Posted by JasonTX on January 08, 2001 at 17:45:06:
I’m No expert, but along the lines of “Making sure this isn’t an issue” you could always make sure that your Lease with the seller is always a little longer than with you buyer.
Then explain to your seller the possible condition that their property may be in by the time you get done “rehabbing” it unless they sign the dang papers.
I didn’t just say that did I?
Getting around title seasoning issues - Posted by Rob
Posted by Rob on January 07, 2001 at 05:42:47:
As we all know by know, flipping a property can be difficult given that the bankers are looking for 6-12 mos of title seasoning. I had first hand experience with this on a sandwich lease option deal. Luckly I am a broker and could take my profit in the form of a commission or the deal would have died and I would have had some angry people.
Here is the question:
By recording a performance mortgage on a lease option or land contract, does this establish me as a principle in the transaction and get around the title seasoning issues?
Thanks
Rob
Re: Getting around title seasoning issues - Posted by Shaun
Posted by Shaun on January 08, 2001 at 06:09:31:
Why is it called a “performance” mortgage and what is it?
Re: Getting around title seasoning issues - Posted by Carey_PA
Posted by Carey_PA on January 07, 2001 at 11:14:41:
I don’t know if this will help or not, but I’ve made a contact (actually my step-mothers’ son) who is a mortgage broker and we’ve been discussing real estate in great length and he told me that he has mortgage companies that don’t require any seasoning, so if anyone is interested in his email address just drop me an email.
CAREY
Re: Getting around title seasoning issues - Posted by JPiper
Posted by JPiper on January 07, 2001 at 06:35:47:
The title seasoning issue doesn?t revolve around whether you?re a ?principle??..it revolves around whether you?re on the deed. And as you undoubtedly know, believing or needing a lender to think ?logically? regarding your transaction is really asking too much. When you stop to think about it, your sandwich lease alone, with or without the performance mortgage establishes you as a principle?and you?ve already proven to yourself that ?controlling? the property for a period of time doesn?t solve the problem.
However, the performance mortgage contains the ingredients necessary to work around the title seasoning issue. As you know, when you record this it needs to be ?released? to remove it from title when the property is transferred. To ?satisfy? this mortgage so that it can be released you would simply sent a payoff letter to the title company. The original seller then deeds the property to the new buyer. The title company pays off all the mortgages, to include you.
You need a clause in your deal requiring the seller to either deed the property to YOU upon exercise, or your nominee. Have your attorney write this for you. Or maybe all the lease/option gurus will begin to realize this problem and include it in their course. LOL.
JPiper
Re: Getting around title seasoning issues - Posted by Rob
Posted by Rob on January 08, 2001 at 07:50:17:
Its essentially a mortgage or deed of trust securing performance of a contract of value rather than a note.
Re: Getting around title seasoning issues - Posted by Carol Smith
Posted by Carol Smith on January 07, 2001 at 23:23:14:
I would be interested in a list of lenders who do not require seasoning
Re: Getting around title seasoning issues - Posted by JohnBoy
Posted by JohnBoy on January 07, 2001 at 18:05:16:
Your L/O agreement is between you (the middle man) and your tenant/buyer. So when your tenant goes to exercise, what do you do, draw up a purchase agreement between your seller and your tenant/buyer for the lender?
Isn’t the lender going to want to see a payment history on the tenant/buyer? Won’t that only show payments being made to you as the middle man, who isn’t on title? Or is the lenders only concern who is deeding the property to who regardless of what other contracts exist in between?
two questions… - Posted by Nico
Posted by Nico on January 07, 2001 at 11:30:09:
Doesn’t exercising the option give you a contractual right to the deed, why the need for additional wording?
Yes, you then have title in a back-to-back recording, but how does this give you “seasoned” title?
Re: Getting around title seasoning issues - Posted by Shaun
Posted by Shaun on January 08, 2001 at 11:27:46:
Does this mean you get the seller or in this case the lease optioner to take back a mortgage that you record, so if you/he defaults on the contract someone has a lien on the property, but if the contract is performmed the mortgage is released without payment? If so, is this wording included in the mortgage? Is this legal?
Re: Getting around title seasoning issues - Posted by ScottS
Posted by ScottS on January 07, 2001 at 19:06:34:
John,
You are thinking about the deed and the contracts used to put the deal together.
What JPiper is talking about here is the characteristics of the Performance Mortgage. It is basically the equivalent of a second mortgage just no payments being made.
When it comes time for your buyer to buy, the title company will pull title and find you Performamce Mortgage. The Performance Mortgage will have a specified value. The Titlte company will have to pay you that value. Until then it does not get released and you have the lien.
Once the title company asks you how much they owe you because of this “second mortgage” they will ask for a release of lien and when your buyer comes to the table they will cut you the check for the value.
The seasoning issue is based on ownership of the home. The seller has the seasoning required by the lenders. The other contracts involved (i.e. your paperwork with the seller, your paperwork with the buyer, and the collection of payments, location of payment) and such are just the mechanics. I don’t see the lenders worried about that. Although, it may be prudent to have the payments collected and the history of them administated by a third party.
The thing I need to come up with is a system to get the deed under my control in case the seller decides not to play when my buyer wants to buy. Can’t figure out how to get a “deed waiting in the wings” waiting to identify the buyer to put their name in the Grantee spot. The POA would do that.
I see it as being workable with a little tweeking on certain deals.
Scott
Re: two questions… - Posted by JPiper
Posted by JPiper on January 07, 2001 at 17:41:56:
The reason for the additional wording is to have the power to direct the seller to deed directly to your nominee.
You missed the point. You don’t have a back-to-back recording. The seller deeds direct to your buyer. The seller has seasoned title…you don’t. You are paid on your performance mortgage.
JPiper
Re: Getting around title seasoning issues - Posted by Rob
Posted by Rob on January 08, 2001 at 20:42:48:
That’s basically it. The performance mortgage creates a lien rather than a cloud as does a recorded contract or memorandum.
See Bill Bronchick for complete details at bronchick@legalwiz.com
He’s who taught me.
Re: Getting around title seasoning issues - Posted by JohnBoy
Posted by JohnBoy on January 07, 2001 at 19:56:34:
You could have the deed already signed by the seller and held in escrow the same as when buying on contract for deed.
When buying on contract for deed the buyer signs a “quit claim deed” and the seller signs a “deed” which are both held in escrow until the contract is paid in full. Once the contract is paid the escrow releases the deed to the buyer. Should the buyer default, escrow releases the quit claim deed to the seller to be recorded releasing the buyers interest in the property.
I suppose you could basically do the same thing with a L/O by having the seller sign over the deed up front and have that held in escrow with written instructions that the deed is to be released over to the buyer or buyers nominee once the option is exercised.
Usually the lender will want to see the purchase contract. In a case like this the contract would be between the middle man and the tenant. The tenant isn’t actually buying from the original seller, rather he’s buying from the middle man. So if title is going to be released from the seller to the tenant, isn’t this going to create a problem still inspite of the performance mortgage?
Why not just have the seller deed the property into a trust, then L/O from the trust. When the buyer exercises, the seller assigns beneficial interest of the trust over to you where you transfer title of the trust to your tenant? Seasoning of title has been taken care of by letting it season under the name of the trust.
Watch out, I know Bill Gaten is going to jump all over this response if he reads this! LOL
OoooooooooH What A Gem! - Posted by ScottS
Posted by ScottS on January 07, 2001 at 17:53:04:
JPiper,
I’ve been worrying about the seasoning issue here for the last 9 months. Looks like yet another clause gets added to the contract. I’ve been using Performance Mortgages all along but never tied it together like you just showed us.
The wording is not in my present contracts but you can bet it will be in the following ones if I can’t get the deed.
I like it.
Thanks for the gems.
Also, I haven’t forgot about calling you over the web…it’s the time zone difference…but I head home in about a week and a half so I may give you a call from AK.
Scott
Bill Gatten says - Posted by Bud Branstetter
Posted by Bud Branstetter on January 07, 2001 at 22:28:06:
Since the seller did not sell there is not a seasoning problem and all these exercises to satisfy the new lender are mute.
In the Wall Street Week special program they were talking about how the market has adjusted by having the lenders tighten their lending criteria. This is just one example of how they tightened. With Greenspan realizing that inflation is not just over the horizon maybe they will loosen again-maybe not.
Re: Getting around title seasoning issues - Posted by JPiper
Posted by JPiper on January 07, 2001 at 20:22:43:
I agree that the trust is another way to do it…except that you’re going to have to have some type of control over the trust so that you can lease/option to your buyer to begin with. Maybe just reinvent the PacTrust.
Alternatively, using the technique I just mentioned, I think you can assign your option back to the seller, who then sells to your nominee.
JPiper
Re: Getting around title seasoning issues - Posted by JohnBoy
Posted by JohnBoy on January 07, 2001 at 21:00:24:
Just curious?
If you assigned your option back to the seller, then once you have done that wouldn’t that require you to release the lien on the property with the performance mortgage? I mean, once you have assigned away your option you would have no further legal interest in the property. I would think the performance mortgage would basically become null & void since no longer have an option on the property? How do you set up being able to enforce the performance mortgage once you have assigned over your option back to the seller?
Re: Getting around title seasoning issues - Posted by JohnBoy
Posted by JohnBoy on January 07, 2001 at 20:37:30:
That would certainly work providing your sellers don’t get all up tight over anything once they see how much cash will be going to you from selling their property. In the beginning they were happy to have you solve their problem and later once they see the amount of money you’re about to make off their house they may decide to get greedy and create a problem over this and refuse to cooperate forcing you to buy the property yourself to get the deal closed.
Re: Getting around title seasoning issues - Posted by JPiper
Posted by JPiper on January 07, 2001 at 22:00:39:
I think you would assign your option in return for note in the amount of your equity, secured by an amended “mortgage”. My bet is my attorney could write all this up…when and if I ever get to the point where I need it.
A point here is that a sandwich lease/option is not problem free to begin with…enter the performance mortgage and other protections. If you want to avoid these types of problems then you don’t do sandwich leases to start with…you do a transaction resulting in a deed tranferring.
Title seasoning is one more problem…and I think there are workarounds…but nothing is problem free with the basic transaction, or the workarounds. I think the same could be said for virtually any creative transaction.
JPiper