Title Seasoning Issue for Rehaber's. - Posted by Mark-NC

Posted by JPiper on December 08, 2000 at 07:47:18:

OK, I think I get it. You’re going to negotiate a deed in lieu of FOR the owner WITH the first mortgage holder.

First, if you receive a note for your services prior to the deed in lieu of, secured by a mortgage or deed of trust, then it will be of record. If the lender accepted the deed in lieu of then you would now be in first mortgage position. I wouldn’t hold your breath though waiting to do one of these…chances are the lender will not accept the deed in lieu of with another recorded item behind them.

But maybe you’re talking about providing services that would entitle you to the filing of a mechanic’s lien. Whether these services that you’re talking about would indeed qualify under the mechanics lien law in your state I can’t say. But that’s the first thing I would check if I were you.

Next though, if the mechanics lien is of record prior to the deed in lieu of, see my first comment. Don’t expect to have much success with negotiating this with the lender.

But lets assume that it isn’t of record, you negotiate the deed in lieu of, and LATER record the mechanics lien. Again, understand that state law varies on this subject so you need to review that law for your state. But the next problem is that at least in my state a mechanics lien is ONLY perfected following a court action…that costs money. And imagine yourself standing in a court making the argument that you have a valid mechanics lien that you didn’t happen to mention to the lender while you negotiated on behalf of the owner for the deed in lieu of. This sounds like at least an ethically challenged argument to me at a minimum.

I’d check with a lawyer if your idea is a mechanics lien. Lots of ins and outs with these that are technical in nature.

Hopefully I now understand what you’re attempting to do.


Title Seasoning Issue for Rehaber’s. - Posted by Mark-NC

Posted by Mark-NC on December 06, 2000 at 12:30:04:

In the last couple weeks I have heard of an interesting way rehabers are getting around the Title seasoning issue. I heard this same senario from another investor that was talking to a mortgage broker that had mentioned it. And just today I talked to a Rehaber that has been using this technique for a while now with much success.

Now, I don’t know any specifics of the contracts or any legal or fraud issues but here is the readers digest version on how it is done.

Also, the way I see it the seller would have to be willing participant to accept the deal.

What happens is, the Rehaber lease purchases the property from the Seller, rehabs it, then puts a mechanics lien on the property for the work, finds a buyer, terminates his lease and has the seller sell directly to the new buyer, at closing the rehaber gets paid from the settlement statement to satisfy the lien.

Interesting concept, any one else heard of this?


Don’t you need a contractors license… - Posted by Jim

Posted by Jim on December 07, 2000 at 13:10:40:

to leaglly file a mechanics lien?

Even if it is true, you can probably dig up a contractor and pay him a few bucks to file it for you.

Sounds like a regular flip - Posted by Paul_MA

Posted by Paul_MA on December 07, 2000 at 12:30:23:

Suppose the rehabber did take title right away. This means he can’t sell it for ‘x’ period of time due to title seasoning restraints? A new lender won’t finance the property to a new buyer because you were making payments on behalf of the mortgagor while your name is on the title?

I thought flips could fly. I’ve got title and resold in less than 90 days.

Maybe I’m not clear on what you are trying to do here.

If you intend to refinance, I can see the title seasoning issue.


Re: Title Seasoning Issue for Rehaber’s. - Posted by SCook85

Posted by SCook85 on December 07, 2000 at 08:24:40:

The idea isn’t a bad one, I’ve considered it, however it doesn’t seem practical. I would view it as another tool to put into my toolbox, but surely wouldn’t expect to do many of them.

This is the way that I thought about structuring it. Find a FSBO who just wants out, lets say they want $50k for a home that will sell for $100k done. Needs $15k in repairs. Come to an agreement with the seller in which you will repair their home, and market it and instead of $50k you will give them $55k when the home sells (they tend to be more interested if their is more money in it for them). In return for the repairs you are going to put a second mortgage on the property in the amount of $40k (leave $5k to cover other costs of the seller). When the home sells you have $15k invested in repairs and walk with $40k.

A couple of things that you would need to do to protect yourself. In the event the seller all of a sudden decides that they do not want to sell after you fixed their home up so beautifully it would be nice to have a balloon in your second mortgage, perhaps a year. Techinically you can not market the home since you are not a realtor (at least most of us aren’t), so you may want to consider listing the home. You also need to be right on with the ARV. If you come up short you may have to discount your second to get the deal done. On the other hand you may be able to sell for more, which I would let the seller know (it could be additional ammunition to get them to agree to doing the deal).

Anyway, I think this could work and I intend to try it the next time the opportunity presents itself to me.


Re: Title Seasoning Issue for Rehaber’s. - Posted by dewCO

Posted by dewCO on December 06, 2000 at 18:11:41:

Sounds too risky for me. ANy time you don’t have title, or a beneficiary interest in the property, I wouldn’t put a dime into fix up. You have to be sure you are getting the property after the fix up, or have absolutely sole discretion control over it, and that the seller won’t just “change their mind” after the repairs look so wonderful, and keep it themselves.

Re: Title Seasoning Issue for Rehaber’s. - Posted by Joe Stachow

Posted by Joe Stachow on December 06, 2000 at 14:55:23:

Interesting concept, but in reality a fragile way to go. If you did several of these, the court system would pick up on it, and squash the idea. Also, and most important, sellers would not want a lien at all on their property. Not only does it look bad on their credit, it attaches itself to all their properties in the county it was filed in (at least it does in my state). It is much better for your credibility to use a smoother and cleaner method. I am looking into the PAC trust concept. Hope this helps.

Re: Title Seasoning Issue for Rehaber’s. - Posted by will

Posted by will on December 06, 2000 at 14:21:27:

put the house in trust w/rehaber as aditional beneficior of interest .fix it , sell it and split the money .have a friend of yours be the trustee .
i wouldn’t put a penny in a house that i don’t ( at least partially ) own .

Re: Title Seasoning Issue for Rehaber’s. - Posted by JPiper

Posted by JPiper on December 06, 2000 at 13:10:53:

Sounds interesting Mark. A cautionary note I would inject would be that the mechanic’s lien law should be closely checked from compliance. It’s very easy at least in my state to violate, and end up with an invalid mechanics lien.

Further, in my state to perfect the mechanic’s lien requires a lawsuit. I would say that this would be much less preferable as an example than a foreclosure action, at least in my state. Therefore I would lean more toward something like recording a second on the property…which would still be paid at closing.


Re: Title Seasoning Issue for Rehaber’s. - Posted by Bo (Ga)

Posted by Bo (Ga) on December 06, 2000 at 13:09:06:

Interesting concept; however, I believe “fradulent filing of lien” is a crime at least here in Ga. Any thoughts on that?

Bo (GA)

Re: Sounds like a regular flip - Posted by Mark-NC

Posted by Mark-NC on December 07, 2000 at 13:27:41:

Maybe you misunderstood, but the whole object of doing this was to be able to control the property and rehab it without taking title in any fashion and possibly avoiding the use of hard money to buy it.

And yes, there are some lenders that title seasoning is not an issue, but because it is becoming a growing concern I think that, like Steve Cook and Jim Piper pointed out once you figure out the specifics to protect all parties involved it is something that could be used as another creative technique in your arsenal of creative real estate.


I’m wondering about usary… - Posted by Jim

Posted by Jim on December 07, 2000 at 12:54:47:

$40k in return for $15k is a pretty good ROI.

I have no reason to believe it’s a problem, just a thought.

Re: Title Seasoning Issue for Rehaber’s. - Posted by JPiper

Posted by JPiper on December 07, 2000 at 08:55:08:

I’d take a look at the “performance mortgage” concept with your attorney. The idea is that the mortgage would require certain actions (like deeding the property) upon completion of certain things by you…like the rehab. Failure to deed the property would be a breach of the mortgage and therefore you could then file a foreclosure action. Check with your lawyer though.


Re: Title Seasoning Issue for Rehaber’s. - Posted by JPiper

Posted by JPiper on December 06, 2000 at 18:11:18:

Can’t vouch for your state, but typically mechanic’s liens are SPECIFIC liens, meaning they affect ONLY a particular property. A GENERAL lien, like a judgment as an example, would affect all properties.


Re: Title Seasoning Issue for Rehaber’s. - Posted by dewCO

Posted by dewCO on December 06, 2000 at 18:08:28:

I tink you’ll find PACs are not the best for flipping, but otherwise they are great. (Too much paperwork and cost in setting one up.)

Re: Title Seasoning Issue for Rehaber’s. - Posted by Mark-NC

Posted by Mark-NC on December 06, 2000 at 17:37:20:

I see your point and I believe Jim Piper had a good suggestion posted below by using a Second mortgage instead of a Mechanics lien.


Re: Title Seasoning Issue for Rehaber’s. - Posted by JPiper

Posted by JPiper on December 06, 2000 at 18:26:58:

Not sure I see how this works exactly. It seems to me that deeding to a landtrust DOES in fact change title…the very issue of title seasoning. If the buyer’s lender then brought that issue up, you would be required to SHOW that ownership had not changed. Hard to see how this would work with multiple beneficiaries, to include one who was not on the original deed…UNLESS of course you deceived the lender. Perhaps you could clarify HOW you envision this working.


Title Seasoning Not An Issue With Trust - Posted by Houserookie

Posted by Houserookie on December 06, 2000 at 14:37:31:

Hi Will,

Unless one of the experts here disagree,
I think title seasoning won’t be an issue if
you put the house ( or any house for that matter)
into a trust.

Then you can flip it, snap it, fix it, and sell it.

I’m going to see if I can convince a few agetns to
do this with me on homes that they can’t sell.

They can keep their commission, while seller and I
become co-beneficair

The only problem is, I’m not sure if trusts do
well in tying up properties for 1-3 months.


Re: Title Seasoning Issue for Rehaber’s. - Posted by Foreclosure rescue (OH)

Posted by Foreclosure rescue (OH) on December 07, 2000 at 06:23:00:

In a similar vein what say you to this idea–

In the case where a borrower (owner) is in default and facing inevitable foreclosure. Borrower responds to my “No equity, No problem” ad. For a flat fee of say, $3000 I will negotiate a cash for keys or a deed in lieu with foreclosing lender. In addition, I can winterize the property, change locks if necessary, monitor the property for vandalism. If owner cannot pay, is it legal to file a lien on the property for my services?

If there is legal grounds to file my lien (generally in 2nd position) it will eventually be paid because the 1st will be eliminated upon deed in lieu whereby I would be in 1st position.

Re: Title Seasoning Issue for Rehaber’s. - Posted by Mark-NC

Posted by Mark-NC on December 06, 2000 at 13:55:55:

I think the concept has merrit. But like I said I don’t know all the specific details. I need to call the guy back and dig a little deeper. And as you pointed out it would seem that the mechanics lien would be more of a problem. I like your idea of the second mortgage. I think that if I was going to consider this that’s the route I would try .

By the way, did you give your contractors a nice Christmas bonus yet for finishing your projects on time?