HARD MONEY FOR A SOFT LANDING?! No comments yet

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!

Two For the Road! No comments yet

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.

The Word ‘The’ in the Loan Papers No comments yet

Lending Resources recently helped an IRA investor obtain non-recourse financing for the purchase of a bank owned single family residence. There were many delays in trying to close this transaction.  Some of those delays were the result of the bank dragging its feet on completing the paperwork or following through on the required approvals.  Other delays were due to the usual last minute details of obtaining insurance for example. However, when it came to signing the actual loan papers, some of the parties involved in this transaction thought that the title to the property was not written correctly.

Title to property bought with IRA funds is usually written in the name of the IRA custodian company for the benefit of (fbo) the IRA investor (their name).  In this case, the custodian’s name was titled with the word ‘The’ and then their full name - in this case Pensco Trust Co.  The IRA holder didn’t sign the papers when he received them, because he was told by one of his advisors that the title was incorrect due to the word ‘The’ in the title.  In addition, he thought his IRA’s designated number was supposed to be on the title which also caused him to question the validity of the paperwork.

Lending Resources sought to answer these questions once and for all. As it turned out the word ‘The’ was in the original corporate paperwork given to the lender’s legal department when the custodian originally filed its official name with that bank.  Therefore, the bank would only use the name of the custodian on the loan papers as it was originally submitted to them. Further, to protect the IRA investor’s right to privacy, the bank never puts the IRA designated number in the title of the loan papers.

As a result of these questions regarding the way the title was written in the loan papers, the signing of the loan documents was delayed. Fortunately, Pensco confirmed tha accuracy of the language in the paperwork and insured the papers were done correctly so there would be no repercussions any time in the future.  We obtained the borrower’s signature as well as Pensco’s, returned the documents to the title company and, ultimately, to the bank for the loan to be funded. It was a good lesson for all parties concerned and also helped to confirm that the lender had written the loan papers correctly.  The loan funded in time to satisfy the bank’s required timeline.