Hard money loan...refinance...or??? - Posted by drew

Posted by Sean on February 01, 2000 at 10:42:10:

Sometimes these buy/sell-back items get recharacterized as a loan. As such it will be recalculated to determine if you have charged more than the acceptable interest rate.

Imagine you buy this house from him for $50,000 and you resell to him on contract or lease-option or whatever at $100,000, nothing down, 8 percent interest… let’s say a 48 month balloon with payments of $733.76 – a court might consider that you actually loaned him $50,000 charged him 100 points and 8 percent interest for an APR of 29.86 percent.

Now if 29.86 percent is over the maximum amount you can legally charge then you could be in hot water. That’s why most people won’t buy and sell back to the same person.

Fortunately, in my state, real estate transactions are specifically exempted from our state’s constitutional usury provision (which limits all interest charged to 10 percent). But in your state, you might not be so lucky.

Hard money loan…refinance…or??? - Posted by drew

Posted by drew on January 31, 2000 at 13:22:31:

Just got a call from a guy needing $3,500 to bring his mortgage current, the forclosure auction is scheduled for Feb 11. Here are the specifics:

Property Value = $100K
1st Loan (OCWEN) = $42K at $700/mo
No other loans on property (haven’t verified this yet)
Declared bankruptcy in 98 (haven’t run credit yet)

He said he hasn’t been able to get refinanced. How should I approach this? Or should I run and hide?

Any and all input is appreciated!! Thanks for your help.


Re: Hard money loan…refinance…or??? - Posted by Bud Branstetter

Posted by Bud Branstetter on January 31, 2000 at 23:29:10:

Do you know if the bankruptcy was discharged or is he still in chapter 13 and has no right to deed the property. Selling back to a homeowner is always a dicey situation. Optioning back to him may be another question. With all the problems he has had what makes you think he would keep up on even rent payments.

Ooops, I forgot to mention… - Posted by drew

Posted by drew on January 31, 2000 at 16:01:49:

I think I may be able to get him to deed me the property, catch up on the first to stop foreclosure, and then refinance for $10K more than what is owed.

Then I could sell to him on a wrap and make some $$ on the interest rate spread or try to get him financed. He’s paying over 16% interest right now from a loan originated in 1980. This way he gets to keep the house and have lower monthly payments and I get $10K. WIN-WIN

I’ll also contact the holder of the 1st to see if they’ll discount. Is all of this feasible??? Any precautions before I jump in?

Thanks again for your help!!


Good question - Posted by drew

Posted by drew on February 01, 2000 at 08:00:08:

Well, he did make payments for 18 years before getting into trouble so he’s not a deadbeat (at least not in my evaluation). I figured I’d have him rent for 6 months before selling back to him. If he doesn’t pay the rent then I can evict and have a $100K property that I picked up for $45K. Then I have many options…

Why/how is selling back to him dicey?

Thanks for your help!