that are acquired specifically for investment purposes, also a type of loan for investment property.
• OWC – Owner Will Carry (owner financing).  A type of financing in which the seller accepts a promissory note as a portion of the purchase price. Also called owner or seller financing.
• PITI – Principal, Interest, Taxes and Insurance.   The total monthly payment a borrower makes to the lender.  If private mortgage insurance is required, that will be included in the amount as well.
• PMI – Private Mortgage Insurance.  Insurance paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-To-Value Ratio is greater than 80%.
• POA – Power of Attorney.  A written authorization to an agent to perform specified acts on behalf of his principal, usually to sign closing documents. This may be granted as either a general or a limited power.
• POF – Proof of Funds. A document by which the principal’s bank states that the principal owns the funds required for the transaction.
• REO – Real Estate Owned. REO is a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction.
• ROI – Return On Investment.  A measure used to evaluate the quality of an investment or to compare different investments. Return/Cost expressed as a percentage or a ratio.
• SFR – Single Family Residence.  A standard home with no common areas, or sharing of common walls intended to be occupied by 1 family.

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SOLD
4 Bedrooms, 2 Baths, 1 Car Attached Garage, 1587 Sqft.
This foreclosure property is well located in the University Hills neighborhood.  Walking distance to shops and restaurants.  Available to CASH BUYERS only, as it is a redemption from Denver Public Trustee.  No loans are available for this project.