Re: Title seasoning - Posted by John Corey
Posted by John Corey on March 28, 2006 at 07:56:03:
Natalie and Pat have pretty much covered the point.
Ultimately the issue will come down to how you sell. If you rehab and then expect full retail you will be attracting buyers who might not be sophisticated. They will make their offer and then apply for a loan (if you accept the offer). They will not understand that the lender they choose might kick the deal out at the last minute when they notice how long you have been on title. Then the underwriter checks what you paid for the place and says the jump is too much. If the jump is small you are doing bad deals so that is not likely to happen.
Some lenders will let you show before and after details to justify the change in price. Other lenders do not care about seasoning. The issue is your retail buyer might not feel comfortable having to use the lenders you recommend as they might think there is something fishy going on.
Some sellers seem to never have problems. Other times you will have about 4 deal failures in a row on the same how as the buyer kept getting kicked out at underwriting.
Protection against seasoning being an issue?
Steer the buyer to lenders that will work with the property.
Agree to a 6 month or 12 month lease/option.
High credit score buyers with ample cash down payments can get you past a seasoning requirement.
Sell to other investors and not retail.
Why is there seasoning? Lenders have been burned when 1 home goes up dramatically compared to the area. Even if it was an REO they can still get burned - mostly mortgage fraud. Rather than spend the time to look on a case by case basis, the lender finds they eliminate much of the risk by banning deals that lack seasoning. They might lose a few loans and do a few less transactions. That potential loss is tiny compared to funding a loan that goes bad and where there was fraud.
So, a very crude way to eliminate the deals on the edge so less fraud happens.