Taking shortcuts will get you in the end-- Must read for Newbies! - Posted by SCook85
Posted by SCook85 on March 13, 2000 at 09:38:43:
Many of you know the bumpy road that I have experienced since I started investing, and others are very familiar with the problems dealing with lenders and note buyers in the Baltimore area. In fact the epidemic of requirements for title seasoning, documented rehabs, and the extra due diligence being performed on sub prime borrowers is spreading across the nation.
About 1 year into my investing career I still had never gotten a deal done with a mortgage broker who was working with my buyers. At that time I was so frustrated hearing about all the deals that others were pulling off and all the money that they were making and how anyone could get financed. That was anyone except for my buyers.
My partner and I made a decision right from the start to run our business ethically and not break any rules. Recently we have expanded upon that and are operating our business on biblical principals. In the beginning when trying to get deals financed through mortgage brokers we were tempted with all kinds of scenarios to increasing purchase prices, forgiving second mortgages, gifting or lending downpayments etc… We wouldn’t use any of these so called creative methods when dealing with lending institutions. Needless to say mortgage brokers became dissatisfied with us, we became dissatisfied with them, and no deals were closed. Everyone wasted their time.
We decided at that time that we were going to finance everything ourselves. We would sell notes when we needed cash, knowing that the discounts we would have to take would be substantial because we didn’t lend 10% of the sales price for down payment, or have the appraisal pushed etc… Since then we have been able to maintain our volumes and do deals ethically.
For beginners the idea of forgiving a second mortgage, or having an appraisal pushed higher seems harmless; usually because a mortgage broker says it is OK, or other investors are doing it all the time. These practices are WRONG! It is defrauding a lender and a misrepresention of what is really taking place. A lender lends money to a buyer based on credit, value of the property, buyer participation (down payment), seller participation (second mortgages). 3 of the 4 are very easy to manipulate therefore some do it without ever thinking about it. It is a regular practice for many.
Well here in Baltimore where the practice was running rampant, the federal government has come in and started cracking down. The first of what is supposed to be at least a handful of investors have been charged. The mortgage brokers, attorneys, appraisers and all involved in helping to pull of these deals were charged with mail and wire fraud.
These deals have the Maryland legislature contemplating a new law that will prevent anyone from selling a home for more then a 100% markup from what they paid for it within 12 months. Now that can cause a lot of problems for someone who is used to turning properties in 3 months.
I must say that I am happy to see that these charges are being brought against all parties involved. Many have made it BIG in real estate only to lose it all quick, and in many cases spend time in jail. Those of you who know me well, know how passionate I am about doing things the right way. Some investors have been cringing in their shoes at the thought of what is going to happen in the future. I see a path being paved for those who want to make money the right way and I fully intend to take advantage of it. I hope that all of you choose to do the same. Taking a shortcut may not lead to where you want to go.
Many newbies looked up to these investors. I wonder if they are still looking up to them now.