Re: Lender says I’m making too much $$ - Posted by John Corey
Posted by John Corey on May 13, 2006 at 09:41:37:
You have now had your eyes opened to the issue of seasoning. This is one of the dark secrets that many people fail to consider when getting into short term deals.
To build a bit on Patrick’s post.
Lenders get burned by mortgage fraud. Mortgage fraud many times involves a rapid increase in the sale price. This happens when there are a few recorded sales in a short amount of time.
A lender has a hard time separating a mortgage fraud situation from one where someone found a bargain and maybe made some improvements before selling retail.
A very crude technique some lenders will use to stay away from possible fraud is to require seasoning of the title before they will look at the new value. They lose some good deals with all the bad ones. It is the cost of doing business and they do not lose that many good ones.
Ways around the issue.
Finds lenders who require little to no seasoning. You owned the place for 8 months and many lenders only require 6 months of seasoning. Some do require 12 months. As you are trying to sell retail you have a harder time forcing the buyer to use a lender they pick. Also note that some lenders with no seasoning charge higher fees and rates so a retail buyer might object.
Find lenders who will offer an exception to the seasoning if you can fully document the before and after. They will want pictures, receipts, etc. They might even require that the work be done by a professional company that is licensed as getting a relative to submit false receipts is one form of mortgage fraud.
Or expect to hold the property for a longer period of time. Consider a land contract or lease/option deal where the tenant becomes the owner after 1 year when the title has fully seasoned. 1 year being the maximum seasoning requirement.
PS. I am a hard money lender. Our loan term is designed to match the seasoning requirements. Hence we tend to attract investors who want to sell retail and do not have a lot of other choices for dealing with the seasoning as they want to sell retail. The last time we saw a problem the borrower was trying to sell and his buyer burned through 4 lenders before they found one who would close the deal. It was a short sale and no work was invested in the property.