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.
A recent real estate purchase with an IRA secured by a non-recourse loan was finally completed by a determined client of Lending Resources. The client, a ‘mild mannered insurance agent’, had originally located a bank owned property (in foreclosure) and made an offer subject to a physical inspection. All the proper paper preparations for obtaining a non-recourse loan were done while awaiting the inspection results. After more than a month of gyrations, the inspection indicated more repairs were needed to the subject property than were anticipated. The client decided to reject the transaction and keep searching.
He found a newly renovated single family home in Vallejo, California. It was clear this property would not need any further work and was ready to be rented, one of the key requirements by the lender. For whatever reason, these transactions always seem to have their own twists and turns. This one came down to the wire per the seller’s deadline. It was another month of dealing with appraisal delays, the seller’s agent, the client’s agent, the title company and the lender. A non-recourse loan for 50% of the purchase price for this IRA investment was completed by Lending Resources Group with the cooperation of many parties and no time to spare. Special recognition should go to the Miller Real Estate Team and Fidelity National Title company who helped in every way they could to get all parties to work together for a satisfactory closing. Thank you Gang!
Here’s a challenge for you, the IRA investor - refinance the rental property you purchased for all cash through your IRA and withdraw enough funds to make a down payment for the purchase of another IRA investment property. The only issue is that the house you need to refinance in order to get the down payment for the purchase is rundown and not in rentable condition.
To his credit the investor set up an LLC with himself as the managing partner so he was able to sign all papers having to do with these two transactions including the purchase contract, loan application and loan documents. He didn’t have to depend on a 3rd party to do this except the usual signatory required by the trust custodial company. This saved a lot of time when it came to having to close these 2 transactions in 3 days.
The investor hired Lending Resources Group (LRG) to obtain these loans for his IRA investment properties. Fortunately, LRG has a long standing relationship with the lender that was considering these loans. They normally would not allow an IRA refinance to be completed until the renovation was finished and in satisfactory condition to be rented. In this case, LRG negotiated with the lender to allow the refinance to occur in order to enable the investor to obtain the funds in the ‘nick of time’ to meet the deadline for the purchase of the other house.
The investor tried to renovate his IRA owned property as best as possible to the lender’s satisfaction. However, he ran out of time to complete the renovation when it came to being able to comply with the terms of the purchase contract and satisfy the bank simultaneously. LRG empahsized the investor’s efforts and his completion of most of the work requested by the bank to be done. The bank was also very aware of the investor’s deadline for making the purchase. LRG suggested that the bank require the investor to escrow enough funds for completion of the renovation to satisfy them and allow the refinance to be consummated.
The net result was the investor met his deadline to perform on the purchase of the other property, because all the dominoes fell into place with no time to spare. The lender sent the loan documents to the title company in time to be signed, the escrow officer at the title company made this closing a priority above all other transactions and the lender agreed to minimize the amount to be escrowed until the renovations could be completed. LRG coordinated communicatons with the title company and the lender to make sure that this transaction was a top priority and funds were wired on time to fund both loans. The refinance and the purchase were completed on the very last day possible to meet the deadline required by the seller of the subject purchase. Lending Resources Group would like to thank the lender, the Cascade Title Company and the investor for helping make these transactions become a reality.
