Monday, October 15, 2012

HML #26 Started

My funds from HML #23 have been rolled into a new loan I am labelling HML #26.

This property is a single family townhouse in Oakland, CA. I think this is the first time I've made a loan on a townhouse. If not, it's certainly one of only a very few. I've got nothing against them. It's just our biggest borrower doesn't buy many of them.

Anyway, this is a 3 bedroom, 2 bath vacant townhouse that is about 1,300 square feet. It has an attached 1 car garage and was built in 2008. It does have a home owners association whose monthly dues are $266. The complex appears to be well maintained and the unit does not appear to need any work on the outside. There is no litigation involving the property filed by the HOA. (Usually when a property with an HOA goes to foreclosure, the HOA has filed some sort of suit against the previous owner for delinquent fees or other issues like property upkeep, yard issues, etc.) The foreclosed-on owner bought the property new in 2008 for $221,000 with only a $8,000 down payment.

The neighborhood was built by the city of Oakland as a housing project, so it's not the best area. There were income and occupancy restrictions when the place was built, but my partner spoke with a neighbor and she wasn't sure if those were still in place. However, we think they are since the agent mentioned this in the expired MLS listing.

There are few comps in the complex. There are only two other properties listed in the MLS for this complex. Both are true comps, in that they are similar is square footage and features. One sold a month ago for $135,000 and the other has been on the market since August with a listing price of $128,000. The income and occupancy limits also place restrictions on how much people can sell the properties for, so the prices in this complex are kept artificially low. If you look for comps on Zillow or Foreclosure Radar, they give values much higher as they don't take this into account.

We're are conservatively figuring this is worth $110,000 as-is or $120,000 after repair. Our borrower bought it at auction for $108,000. There were no other bidders. (I'm guess they were scared off by the fact that this is in a housing project.) Our loan amount is for $73,500, giving us a 68% LTV using the purchase price, a 67% LTV ratio using the as-is price, and a 61% LTV using the after repair price. The borrower is our best customer and is personally guaranteeing the loan. The loan is our standard: 12% interest only payments, 1 year term.

It's going to be interesting to see how long this takes to sell.


Zain said...

The house looks beautiful. It's a good deal with comfortable facilities and rent is much reasonable. Thanks for that.

Another Investor said...

Did your partner check the deed restrictions? They should have been recorded with the first sale, if not before. The title company should be able to produce those. If they exist, there may be limitations on who can buy the property and the City may have the right to buy the property in the event of a foreclosure. There may be a sleeping second, and it may or may not have been extinguished by the foreclosure. Hope your partner did his homework on this one.

Shaun said...

AI - I've passed these questions along to my borrower and am waiting for his response.

Shaun said...

Got a copy of the CCR&Rs today, which includes the sale and buyer restrictions imposed by the city. It contains a specific exemption to the sale restrictions for those owners who acquired the property via foreclosure. It also exempts the new buyers from having to meet the income restrictions. The city had the right to acquire the defaulted mortgage only in the case where the foreclosure was done as a deed-in-lieu foreclosure or assignment to HUD, which was not the case here. The HOA had the right to bid on the property at the foreclosure auction, which they did not. The HOA specifically states any existing liens against the property by the HOA are wiped out in the event of a foreclosure by the first mortgage holder.

Thanks for the question. I had no idea these kinds of restrictions could exist.

Shaun said...

Got another document from the borrower. This is a buyer's occupancy and resale restriction agreement between the city and the buyer. It's even more explicit than the document included withe CC&Rs. It says: "After such foreclosure... this agreement shall be forever terminated and shall have no further effect as to the Home or any transferee thereafter."

Glennpeter Espinosa said...

Hey Shaun,

I've read through your blog and I am impressed by the amount of info on here.

I'm an experienced flipper looking to do my first HML deal. I couldn't find your e-mail anywhere on the site but if you'd like the investment summaries of the properties I am looking at please email me at

One property would put you at 60% LTV and it is in a B class neighborhood. Comps selling on avg. 50 DOM.

The other property would put you in at only 33% LTV!! It is in C class neighborhood.

My company will put up all rehab expenses.

Please contact me so that we can talk.



Shaun said...

Thanks for the interest, Glenn, but all my funds are currently invested. Perhaps some other readers here will be able to help you.

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