Bad Idea? - Posted by Jenean01NC

Posted by Dawn on January 17, 2000 at 15:56:29:

Well, it’s a good idea in theory. However, because you’re insisting that you and the buyer go on the mortgage, you all combined will only qualify for as much as the person with the worst credit would alone. You would be considered a non-occupying co-borrower. Basically, an investor. The LTV’s are all going to be reduced. The rates will be higher. So, it doesn’t appear that there is any benefit to using your good credit within this transaction.

Also, you can’t specify when you or the other person can be removed from the mortgage/Note. The only way to have the borrowers changed is to refinance the Note. If the other person doesn’t pay, you’d have to foreclose since they are in title and on the mortgage. Sounds like a legal nightmare.

Bad Idea? - Posted by Jenean01NC

Posted by Jenean01NC on January 17, 2000 at 12:12:11:

I was thinking about using my good credit to help people purchase homes and make some money in the process. I was trying to sale a SFH a couple of months ago and I must have had 500 people call me with bad credit. After 3 months I finally found a buyer who could qualify at the bank.

Here is the idea, is this a bad idea?

I would partner with people who have slow credit, on a home purchase. We would both go on the mortgage note and deed. Since it would be a owner occupied purchase, with my good credit, would they be able to get a 100% loan? I don’t know. Anyway they will pay any down payments, closing cost and fees associated with the loan. They will also have to pay me a $5,000 transaction fee for use of my credit/name.

The mortgage will be paid to a third party (property management firm) that will inform me if a payment has not been made on time (geater than 16 days late). This will give me some response time to save my credit. The third party will mail the payment to the lender on our behalf for a fee inwhich the owner occupant will pay. (Note: I currently use a property management firm to collect my rents on my rental properties and they will pay any open mortgages that I have send me the difference as possitive cash flow for a small fee. They also notify me of any tenants late payments after the 4th and 15th of the month).

The owner occupant will also pay a escrow amount each month for problems, ie lost job, ect to the third party. After 12 months, the owner occupant and I will have my name removed from the mortgage. We will provide documents to the lender that they have been making the payments successfully for 12 months. If thelender does not allow, the owmer occupant will have to re-fi or go to the bank and get another loan on the property completely removing me from the mortgage note and deed otherwise, they will have to assign the deed over to me.

If the owner occupant has 3 months in a 12 months period of late payments of 20 days or more, the agreement between them and I will state that they will have to assign their ownership on the deed over to me. They may elect to continue to live in the property as renters at that point. The payments will continue at the same rate but the escrow amount is now possitive cash flow to me. If they fail to pay rent, then I will evict.

I usually screen my own tenants and most of them have slow credit on charge cards but pay their rent on time, otherwise I don’t rent to them. Sometimes they have judgements for telephone bills ect.

As an after thought, I guess this is no different than a lease option or wrap mortgage…except I don’t plan to put any money in the deal to get the property. Usally on a lease option or wrap, the investor has to put up some money to secure the property from the previous seller/owner. It would seem that the properties (FSBO & MLS listings) would be easier to find since you would not be looking for motivated sellers/owners to let you assign an agreement that you have with them to another buyer. Also, I would not have to buy the property at 10% down or find creative finacing for rehab work.

I know bad idea right! And I know you all will tell me why. Thanks!

Re: Bad Idea? - Posted by Ray (NJ)

Posted by Ray (NJ) on January 18, 2000 at 12:36:08:

Personally, I wouldn’t tough it with a 10 foot pole. If your “partners” don’t care about THEIR credit, they’re certainly not going to care about YOURS!

Why not do sandwich lease-options? That way, little (or none) of money out of your pocket, you get to put the borderline buyers in a home that they will own in 2-3 years. They work on fixing their credit, they get in with no cash down, while you collect free equity.

Just a thought. Be careful, though. Unfortunatly, those with the best intentions usually get screwed the worst. Stupid irony.

Re: Equity sharing - Posted by Doug B, KY

Posted by Doug B, KY on January 17, 2000 at 17:32:42:

This is not a new idea. It’s called equity sharing. Its been tried and it has some advantages and pitfalls. Can work with new tenants as partners or with other investors as partners. In any regard, you will require a very good contracts designed to protect you! Do some research before you jump in.

Problems such as:

  1. Co-owner vacates property (can’t find him)
  2. Co-owner files backruptcy
  3. Co-owner will not leave
  4. Bank forecloses on you and co-owner
  5. Co-owner sues you for taking advantage
    (remember you have nothing in this deal except your credit, co-partner made the downpayment and monthly payments, judge might agree that you did take advantage especially if you make a profit)
  6. who responsible for repairs and up keep

I would be very careful about becoming partners with people you don’t know. Really that is what you are talking about. Protect your ass…ets