IHB's Financed Trustee Sales

T

t2

New member
I try to read the Irvine Housing Blog fairly often but obviously not often enough since I must have missed this announcement a couple days ago (it is at the end of the HOA delinquency bit):http://www.irvinehousingblog.com/bl...ions-block-guests-when-owners-are-delinquent/

Apparently they have hooked up with some hard money lenders and can offer financed trustee sales. My interest was piqued until I read the part about selling at 3% below comps. I guess if a person is hell bent on buying through auction it could be a good way to get the job done, though.
 
The comments section is actually more interesting as people are asking questions that I want to know.

IR has some good answers but 3% below comps is a moving target because the IHB is the one who is going to set that price. If their comps are reliable, I think it's a good deal as IR has said there will be some "maintenance" performed based on a 3rd party inspection. With tight inventory, being able to pick up a Trustee Sale without having to worry about "open" market bidders (you of course have to compete against whoever is at auction) might be a good option.

I've conversed with IR about this in the past and it looks like they have figure out a way to get hard money financing into the deal.
 
Don't know what the exit strategy is for the hard money lender. Assume you'll have to keep the loan for 90 days minimum. You won't be able to use a higher value to "cash out" refi the transaction until you've been in the home for 6 months. At that time where will rates be? Where will values be when more HAFA properties hit the market? It's great to get a home on the courthouse steps, but be ready to hang onto the home for some time before getting into "better" financing.

My .02c

Soylent Green Is People
 
Maybe im missing something but wouldnt the hard money lender be the buyer at the courthouse and flip it to you, the buyer, where you will be coming in with your own financing/approval from some direct lender? If that is the case then what you guys are talking about would not apply correct? Isnt that how it would work, so that way the hard money lender can get his money out in about 50 days (per Larry)?
 
I'm not sure... IR is supposed to go through it more in detail today but I haven't been to the IHB yet today.

I think it can go both ways but for the hard money lender... it would seem less risky for them if they got funded via the buyer's lender after the auction. It seems challenging either way but I guess they have that worked out.
 
qwerty said:
Maybe im missing something but wouldnt the hard money lender be the buyer at the courthouse and flip it to you, the buyer, where you will be coming in with your own financing/approval from some direct lender? If that is the case then what you guys are talking about would not apply correct? Isnt that how it would work, so that way the hard money lender can get his money out in about 50 days (per Larry)?
Click to expand...

Absolutely correct.  What Larry and his "hard money lender" partner will do is flip the property to the buyer.  The reason they are offering to do it 3% lower than comps will be because Larry or Shevy will represent both sides of the transaction thus saving the partner the buyer side commission (2.5% - 3%).  The sale will be a third party arms length transaction where the buyer can get traditional financing as the buyer is not an owner of the property after it is purchased at the Trustee Sale auction.  I've been working with a high net worth individual offering the same service to a handful of people but have had no luck as the homes that those buyers were interested in keep getting postponed.  Several other "flippers" also have buyers lined up before the auction and set a reserve price as to how much they are willing to bid on the property.  The profit that the partner will generate will be based upon purchase price less any deliquent property taxes, repairs, real estate commissions, and closing costs.
 
irvinehomeowner said:
I'm not sure... IR is supposed to go through it more in detail today but I haven't been to the IHB yet today.

I think it can go both ways but for the hard money lender... it would seem less risky for them if they got funded via the buyer's lender after the auction. It seems challenging either way but I guess they have that worked out.
Click to expand...
It can be very risky to the partner who is doing the purchasing because the buyer has the standard 17-day contingency period to walk away from the transaction for any reason they want.  It's one thing to do a drive-by and look at a floorplan and/or previous listing pictures but it is a whole other thing to actually have the buyer tour the property after is it purchased at the foreclosure auction.  I'm sure this risk will be incorporated in the amount the partner will be willing to bid on the property (they will have a minimum cash-on-cash return requirement in their mind).
 
Buying a flip to live in makes sense given the low price. Buying a property to flip is another issue. We're running into a number of problems when these properties are re-sold. This week alone we've had two transactions crash out because the buyer could not arrange financing either due to the 90 day exclusion rule, or the FHA 20% price inflation ceiling. Another flipper pulled their listing off the market because the condo project their flip unit is in has an HOA in serious trouble, forcing this re-sale unit to be offered "cash only offers!". I don't disapprove of flips, but just wish the buyers of distressed homes at auction and their Realtors who re-market the homes would take the time needed to work out an exit strategy that actually works.

My .02c

Soylent Green Is People 
 
I'm wondering if HOA problems are going to get more common, and the flippers are going to suffer for it.

Or is there some central database with up to date HOA status information that they can tap?

If not, I wonder if flippers will stay away from auctions of condos?
 
freedomcm said:
I'm wondering if HOA problems are going to get more common, and the flippers are going to suffer for it.

Or is there some central database with up to date HOA status information that they can tap?

If not, I wonder if flippers will stay away from auctions of condos?
Click to expand...
I'll tell you this much...my partner will not touch a condo.  It's either a SFR or nothing just because of that risk.
 
Good flippers - ones with experience and deep pockets - usually avoid condos. Mini Trumps who want to get rich quick seem to get entangled with condos more often than not.

If there is a database, it's out of date quickly. One of the condo projects with the failed flips mentioned earlier has 150 units, 76 units appear to have on site mailing addresses with 74 being off site. You can say then that there is a 51% (rounded) owner occupancy level which is OK to finance in. The problem though is that there are 19 units in escrow set to close in the next 60 days and that will upset the balance in who knows which direction. The HOA also has a severe shortage in their reserve account which only is disclosed if ou read the HOA documents. We found another HOA yesterday with a lapsed Fidelity Bond - YOWZA!! The information on Condo HOA's ebbs and flows so quickly it would be near impossible to keep it current.

My .02c

Soylent Green Is People.
 
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