Title and security
Who holds title on purchased properties?
To be an eligible bidder as a prospective owner-occupant in the eyes of California Civil Code 2924m, the bidder (the borrower) must sign an affidavit that he is not acting as an agent for someone else, that he intends to move in within 60 days, and that he will use the property as his primary residence for at least 12 months.
Consequently the Trustee’s Deed (not to be confused with a Deed of Trust) is issued to the bidder, who holds title.
The lender’s money is secured with a purchase money lien recorded in the same transaction as the recording of the Trustee’s Deed.
Is the investor on title?
No. The lender holds a lien on the property with plenty of equity behind it.
Are you assuming you can assume first or second liens before the foreclosing lien?
No, that is not the assumption. The properties the borrower will be bidding on are so low in price that confidence is high that any senior loan can be refinanced if the senior lender does not agree to let the bidder assume the loan. During the due diligence phase, the bidder and the investor will learn if any senior loans or other encumbrances are pushing for foreclosure, and that situation will be factored into a bid decision.
Will every property have title insurance with the lender named as insured?
Yes, but with caveats. Some properties may take a while before title insurance can be obtained. If the property is being foreclosed by an HOA, the owner has a redemption period of 90 days after the sale is final, to buy the property back for the buyer’s cost plus expenses and interest. If there is a junior IRS lien, the IRS has 120 days to redeem. So there are multiple situations where a title report will have to wait.
Returns and cash flow
Are you offering cash flow for short-term bridge loans?
Every loan and situation is different. Some properties are rented and provide an income for the lender, and that income, after expenses, can be allocated to the lender.
Other properties do not have any income, and the borrower may have to pay for improvements before he can move in. In that situation, the borrower may seek a loan with no monthly payments.
What happens if a property does not sell? Will it become a rental?
Most loans are short-term bridge loans, and the lender has no stake in the property selling.
Should a loan expire and the borrower default, the lender decides what happens. He can sell the property at a foreclosure auction (trustee’s sale), or he can negotiate terms for an extension of the deadline.
If a lender is a long-term lender, with an agreement to share in the upside of a sale at a given point, the loan agreement will stipulate what happens in case of non-performance.
The lender may demand the property be rented and the rent assigned to the lender for cash flow, provided no senior lender has had the rent assigned to them.
Every situation and property is different.
What happens to the loan in a long-term partner situation if the net proceeds are lower than expected at the outset?
The proposed partner model is meant to provide the possibility of extreme upsides for the investor, but the price is that there is no guaranteed minimum return. If a lender wishes to be guaranteed a minimum return, loan types other than the partner model are more suitable.
Funds and process
Where are the investor funds wired?
There are a few different options, depending on the time frame and the situation:
a
An escrow company receives the money from the lender and submits cashier’s checks to a trustee on the order of the bidder. If the bid fails, the checks are returned uncashed to the escrow company, and the lender dictates what happens with them. Not all escrow companies will offer this service, and it requires a higher-than-normal service level, since bids must be submitted to the trustee in time via overnight courier with a guaranteed receipt date before the deadline.
b
The borrower sets up a bank account where the lender gets access to follow the account via online banking. The borrower is contractually obligated, and the bank is notified, to withdraw only the bid amount, on a cashier’s check issued to the trustee. Only after a bid has been won and the loan secured with a lien will the borrower have access to any surplus amount.
c
The lender submits the bid directly to the trustee.
There are possibly other solutions, with insured attorneys or other trusted parties mutually agreed upon.
Bidlenders.com never touches any money, nor does any intermediary or broker or referrer or anyone else.
It is paramount for both the lender and the borrower that the other party cannot renege on its promise, so checks on either side will be built into any agreement.
What is your process?
Typically, a case can originate in one of two ways.
a
An interested lender indicates what he may be willing to provide BidLoans for, and his terms: short-term bridge loan, longer term, monthly cash flow, location, loan amount, and so on. Potential borrowers with a matching demand can then present their case.
b
A borrower presents a property and proposed loan terms to one or more investors. Investors can then reach out with their offers.
Can a lender buy a cheap property?
The one exception where the investor may get to acquire the property for pennies on the dollar is the case where a borrower defaults on his loan and the property reverts to the lender at a trustee’s sale. But that is not a given outcome. Sometimes third-party bidders will bid enough to make the lender whole; other times, a property with plenty of equity will revert to the lender. There is no predicting the outcome of a public trustee’s sale.
Is there a minimum loan size that borrowers will accept?
Not really. Homeowners associations sometimes foreclose on outstanding payments of $10,000 or less, and in those cases that is the amount required to win the bid at a foreclosure sale. Each lender decides what loan size he is comfortable committing to, and if that amount matches a borrower’s need, a deal can be made.
Note: the equity in any deal is determined by the total existing debt on a property, so do not be misled by the low amounts required to secure title to a property.