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.
Our client is a businessman and an investor who lives in Massachusetts. He wanted to buy an investment property rental in Florida. That seems reasonable enough…doesn’t it? OK, so he goes shopping with a realtor in Kissimmee, FL and finds a property he wants to buy with his IRA. Of course, he needs a non-recourse loan if he wants to leverage his money and not pay all cash. Once he found the property, Lending Resources sent a written profile of it to the bank for a pre-approval and got the ‘green light’ to move forward.
In his case, the investor had established an LLC to hold the IRA that would own the property. We obtained the necessary LLC paperwork along with numerous other papers required and pursued our course of action to obtain the loan. About 1 month into the process, we discovered that the name of the LLC, while approved by the state of Massachusetts, where the investor lived, was not valid in Florida, where the property existed. That LLC name was already being used by another entity in Florida. This created several issues and resulted in a time extension of at least an additional month.
The investor and his LLC Manager now had to scurry to change the name on his asset statement with his custodian, Equity Trust; had to change the name on his agreement with Equity Trust; had to open a new bank account at Bank of America which was the original holder of his IRA funds to show where the funds originated from under the correct LLC name; had to change the LLC name on the loan application with the lender; and had to change the name on the purchase contract and get all parties to re-sign. In addition, we had to obtain Certificates of Good Standing for the LLC from both Massachusetts and Florida. This was on top of all the usual requirements of getting the appraisal, title report, property survey (now being required by the bank), etc. Needless to say, this LLC name change plus obtaining the Certificates of Good Standing from both states set us back a good month or more.
Nevertheless, the investor and his LLC Manager didn’t lose their cool. They went about working closely with Lending Resources to meet all the loan requirements and we closed the loan successfully with the title company’s diligent assistance. The sellers were in Europe, the buyer was in Massachusetts, the LLC Manager was in New Hampshire, the subject property is in Florida (as stated), the custodian is in Ohio, and yet, the title company was able to coordinate all signatures and obtain all paperwork back to the bank within 3-4 business days in order for the loan to be funded and closed. Halleluyah!!
It was an REO. You know, the real estate is now owned by the bank?! My client found a property that sold for $375,000 in 2006 and wanted to by it with his IRA. Purchase price? $195,000. That’s right - a great buy! However, there were some stumbling blocks before we could make that happen. The main hurdle was the bank that grants the non-recourse loan is hesitant these days about California property that’s not already leased. How can you lease a property that you haven’t purchased yet, and needs some fixing up before you can show it for rent? Catch-22! The bank wanted 50% down if the property wasn’t leased prior to the purchase. Lending Resources negotiated on behalf of the buyer to put down 40% and 10% in an escrow account until the IRA owned property is leased at which time the 10% would go back to the IRA. This way the buyer would have time to spruce up the property and get it rented without committing an additional $19,500 towards the purchase price. The bank agreed, the buyer made the purchase and a non-recourse loan was put in place for $117,000. The buyer’s investment was secured with his IRA funds as the down payment.
