seasoning issue

[rg200 0]

Has anyone come up with a way to avoid the title seasoning issues? ( ie: land trust, memorandam option etc.......) There must be a way. In michigan the banks are starting to have real problems with title seasoning. Thanks in advance.

Ron

[Adam King (MI) 1]

Ron,

Could you give us an example of the seasoning issue you are dealing with? There are a lot of scenarios to get around it. A little more info would help....

Regards,

Adam

[rg200 0]

Hi Adam,

A Typical stituation would be I do a sandwich l/o. When I go to cash the TB out the mortage company he is using want 12 months of seasoning of title. This is becoming more and more common. Soon it will be harder to find any who will do this. I am trying to figure out a way to structure the deal so some how I would be on title for a 12 month period so this wont be an issue.

[Adam King (MI) 1]

Ron,

First off, this an issue that can be dealt with by talking to a local title company. Sometimes you have to explain the following to them, but that's who's got the most answers. You may even have to find a title company that will work with you. Some wont.

 

Tricks to beating the seasoning issues.

 

1. Put yourself on the PA with the tenant/buyer and assign your interest at closing.

2. Simply assign your interest for your cash.

3. If it's a non-assignable issue you can still assign it by doing this.

 

Ron Smith/Jones on behalf of an entity to be formed. Form an LLC and assign the LLC at closing. The LLC is the new buyer; it can even go on the HUD 1.

 

There are other ways to do this as well, as my broker just explained to me over the phone. I was up late, so I wont try to explain what she said.

Hope that helps a little,

Adam

[CC Rider - MI 0]

Maybe I'm the only one with a "deer-in-the-headlights" look right now, but I'm not following the solutions posed. Perhaps someone can explain them in a different way. This is of interest to me as I am in MI also.

 

I think I understand what the seasoning problem is - you as the middle of a sandwich lease, would only be on title for less than a day, which gives the T/B's bank an excuse to cause problems with your transaction.

 

I think I understand solution #2 because your L-O with the seller has been in place for 12 months or more and once assigned it allows the bearer to puchase on those terms - an agreement that meets the seasoning requirement.

 

Aside from that, I don't get #1 and 3. (Maybe there are some additional details / steps that were breezed over?)

 

It seems easier to help shop around for a different source of funding.

[Adam King (MI) 1]

CC,

Conforming and non-conforming lenders still can have seasoning issues. The long and short of it all, is don't hold title. Ironically, the examples I have explained here have all been taught to me by my MI attorneys so keep that in mind. They all work, but some title companies and lenders have issues with them. There are still other ways to even get around these issues.

These are "Broker" tricks that I am unfamiliar with that my team handles. And yes, if we pursue this topic, I will be more than happy to have one of them explain it to me in great detail and post it here for everyone to read and understand. (I know I'm asking for it now )

 

Okay, let's see if I can clear some things up first.

 

 

I think I understand what the seasoning problem is - you as the middle of a sandwich lease, would only be on title for less than a day, which gives the T/B's bank an excuse to cause problems with your transaction.

 

You would only be on title for a day if you did a double closing. Which means that you would attract a seasoning issue. Assigning interest is NOT holding title. Only paper.

 

I think I understand solution #2 because your L-O with the seller has been in place for 12 months or more and once assigned it allows the bearer to purchase on those terms - an agreement that meets the seasoning requirement.

 

This could still create a seasoning issue if you didn't hold title yourself for twelve months. Even knowing the tenant/buyer rented for twelve months. BUT this IS the example my broker gave to me that we can pursue further. I.e. there is a way around this.

 

Aside from that, I don't get #1 and 3. (Maybe there are some additional details / steps that were breezed over?)

 

1. Putting yourself on the PA with the tenant/buyer means that you are BOTH purchasing the property. At closing, you would assign your right and interest to the tenant/buyer for a fee.

 

3. This is a way of making a non-assignable PA assignable. Instead of assigning your interest, you create an LLC that can be purchased with the interest belonging to the LLC. I.e. the LLC holds interest now and not you. The LLC that now holds interest to the property is then sold to the tenant/buyer for a fee. The tenant/buyer can then desolve the LLC.

 

It seems easier to help shop around for a different source of funding

 

This can be done, but you need to be able to work with as many lenders as possible. And yes, MOST of them are a pain.

 

Hope that clears things up a bit.

Adam

[rg200 0]

Ok this is the thing with assignment fees. There is a cap on what you can charge for them. At least that is what I am told.

Adam that would be great if you would talk to your team and share you insight on the topic. I am trying to think of a way to use a trust to show I have had interest in the property for atleast a year. I am still working on that one.

 

Ron

[Guest mandomin]

One more question about the assignment fee. If the option is assigned will the TB have to come up with cash for the assignment fee or will the lender recognize this fee as a part of the cost of the property?

[MichaelC 160]

Ok this is the thing with assignment fees. There is a cap on what you can charge for them. At least that is what I am told.

I realize this is a state law driven issue, but I have never heard of any type of cap being placed on how much profit I can make on a private real estate transaction. What the parties involved agree to should not be the concern of the state lawmakers......at least as I see things in my skewered way. Even if such a law exists, who is monitoring these things? The Real Estate Police? Ron, do you know what this cap amount is?

One more question about the assignment fee. If the option is assigned will the TB have to come up with cash for the assignment fee or will the lender recognize this fee as a part of the cost of the property?

Mando, if you are talking about a straight assignment, then the assignment fee is typically not a part of the buyer's down payment. They are simply buying the contract from you. What transpires after that is between them, the seller, and eventually the lender they choose to fund their purchase.

If you are talking about a Cooperative Assignment then the assignment fee is considered option money and will usually be considered as part of the down payment when the tenant/buyer elects to exercise their option to purchase.

The bottom line, however, is the lender calls the shots. The tenant/buyer has their pick of who they want to give their business to and should obviously select a lender who best suits their needs and preferences.

[Adam King (MI) 1]

Ron and Mandomin,

I think Michael answered your last questions. I'll get with the broker and find the answers out for you. I think it will be good for all of us to understand.

Regards,

Adam

[Mandomin 0]

It sounds like there may be an issue with the T/B coming up with the cash for the assignment fee at closing in the case of an option assignment. They have already come up with the cash for option consideration at the beginning of the lease. Any thoughts?

[Gary (MO) 0]

If it were me in the middle and my T/B was being assigned my interest in the purchase just to deal with the seasoning issue - I wouldn't let that stand in the way of the deal...$1. assignment fee - maybe? (Heck, if I found out that I didn't have to charge them any fee to make it 'legal', I probably wouldn't charge them anything!)

Gary

[Mandomin 0]

I'm a little confused. This is the senerio as I understand it: A major portion of profit from the deal comes from either the difference between the seller's option price to me and my selling price to the T/B (buy low sell high) or from the assignment fee. If I am assigning to avoid title seasoning issues and don't charge an assignment fee where does this profit come from?

[mpine 0]

I beleive filing a Performance Mortgage against the property would guarentee you get settled with at closing.

 

Best wishes,

 

Michael Pine

:ph34r:

[Mandomin 0]

Michael,

 

So it sounds like the Performance Mortgage will guarantee that I get my assignment fee after T/B recieves his loan for the option price + assignment fee. This all gets back to whether or not the lender will give the loan for the option price + assignment fee. Maybe all of this will be transparent to the lender. For example

 

Option price $200,000

Assignment Fee $ 10,000

Rent Credits earned - $ 1,200

Option Consideration -$ 3,000

 

T/B needs to come up with $205,800

 

Maybe the bottom line is all the lender sees. Lender gives T/B $205,800. Then at closing, original seller gets his $200k and I get my $10k minus rent credits and consideration (thanks to the Performance Mortgage). Once again this is all assuming the lender will loan the entire $205,800. Sorry if I'm beating this issue to death.