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My friend’s mother owns a house (free and clear) in Florida, beachfront, conservatively valued at $1.3M, which will sell very quickly. She has found a house that she has made an offer on and which was accepted in the amount of $506K. Her plan was to get a short-term note from a bank, etc., (maybe 6 months) and then use the sale of her house to pay off the note at the bank. The problem that she has is that she has been told that her income of $3K/month will not allow her to qualify for the loan due to Dodd-Frank. The owner of the house that she has contracted to buy is wanting his money ASAP, so a lease while her house is on the market is not an option. Ideas???
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I assume that Dodd-Frank is being invoked because she has plans to move into and live in the house contracted for at $506k. If she has really fallen in love with that house (wince, wince), this might be a useful workaround — IF she is willing to postpone moving in for a while. If she repositions her short-term loan need as a commercial bridge loan, then Dodd-Frank becomes irrelevant. She would also be free to shop the short term commercial non-bank bridge lenders who want nothing to do with Dodd-Frank complexities.That would also mean that, upon the sale of her $1.3M house, she might need to rent a place to live for whatever period the lender agrees is sufficient to keep the bridge lender from being accused of illegally dodging Dodd-Frank with a pretend commercial loan. During that period, she could lease out (or MASTER-lease out) the $506k house she fell in love with — to keep it a commercial deal instead of a residential one. Once that period expires, she can move in to enjoy the property herself — that, as a residential deal at the moment, she is positioned to lose.
This assumes that she can find and successfully secure a commercial bridge loan in time to make the seller of the $506k house happy enough. Another negotiating tool (to gain the seller?s cooperation for more time) might be to offer to pay a little more than the agreed on $506k amount, given the overwhelming desirability of her own $1.3M house, and the likelihood her realtor can provide some attractive DOM numbers to keep the $506k seller interested. Peter Fortunato has always advised to ask what the seller plans on doing with the cash s/he is demanding. The answer to that question might reveal some additional opportunities for deal structuring that we don?t have the information to work with here.
The worst case is that the $506k seller is so desperate that s/he is unwilling to allow your friend enough time to secure the bridge loan, in which case she?s likely to lose the $506k house deal. In that event, she?d still be well advised to continue efforts to sell her existing house, and worry about finding a ?deal? or a ?fall in love? place to live in later — once she has all that cash in hand. And cash in hand has a way of finding much more attractive deals at better prices than mortgage house deals. So the worst case outcome might turn out to be a better strategy anyway.
As always, if there are some experienced hands who can pick holes in these ideas, or suggest better ones, here?s your opportunity to shine.
–Dee
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