This transaction started more than 2 months ago. Sadie Williams, the borrower and my client, made an offer on a bank owned property in Petaluma, CA. She planned to use her IRA as a down payment and obtain a non-recourse loan to complete this purchase.
The property was unique in several respects. It was a 2 acre parcel with a main house, a granny unit, an enclosed but unfinished third structure as well as a couple of open horse stalls. We knew that the usual conventional lenders would not lend on this property. A local bank, a well kept secret for doing non-recourse loans, also turned it down after considering the borrower’s loan package even though they have a branch in Petaluma and the borrower was willing to establish a substantial deposit relationship with them. Not to mention that she was willing to make a 50% down payment for the purchase.
The only way Lending Resources was going to be able to help Ms. Williams obtain this investment property was through a private hard money lender. Lending Resources knew just the company to finance this purchase.
It’s important to mention that the borrower was very motivated to buy this property so that she could eventually live on this property and have a nice place for her children and grandchildren to visit her. She is retired so at some point she will be able to use this property if she wants to and take her IRA investment as a distribution over a period of years.
The property had several problems that needed correcting. There was an abatement issue. The third building that was an unfinished structure had been built by the prior owner without updated permits. The county requires there to be only 2 structures for occupying on a 2 acre parcel. In addition, there was termite repair work needed and the borrower had to decide what to do with the extra building in order to meet the county’s permit requirements. Lending Resources recommended a general contractor to her to assess the situation, give her an estimate of the cost to do the repairs on each of the buildings and what it would cost to complete the unfinished building or knock it down.
After all was said and done, the estimate was in excess of $100,000. In addition, the purchase price at the outset of the transaction was $529,900. As a result of the analysis done by the contractor, Ms.Williams decided to use the contractor’s estimate as a sword - rather than shy away from this purchase, she decided to make a counteroffer to the bank to buy the property for approximately $436,000 plus a $20,000 credit at closing. The bank, Wells Fargo, said they would get back to her shortly through her agent. One week passed, 2 weeks passed, 3 weeks passed - still no answer; 4 weeks passed, still nothing. Then just when we all thought the bank was going to let the offer fall off the table, they came back with an acceptance of her offer except for the $20,000 closing credit. After much discussion and consideration with her agent and Lending Resources, Sadie decided to move forward and accept the bank’s terms.
Now the best part - the bank took more than 4 weeks to get back to the buyer with their answer; however, they were now requiring her to close the transaction by the end of March which was 11 days away or lose the chance. That meant we needed loan disclosure documents signed 10 days prior to closing and, most of all, we needed the loan documents drawn and signed as well as an accurate good faith estimate presented to the borrower. If the ‘gfe’ is incorrect in any way, there would not be enough time to issue another one and allow 10 days to ‘cool off’ as required by state law.
To further complicate matters there was a title company in northern California as well as an escrow company in southern California handling this transaction . The paperwork would have to be transacted by both companies. Once again we were racing against the clock to generate the correct paperwork and have it signed by both the borrower and her custodian, Pensco Trust.
March 31st was the deadline to get this loan closed or the bank was going to nullify the transaction and place the property back on the multiple listing service for sale. It took all of the prior week to get the the loan papers completed as well as the title and escrow companies to have a correct preliminary title report and issue accurate fees on a HUD-1 for the borrower to review.
It was now Friday, the 26th and we needed to get these papers signed by the borrower and Pensco in time to get them back to the title company in Vacaville and sent to southern California where the escrow company would take charge of recording the deed in the buyer’s name. Pensco’s Vice-President of Real Estate Investments, Jeanny Lo, stayed late on that Friday afternoon to make sure the loan papers were correct for signing. The title company sent their notary with the paperwork in hand to Pensco for signing by both the borrower and Pensco at the same time. He then would be able to deliver them back to the title office for fedexing to the escrow company in southern California for Monday delivery.
Thanks to the title company and Pensco’s VP, the papers were reviewed, signed and returned by the notary to the title company all in the same day. Special mention should be given to Becky Larson, the title officer at Fidelity National Title in Vacaville for helping get these loan papers prepared for signing, sending the notary late in the afternoon on Friday to San Francisco, returning them to her that afternoon also and then working on Saturday to package the papers for overnight delivery to the escrow company in Anaheim.
OK, so now it’s Monday, the 29th, the escrow company received the signed paperwork from the title company. The only other piece to complete this loan puzzle and allow the escrow company to record the deed in the new buyer’s name, Pensco Trust Company (fbo) Sadie Williams’ IRA, was for the required funds for the purchase to be in the title company’s account.
Well, the lender said he sent the wire for the loan amount on Monday. Pensco also sent their wire (the borrower’s funds) on Monday so it seemed like the escrow company would receive all the necessary funds by Tuesday - a day before recording which would be great. However, by the end of the day on Tuesday, the title company didn’t receive the lender’s funds and more money was also needed from the buyer’s Pensco account. Sadie approved the extra amount to be sent without a problem. However, it turned out that the lender sent his funds to the wrong account of the title company so they were returned. It was too late to resend them on Tuesday. That meant the lender had to resend them on Wednesday morning. It now became a race against time for the title company to receive the funds and be able to record the transaction before 2 PM on Wed., March 31st.
The title/escrow company would not record the transaction without good funds in their account. The lender, to his credit, made every effort to have his funds wired first thing Wednesday morning, but it can take several hours for those funds to be received by the bank. By 1PM on Wednesday, the title company hadn’t received the funds. Then at 1:05PM the title company emailed Lending Resources to let us know the funds had shown up in their account. The transaction went on record soonafter. We had done it, but not without a few heart palpitations.
Again, thanks go out to the many people that made this transaction become a reality - Sadie Williams, the buyer, for her courage to take on a property with several financial challenges, Shannon Howard, her agent, for her negotiations with the bank, the lender for making the loan and completing the paperwork in a short period of time, the title officer, Becky Larson, for arranging the notary to hand deliver the paperwork, notarize them and return them to her the same day, Jeanny Lo, Pensco’s VP of Real Estate, for coordinating the signing late on a Friday afternoon and again the title and escrow officers in both northern and southern California watching out closely for the wire and recording the deed in time to meet the bank’s deadline of March 31st. Thank you all for your hard work!
Just when you think you have everything under control and your transaction is in the home stretch of being closed, good ole’ Murphy’s Law (you know, whatever can go wrong, will?!) reared its ugly head! We were in the throes of closing another non-recourse loan on a single family home in San Jose. This was a bank owned property and the ground rules were made very clear - we had to close by Friday March 12th or the bank would pull the deal away from my investor client and re-open bidding for new offers. The borrower(also a realtor by trade) who was buying the property with his IRA knew that no other property in the same neighborhood sold for less than $350,000, but the purchase price was $280,000, a virtual steal. Nevertheless, this is the kind of market we’re in and the alert investor who studies values can pick up these types of deals.
In any case, back to what happened. We had a pre-approved non-recourse loan from the lender and had completed sending the bank all the necessary paperwork including: borrower’s application, IRA statements, purchase contract, title report, etc. The appraisal had just been ordered and the appraiser had already done the inspection of the property. This usually means we’re far along in the loan process. If the appraisal comes back with a reasonably satisfactory description of the property and the price is in line with the purchase contract, tha bank almost always proceeds to complete the loan process and grant the loan. This time things went differently. All of a sudden, the lender’s Vice-President, who we deal with on a regular basis, requested a copy of the termite report. The title report made mention of the termite report so it needed to be produced upon request. Once the VP saw the termite report he put the ‘cabosh’ on the deal. No one was trying to hide anything but it’s not often that a termite report ruins the loan. In this particular case, there was a greater amount of repair work that was needed than usual for a small single family - we’re talking at least $10,000 or more. The lender would have nothing to do with this. Even though our client already had a contract for the sale of this property as soon as he closed escrow, the lender refused to go any further. He threw it back in our lap.
At this point my client was at wit’s end, as was I. The borrower already had a contract to sell this property for $50,000 more than the price he was paying so he stood to make a handsome profit……if we could just make him the owner first?! Lending Resources called on a ‘hard money’ lender that they knew. That was our only option. The usual non-recourse lenders had all been spoken for. Fortunately, this ‘hard money’ lender was ready to act immediately to help us close the transaction. He was not concerned about the termite report. He only required an appraisal equal to or greater than the purchase price and all the usual paperwork.
We only had 8 business days to get the appraisal done, get all disclosures signed, get the loan docs drawn for signing by both Pensco and the borrower, have funds wired and record all in a week and a half. This process usually can take 3 weeks or more from start to finish. Moreover, the hard money lender had never done a non-recourse loan for an IRA investor. As a result, he had a lot of work to edit his loan documents so they didn’t reflect the usual personal guarantee language. Further still, he was having computer trouble on the day that he was supposed to draw loan docs. Once again ole’ Murphy was at work.
The lender started to worry me. By Wed. - 2 days before we had to close - the lender said this will never close by Fri., get an extension. The seller’s (bank’s) agent said there would be no extensions. I told the lender to get the loan docs to title and we’ll take care of the rest. He was having computer problems and it was going to take longer than he thought to change the language in his standard loan docs. He almost didn’t want to do it because he didn’t think there would be a chance of it closing and why spend time on something that is futile?! Again, I said, please generate the loan docs and send them to title. We’ll handle the time frame. Lo and behold, the lender sent the newly conceived non-recourse loan docs to title by 5PM Wednesday evening and an appointment was made for the buyer to sign papers first thing in the morning on the 11th.
The fun to meet the deadline had really just begun. The buyer signed his share of the documents on Thursday morning. He took them to San Francisco himself to ensure that his custodian, Pensco, signed them and to return them to the title company by 5PM so they could be prepared correctly for recording on Friday morning, March 12th.
Pensco has risen to this challenge many times - to sign a client’s documents in the 11th hour so they can be recorded and the purchase transaction can be completed. Fortunately for us, Ms. Jeanny Lo, the Vice-President of Real Estate Investments, was available that day to make it happen. Jeanny has been our non-recourse deal saver on many occasions and this time was no exception. She was able to have her company’s notary witness the signing with time to spare. The borrower then drove them back to the title company in San Jose. This was the only way we were going to be able to go on record the following day - the deadline. The title company confirmed that they would go on record the next morning - just in time! Once the property is on record, the bank cannot retract the transaction.
The rest is elementary. The title company recorded the property in our client’s name on Friday, the 12th and received confirmation from the county the same morning that our client was on record as the new owner. Funds were also disbursed on the 12th. We made the deadline. It was really ‘nip and tuck’ but we had alot of people working on this transaction towards a common goal.
‘Kudos’ to the buyer’s realtor for putting the whole deal together, the lender who made the financing available and completed the loan docs on time, the escrow/title officer for staying late and coming in early to prepare docs for signing, the borrower for ‘taking the bull by the horns’ and driving the paperwork to and from San Francisco to get them signed, Pensco for making themselves available on very short notice to review and sign them as well as yours truly for pulling a ‘rabbit (loan) out of a hat’ in the 11th hour. What a team - congratulations to everyone on a job well done!
My clients were a team of a very savvy realtor, Joe Velasco, and a Pensco Trust client, Peter Sanchez. Their concept was simple enough: refinance an IRA property that had recently been purchased with all cash; then use that cash along with Mr. Sanchez’s other IRA funds to purchase a second rental home for his IRA. One issue we had to deal with was the renovation work being done on the home that had just been purchased. This had to be completed before we could get it appraised. However, it had to be appraised before they could go forward with the other purchase. After some delays the appraisal was done so the refinance loan could be finished. Then the purchase was ready to be made. So far, so good – we were on schedule to close the purchase on time according to the contract.
Guess what? The fun of overcoming another adversity to be able to close on time was just beginning. The problem was with the title report that was filed on the property that had already been purchased which we needed to refinance. This property was an REO (a bank owned property). As such, it was necessary to have the name of the state on the grant deed where the bank that owned the property originated. In addition, the title company handling this transaction also required the signed power of attorney to be recorded, but it wasn’t. To make this more interesting, the title company that handled this original transaction of Mr. Sanchez’s first IRA purchase was a division of the same title company (in a different city) that was handling the refinance of the same property. So this was an internal problem that the Chicago Title Company was dealing with. The escrow officer in the office where the title insurance was issued when the first purchase was made insisted that the grant deed didn’t need to name the state in which the lender (from whom the property was purchased) was located. Nor, did they require the power of attorney to be recorded. The Senior Title Officer for Chicago Title insisted the state was required to be named on the grant deed and the power of attorney had to be recorded. In the end he was correct; however, we lost more than a week due to this mistake and internal issue at the title company. The title officer handling this escrow said she had never seen this occur in her 20 years in the business.
The lender would not wire the funds to Mr. Sanchez’s Pensco Trust account for the refinance until this issue was settled. The title company handled their internal discrepancies and re-did the title insurance policy for the first purchase correctly so the lender could wire the funds to Mr. Sanchez’s Pensco account providing enough funds to fund the purchase of the second home. All in all, Mr. Joe Velasco, the ‘savvy’ realtor kept it all together and obtained the necessary extension from the sellers to make it work. The purchase was concluded successfully only 2 days later than the contract date. The transactions were done within days of each other and Mr. Sanchez now owns 2 properties in his IRA.
