A Word About Flipping Condos

My Realtor passed along some news to me regarding flipping condos. She said to be careful because sometimes it's hard for buyers to get loan funded. It seems some lenders will not loan to people buying properties where the majority of people are renters. Here in Arizona, if a property is being rented, it is supposed to be registered as such with the state. Of course, enforcement of this is lax and there are many properties that are not registered. In fact, just Thursday, there was a front page article in the Arizona Republic about this.

In my particular case, I did a search on-line and there were no units in the development I'm bidding in that were registered as rentals. Given the above paragraph, this doesn't mean there are no renters. I also attempted to contact the president, vice-president, and treasurer of the development's home owner's association to see if they could tell me anything. Only one of those three had a listed number and no one answered that when I called. I did find a property management company that used to handle the development, but they no longer do.

So, I think in my case, it should be ok. I imagine most lenders are big corporations and possibly even out of state. If they check for rentals at all, I think they would most likely check by using the assessor's on-line search like I did and wouldn't find anything. However, this is something to keep in mind for the future.

House 4 Out Of Play For Me... But You...?

Got a counter for House 4 today. I've decided to pass on this one, so here's the details:

Recall this was a preforclosure that is scheduled for auction in April. Based on my educated / calculated guess at the interest rate and an amortization table, I figured the owner owed about $47K.

FMV: $62,000
List Price: $57,000
My First Offer: $42,000, all cash, 2 week escrow

Counter Offer: $55,000

My (informal) Counter Offer: $45,000, I pay all closing fees

I say informal because I didn't bother writing this up. I just called the agent and spoke with her. When I gave her my counter offer, she said it wouldn't fly because the mortgage company added on all sorts of fees and the loan payoff amount was up to $50,000. Then she played the age card, saying the owner was an old lady and couldn't just be kicked out without anyplace to go, so I'd have to pay more than that. And I agree that she shouldn't be kicked out on the street. However, I can't make a flip work paying 89% of FMV. Maybe if I was looking to rent the place out, I could have done something. I wished the agent well and we had an amicable parting.

If anyone looking to buy a rental unit in Phoenix is interested, drop me a line at 10thAvenueInvestments at Cox dot Net and I'll pass along the property info and all the info I uncovered in my research for a tiny finder's fee. It's a one bedroom condo in a really nice development with a pool and the whole development, including carports, is fenced. With a 20% down, 6%, 30 year loan and rent of $650, I think you could get a 25% return. I will only sell this info to one person, so if you buy it, you don't have to worry about me selling it to your competition.

More About House 5

I was running short on time yesterday and forgot to mention something about House 5. While doing title research, I discovered the HOA placed a lien on the property. The lien is for about $700 plus $130 a month going forward from November. Now this is where it gets interesting. Follow me on this...

The owner, we'll call him John Doe, died. On 11/18/04, the personal representative of the estate of John Doe signed a Grant Deed In Lieu Of Foreclosure giving the property back to the bank rather than go through the foreclosure process. This deed was recorded on 11/30/04. On 11/19/04, the bank executed a substitution of trustee, changing the trustee from a title company to a loan servicing company. This was also recorded on 11/30/04. On 11/22/04, the loan servicing company granted full reconveyance to "the person or persons legally entitled to" all interest in the property. This was also recorded on 11/30/04. I take this to mean the bank has obtained the property in lieu of foreclosure and now the borrower (John Doe) is released from obligation. Finally, the bank then transferred title via grant deed to the Veteran's Administration. Interestingly, this document was recorded on 11/30/04 BUT... There are NO dates on the document as to when it was actually signed! There is no date when the bank representative signed and, even more amazing, there is no date of when the notary signed! Given that it was recorded on 11/30/04, I think it is safe to assume it was signed prior to that date. So at this point, the VA owns the home and, in fact, they are the ones currently selling it.

But.. on 11/23/04, the management company for the apartment complex where this property is located filed a lien against the property for about $700 plus $130 a month each month after November, 2004. The lien was made stating John Doe as the owner. This document was recorded on 12/6/04. So when the lien was recorded, John Doe was not the owner. There is no subsequent document recorded declaring this lien void or released.

Now if the property went to foreclosure, the lien would have been wiped off. But, title was transferred in lieu of foreclosure, so that doesn't apply. Additionally, the lien states the incorrect owner. So is it a valid lien?

The total amount of the lien is currently about $1,000 and I assumed in my offer price that the lien would have to be paid off, but I wonder if it really would. I suppose this is a classic case of a clouded title.

Houses 4 and 5

Made two offers today:

The first was to a condo in the same development as House 3. This condo was not a foreclosure, but it is in the preforeclosure stage. The auction is set for April and the MLS listing says time is of the essence. I did some research and based on the monthly amount and starting loan amount, I reverse engineered the interest rate, then ran an amortization schedule to figure out about what she owes now. (The loan was obtained in 1999.) Faxed the offer today, which was $15K below the asking price. The agent called and said she didn't have the payoff amount yet from the bank and she'd get back to me. She asked how I came up with such a low figure. Rather than tell her I made a rough guess at what was owed, I said it was the minimum I could pay that would allow the deal to be worth my while, given closing costs, rehab costs, etc. I said I'd waive an inspection (except the termite inspection), and reminded her this was an all-cash offer, and I was offering a short escrow. No lending approvals to worry about, short sale time. Those are pluses in this situation. I gave her until Friday to respond, which she thanked me for. She said most people want a response within a day.

House 5 was an apartment that is a VA foreclosure. I checked the place out at lunch today and it is in surprisingly good shape. I put in a bid below the asking price, but relatively higher than I would had it not been in such good shape - about 15% below. The asking price was close to FMV anyway. I had heard from the listing agent that bids had been received on this property but none had been accepted yet, which was another reason I stayed a bit high. I think the fixup costs will be relatively low.

House 3

House 3 is actually a small condo - 1 bedroom, 1 bath. It's in a complex of 36 condos that has a pool and a big grassy area in front. The complex is totally gated and is pretty nice and well-kept. The neighborhood isn't too bad either, but there are about 4 other units for sale in the complex. I was able to get in the complex (the gate opened as a car drove out and I waltzed in) and peek in the windows. The property looks to be in good shape. The toilet and sink/vanity were out in the living room though.

Spoke with the listing agent this afternoon and he tells the unit has been vacant about a year (some research shows the original owner died and it went into foreclosure). The toilet was pulled out by the HOA because it was leaking. He claims the plumbing is good and the items just need to be reinstalled. (So why didn't they just turn off the water instead of ripping the things out?) Similarly, the vinyl flooring in the kitchen was pulled up because the refrigerator was leaking Freon. The HOA also put a lien on the property for unpaid HOA fees, but that was recorded after the mortgage, so the mortgage foreclosure has wiped that lien away.

The agent tells me units sell in about 2 months there, mainly because they are 1 bedroom, not 2. This particular unit has been on the market a while and never sold because the initial price was too high. It's been lowered about $15,000. The agent tells me he's gotten lots of calls on it and he expects it to sell quickly. I'll be making an offer on this property and maybe one or two of the others as well.

I'm not giving all the details here (like my offer price) because this is a VA foreclosure, which means it's basically an auction and the highest bidder gets the property, so giving out my bid before the close of the auction would be counterproductive. If I get it, I'll post full details.