Lender says I'm making too much $$ - Posted by Bolivian Bill (FL)

Posted by Gene on May 12, 2006 at 19:56:25:

Yea, I have tried training her for a few years. I have told here what I am looking for, asked (many times) for her to keep an eye open for me.

I think things are changing here. Sales are down considerably so she isn’t going to be nearly as busy.


Lender says I’m making too much $$ - Posted by Bolivian Bill (FL)

Posted by Bolivian Bill (FL) on May 12, 2006 at 09:28:00:

We rehabbed this house sitting on 1.6 acres that we are now selling through a realtor. The closing was supposed to take place May 5th, but it got pushed back because the buyer was having trouble getting insurance and finally had to go with Citizen?s, the insurer of last resort in Florida. Now, I get a call from my realtor saying that the lender won?t approve the loan because they saw that I paid $55K for the property and the contract price is $140K. If only they could have seen the condition the house was in when I bought it! The appraisal already came through at the sale price. She wants me to fax over a list of repairs that we have done on the property and their cost. Other than paying a professional to do the roof and HVAC, we really don?t have that much into it, I would say $15K tops, because my parents do most of the work themselves. It?s been almost eight months now since we bought the property, we didn?t get a chance to start working on it immediately because like I said, my parents like to do most of the work themselves and they were working on another property (I know I have to get them to contract out more work, but until I go full-time later this year, this is just the way things have to be).

Should I even bother to keep working with this buyer, or should I look for another one. Will all lenders have the same concern? Can someone please point me to some that don?t? The buyers are moving down from NY and their mortgage broker is based there. Also, why did it take them this long to bring up the fact that I only paid $55K for the property? That?s something that can be discovered in a couple of minutes. I?m really thinking of ending my listing agreement with the realtor and selling the house myself. I can?t stand not being in control of every step of the process. Thanks for your input.


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.

John Corey

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.

Re: Lender says I’m making too much $$ - Posted by lukeNC

Posted by lukeNC on May 12, 2006 at 11:35:10:

sounds like they are making you go through a few more hoops before signing off on the deal. this is not too bad a thing. do like the others have said and get paid!

Re: Lender says I’m making too much $$ - Posted by Natalie-VA

Posted by Natalie-VA on May 12, 2006 at 11:18:19:


As others have said, you need to show the underwriter how the value increased. Put together a nice cover letter (on your company letterhead if you have it). Attach the receipts you have and tell them the truth about doing the work yourselves and how many hours and weeks you spent on it. You should have plenty of material receipts to support that. You can even quote how much it would have cost if you had paid a general contractor. Additionally, show them that you bought the property under market value to start with. Your realtor should be able to pull comps from that time frame showing that you paid well under market. Package all of this up nicely and send it to the lender.

In the future, try to stick with local lenders that have local underwriting. I have found that they only care about the appraisal, nothing else. Also, tell the lender up front how long you have owned the property…otherwise it will always be a last minute problem. One of the last things that happens in the process is that the title company sends the chain of title to the lender. They look at this during the final stages of underwriting.

I’ve been asked for my business license, copies of recorded deeds, copies of MLS listings, copies of my loan paperwork to show that I got investor financing, and more.

Again, I’ve found it easier to deal with local lenders (not brokers) on this issue. Also, if your buyer’s loan is non-conforming, you will run into this even with the local lenders.

The key is to give them a nice, organized package that will answer all of their questions and more.

As far as your agent is concerned, they need to learn more about this issue if they want to continue working with you. I am a RE Broker and have an investor client who I can’t get rid of because he knows that I know how to handle the lenders on his flips.

Good luck!


Re: Lender says I’m making too much $$ - Posted by DaveD (WI)

Posted by DaveD (WI) on May 12, 2006 at 10:49:05:

I’m with IB on this. Your buyer’s lender wouldn’t bat an eye at a grocery chain who buys 100,000 heads of lettuce at 55 cents and sells for $1.40. Do the math, the numbers are identical.

Constantly training lenders you don’t have a relationship with is a drag. I will frequently pay part or all of the buyers closing costs to avoid underwriting nightmares. This gives me the right to get the buyer in front of MY lenders who understand how I do business. Thus, I’m not afraid to push back when this sort of nonsense arises. It rarely does anymore because I’ve handled that up front. BTW, a lot of it is how your lender packages your buyer, and the relationships he has with his underwriters as well. A good one is worth the gold he charges.

Re: Lender says I’m making too much $$ - Posted by IB (NJ)

Posted by IB (NJ) on May 12, 2006 at 09:53:42:

Have your parents issue you receipts/invoices for the work they did. Have them charge you market prices for the work and submit the paperwork to the lender. The deal is NOT dead so keep pushing this thing to the closing table.

But in the future if you REALLY want to maintain control, have the buyer go through YOUR lender. This will be a lender/mtg. broker who will keep you abreast of what’s going on with the loan and also warn you of red flags ahead of time so that you can prepare yourself and remain in control.


Re: Lender says I’m making too much $$ - Posted by Patrick S. Lawson

Posted by Patrick S. Lawson on May 12, 2006 at 09:37:51:

From an underwriters perspective it does not make sense how you purchased a property for 55K put HVAC in and a new roof and now the property is worth 140K. In addition to documenting the repairs made you will also want to document how you were able to purchase the property at such a deep discount.

If the lender is not “killing” the appraisal your still in a good position. If all they are asking for is documentation provide it in detail and you should be ok. After providing the documentation you should have a response within 24-48 hours.

Re: Lender says I’m making too much $$ - Posted by Gene

Posted by Gene on May 12, 2006 at 12:08:45:

“I am a RE Broker and have an investor client who I can’t get rid of because he knows that I know how to handle the lenders on his flips.”

A lender than actually helps their investor clients! That is a very refreshing thought. I wish I had someone like you near me.

Around my area (kern County) my expences with realtors has not been plesant. I have had a few deals fall thru becuase realtors didn’t do thier jobs. Most in my area are retired folks that wanted hobbie jobs. Its hard to get a deal thru when the listing agent goes on vacation for 2 weeks without telling anyone (happens often up here).

I do have a good realtor now, she is one of the hardest working and upfront in my area. She works hard to make deals go smooth but she dosn’t understand investing at all. And she has never once brought me a deal or even called me with anything intresting.

I just figure that with me bringing her 20k to 50k or commission every year she would be more proactive.


Re: Lender says I’m making too much $$ - Posted by BTI

Posted by BTI on May 12, 2006 at 13:37:53:


Time to tell your agent that it’s time for her to expand her knowledge, and tell her what you want unless your convinced she can read minds.

Sounds like she has a good foundation so now build on it, tell her what you want her looking for, and maybe suggest a book or course you want her to review with some of the proceeds from her next commission from you.