Love Austin Homes Investing Blog

Large profit on the table! We are completely over extended! 1920
Victorian, 2700 sq. ft. two story house, 70% refurbished. 3/3 w/large
rooms, new metal roof, all new MEP installed except for final
fixtures, original hardwoods in good shape; no need to replace.
Master bath has been enlarged and customized with travertine tile,
deep Kohler tub, etc. Neighboring houses of the same era in the
historic district are selling for $100 – $135 sq. ft. There are a five
additional lots on this 1.75 acre site ready for development. Site
has been surveyed and plans for future development approved by the
city of Bastrop. All permitting and code requirements have been met
to date. Cost to complete renovation $50K or less depending on your
skills and labor contacts. Will sell house and lot as is for $195k or
entire site for $240,000. Call Chris xxx

Answer

Chris,

Not to be picky…but…you caught my attention with “Large Profit on the Table”

If this costs $195K, and it’s going to need $50K to complete, and the cost of sales is 8% or $22K, and the cost of money is 7% or $19K (or much more), and it’s going to sell for as little as $100/ft or $270K, then it looks like this is an opportunity to lose $16K. Where is the “Large profit on the table”?

Tell us why this is a deal. Is the assumption that you are going to get top dollar for it, because it’s a top house? How so? Will $50K in additional rehab get it to a (top top dollar) $365K ARV? Are there a lot of $350K homes in this area? At 2700 feet, is this one of the smaller or larger homes in the area? Obviously bigger homes get less per foot and vice versa. Has this thing been finished out with top quality specifications? Does it have an actual historic designation, or is it just in an area with historic homes? A non-historic home is just a home, after all. Has some of it already been restored (as apposed to rehabbed) to it’s premium historic state? Historic homes can get more $$, because of their restoration and designation, but only with pain-staking restoration.

I’m looking for a deal…

Phill

I was reading on the Texas Rental Laws understanding the eviction process. Step 1) the notice to vacate I had a few questions about. It says there must be written notice that is delivered with an eye witness, certified mail with return receipt, or any other method required by law.

My question is, what if everytime you go to the property with a witness the tenant is either missing or doesn’t answer the door? What if you send certified mail and the tenant once again doesn’t answer the door to send receipt that mail was received?

I supposed one way to do it would be to change the locks on the door, forcing the tenant to get in contact with the owner for a new key, but that’s kind of like a very last option for me.

Anyone has a really successful formula for dealing with tenants who are very late on rent payments enough to warrant an eviction?

Thanks

Andrew

ANSWER

Andrew,

You can POST the notice on the door.

The last time I did this I STAPLED the notice on the door and I took a photograph of it (on the door) with a daily Newspaper and a witness, also in the picture, where the date of the Newspaper could be verified to prove the date the notice was posted.

Phill

I’m looking for recommendations for attorneys who are well versed in
SEC regulations as they relate to raising capital from private investors.

Of course, if you are an attorney who has this expertise, please chime in.
Iain

ANSWER

Iain,
One of my mentor students, and a fellow club member, John Greytok, is an attorney that has done extensive research in this area. He can be reached at 512-474-4770.

Regards,
Phill Grove

A friend sent me a scan of an article regarding Texas House Bill 2207
(signed by the governor this summer) that goes into effect Jan 1, 2008
which appears at first glance to say that Sub2 deals now REQUIRE the
consent of the lender.

I’m not positive if attachments come through on this message board, but
it is the file “House bill 2207-2.pdf” OR you can find it by clicking
here (or copying and pasting into a web browser):

HYPERLINK “http://www.dadsbuyhouses.com/Housebill2207-2.pdf”http://www.dadsbuyh­ouses.com/­Housebill2207-­2.pdf

The article makes it sound like all of us that purchase property sub2
are screwed.

But I read the bill differently. Attached as “HB02207F[1]­.pdf is the
actual text of the bill. It can also be found here:

HYPERLINK “http://www.dadsbuyhouses.com/HB02207F”http://www.dadsbuyh­ouses.com/­HB02207F[1].pdf

MY interpretation is that we are all OK, but I really want to hear other
people’s interpretations about this bill.

****** THE FOLLOWING IS MY INTERPRETATION AND IS NOT LEGAL ADVISE.
PLEASE SEEK THE ADVICE OF A LICENSED ATTORNEY BEFORE ACTING FOOLISHLY ON
ANY OF THE INFORMATION PROVIDED ******

My interpretation is that this act obligates the SELLER (not the buyer)
to notify the buyer and each lien holder of certain risks involved in
taking a property Sub2.

However, a violation of this law by the Seller (most of whom won’t know
about the law), does not undo the conveyance. You can see that in
Section 1: (b): “A violation of this section does not invalidate a
conveyance.”

Furthermore, the Seller becomes exempt from the law if either of these
conditions are true (in our case, both or true, but in your case, at
least the second is probably true):

1. From Section 1: (c): (10): “where the purchaser obtains a title
insurance policy insuring the transfer of title to the real property”

2. From Section 1: (c): (11): “to a person who has purchased,
conveyed, or entered into contracts to purchase or convey an interest in
real prperty four or more times in the preceding 12 months.”

So from MY interpretation, this law was meant to keep scammers from
selling property with liens and without title insurance to buyers who
are unaware of existing liens. That’s why it exempts “experienced
buyers” or where you got title insurance…­. because that person SHOULD
be aware of liens and it becomes a buyer beware kind of issue.

Would love for your comment. Thanks!
Daniel

ANSWER

Thanks for contributing this Dan!

Fellow Investors,
I do a lot of Sub-To deals. I do them in an LLC and WITH title insurance. I know many investors that buy sub-to by conveying the property into a land trust and not utilizing title insurance. This is quick and cheap, however, I believe these transactions are very problematic on many levels, and are soon probably illegal.

The reason this law was promoted, was because, unfortunately, there are a lot of crooked investors, and we as investors (and unlike realtors, builders, etc.), have done nothing to regulate our own industry. Unfortunately, some investors have been running scams where they buy properties sub-to, and then turn around and sell them with a down payment and wrap-around mortgage. The investor pockets the down payment, and keeps collecting the mortgage payments from the new buyer, but then stops making the underlying mortgage payments. Eventually, the underlying mortgage lender forecloses on the unwitting buyer – who looses their home and down payment, after making all their payments and having done nothing wrong. The original seller also gets screwed, because their credit is ruined. The crooked investor, however, just moves on to the next location.

The problem with this law, is that, although well intentioned, it probably does little to solve the problem. Crooked investors are probably not going to get title insurance or sell with title insurance, and are certainly not going to tell the lenders what they are doing. By the time the deals unravel, the money to fix things will be gone.

The investor is under assault in Texas. We now have laws on the books or pending that ban lease-options, now restrict sub-to deals, will make rehabbers have to register, certify, and warrantee homes that are remodeled. There are additional laws in effect or pending effecting leases and landlords. As people get burned by unscrupulous investors, more laws will be enacted restricting everything we do, until there is not much left.

Across the nation the situation is growing worse with special taxes restricting flipping, and onerous certifications limiting a homeowners ability to evict a non-paying tenents, and even the possibility that in the future, if you sell a home with owner financing to someone that declares bankruptcy, the court could retroactively reduce the sales price you sold the home for, what is owed to you, and restrict your ability to foreclose, even if you are not getting your payments. These laws get enacted in one state or another, and then get shopped from state to state with little resistance.

I believe, ultimately, we are either going to have to regulate our own industry, or the government will do it for us. Realtors, builders, lenders, and just about everyone else in real estate has already gone through this. Sort of like I always tell my short-sale clients – “you need to come up with a plan, or the creditors will come up with one for you, and you probably won’t like the plan they come up with”

Phill

Does anyone have any experience with a house leveling company in Austin?

Thanks,
Terry

ANSWER

Terry,

I use Centex. They are pros. Last year I had a VERY complex foundation job and had several companies bid it. Some bids were much lower than others. Upon reading the proposals carefully, I determined that a few of the proposals would simply not work (not enough piers in the right places – hey, I’m an engineer). Anyway, the Centex bid was the most comprehensive.

Additionally, Centex offers a lifetime warrantee, which conveys to the new owner. Because many buyers are leery of a home that had a foundation problem, this is a key selling feature (that may translate into selling at a higher price). I know I I personally am reluctant to buy a home that HAD foundation problems, as a homestead,

Anyway, as it turns out, my house DID have additional problems. It shifted after numerous rainfalls, and Centex came back and fixed it for free.

If you need a bid, call Isaac Benavides with Centax. 512-444-5438 or moble 512-658-6925. Tell him Phill sent you.

Phill

Hi Folks, do any of you have experience with the Austin Planning
Department? I am trying to figure out how difficult it is going to be
to have a residential lot re-platted. any advice will be greatly
appreciated.
thanks

ANSWER

As a general rule, re-platting is quite complex because it usually involves changing boundary lines which are shared with neighbors – thus potentially changing their surveys, public records, etc, and thus usually requiring the permission of many parties – usually impossible to get.

If you just want to give one lot ‘permission’ to do something involving another lot, sometimes the simpler solution is to have one lot grant an easement to another. For example, one lot could grand another lot an ‘access easement’ that could be used by the other lot for a driveway, fence, garden, whatever. Technically, I believe you can grant an easement for any use you want – including a allowing a neighbor to build a structure, although I’d would not take it that far.

If you want to sub-divide a lot or change the boundaries between two lots you own, that is a different matter…

Phill

I hope someone can help me since the Title company
I have been working with is on the fence here. I’ve been working the
past two years on purchasing a lot that has almost 30 owners since
the legal owner has been deceased for 15+ years. The title company
has been working on this just as long and are driving me crazy.

Here is my dilemma: I have a warranty deed that now has all of
the heirs’ signatures. Unfortunately, two of the heirs have died
during this two year period. I have notarized signatures from the two
deceased on the warranty deed obtained prior to their deaths. Are
their signatures legally binding or do I now have to acquire the
signatures of all of the legal heirs of these two deceased? Thanks
in advance!

Sheri

ANSWER

From another investor:
Just file the deed, along with the appropriate Affidavit of Heirship
documents. The dead people were still alive when the deed was signed
and notarized and that makes your deal legal. No extra signatures
are required from the heirs of the dead people. If the Title Company
is telling you that signatures from the NEW heirs are needed, they
are DEAD wrong (pun intended). The dead people’s interest in the
property transferred to you the INSTANT they signed the properly
notarized Deed.

I’m assuming that you also have an issue concerning where any monies
due to these dead people is supposed to go. The money will have to
go to the estate (assuming there is one) of the dead people and that
could be a problem, depending on the status of the estate. The title
company may have to hold this money in escrow for a long period of
time until the estate of the dead people figures out what to do with
the money. The Title Company won’t like this, but as the 3rd party
escrow agent in this deal, this is THEIR problem, not yours. That is
what they get paid the big bucks to do. They should be able to
complete your end of the tranaaction, assuming there are no other
issues present. The Title Company will try to make it your problem,
just don’t let them get away with it.

Additional Answer:
Sheri,
I concur with with the previous answer, however, I will add an experience that I had, in a similar situation where I did go ahead and close on a house where one of the one owners had died.

Unfortunately, after closing, some of the other heirs started fighting and came to me claiming that the deed had a forged signature on it (from a dead man).

In this situation, I basically told them to give me back my money or let go of the deed claim, and they refused both – hoping the title company would pay them off. I then called my title company to ask them to defend my title…

From this experience I learned many lessons

1) A title company informed me that they won’t actually do anything until someone hires a lawyer and files a lawsuit against the title. In other words, I had a cloud on my title, and no opportunity to sell the property, and no opportunity to clear it until some future date, after probate and after the heirs filed their suit (typically 2+ years).

2) I could have just called their bluff, however the heirs had a somewhat reasonable claim, they had at least some documents from the dead man that showed inconsistent signatures, and they got the notary to admit that they were not sure if the person that signed was indeed the person in question.

3) I was left in a position of sitting on the property for years and waiting them out (while continuing to make the significant payments on the loan), or going forward and making the improvements to the property (i.e. rebuilding a house), and then risk losing the improvements at trial – this is because your title insurance (upon losing a title claim) only REPAYS you what you paid for the property and NOT any improvements or MORTGAGE PAYMENTS made after you buy it.

I found myself between a rock and a harder place. In the end, I basically offered all of the heirs a pile of money to sign a document releasing any future claim. It sucked and it was not in the budget, but it was the least pain solution.

Lesson learned? Well, this was an unusual situation and strange things happen. I’m not sure I could have avoided this, however, in the future I would personally make sure that everyone involved in a deal is on board before jumping into any purchase of a property that could be touched by probate and/or a feuding family….

Phill

I have a house that must be sold this week on a short sell. Asking price 95K call me and I will help you to negotiate tthe offer with the Bank . The House is a Pre-foreclosure and is located on Pleasent Valley.
You can find it at craiglist or contact me for more info.

Carolyn

Answer

Carolyn,
Without an address, estimated value, home description, condition description, or any other information on this property, I can’t help you. We all have houses to sell…

I assume that the home is facing an auction, if it has to be sold this week. I hope you already have an short-sale approval letter from the lender if you really hope to sell it this week.

If you have have an approval letter – you should be able to tell people the price that has been negotiated – this would be helpfull. If you don’t have an approval letter, you can’t close, and it’s unlikely that you will be able to get an approval letter in a week, unless you’ve alreadly filed all the short sale paperwork with the lender weeks or months ago.

Phill

I have a question for the more experienced rehabbers here. I’m currently
analyzing a potential rehab project in which TravisCAD shows the
property square feet as 900, however the original property owner has
added 2 additional rooms to the property over the years, increasing the
true square footage to approx 2000. They seem to be illegal additions as
they are not reflected in the tax roll.

What potential problems could arise for me down the road as a result of
this if I decided to go ahead and do the rehab? Issues during
inspection? Issues when trying to sell? Both? Any insight would be
greatly appreciated. Thanks.

-Mark

ANSWER

Mark,
Illegal additions are very common.

My biggest concern is that the additions were never permitted, and therefore may not meet building and safety codes. For example, the windows may not have been flashed properly, or the joists may not be sufficient to hold the load, or the roof may not have the proper slope, or a supporting wall was removed, or a door was put in without a header above it, or the plumbing was not vented, or there is no or insufficient insulation, etc. I’ve run into all of these.

In some cases, you can catch these or an inspector may catch these. I recommend an inspector that is also an engineer, as an engineer is more likely to find these sorts of problems. Of course some of these are ‘in the walls’ and quite hard to find.

As for liability – you are not technically liable for the addition when reselling a home that a prior owner added an illegal addition to. However, poor construction problems can manifest, causing problems to the home while you own it, and/or creating conditions that your buyer’s inspector finds when you try to sell. You could also incur liability if you discover a defect and/or safety problem with the home, while you own it, that you do not disclose when you sell it.

As for the city/county – I have been told there is no process for doing a post-construction building inspection to determine if something was done right. I suppose you could invite the county/city in to measure the additional space so that they could increase your tax assessment, if that is your goal…

All that being said – most additions I’ve run into were done reasonably well, but just never permitted. For those – enjoy the extra space!

Phill

I have a person whom is going through foreclosure, we agreed that
I will pay him walk away money and I will re-establish the mortgage
payments and he will in turn deed the property to me but he will remain in the
loan,possibly for 3 to 4 months while I find a buyer, I have never
done this before. Can anyone refer me to a title company or attorney who
can help me set up this transaction properly so my buyer and I can be
protected?

Regards,
J

ANSWER

Charlie Brown can be reached at 512-346-6000. He can sell you the paperwork necessary to buy this property “subject-to” the existing loan. He will probably charge you in excess of $1000, as this costs some $$ to develop, but don’t quote me.

In most cases, investors that buy properties this way, are more interested in protecting themselves, then the buyer, and thus the contracts are fairly one-sided. For example, the contract will basically say “I the buyer agree to make the mortgage payments if I can, but if I don’t, I’m not liable for anything that might happen to you the seller as a result.” In almost all cases in my experience the seller is fine with this. In other words, if their were better deals out there, they probably would have gone after those. That being said, when I buy a property “subject-to”­, I do go out of my way to make the seller feel more comfortable by giving them references, telling them a bit about my own financial situation (to show that I have the resources to make thair payments), and showing them other deals that I have done successfully.

Finally, one of the most troublesome transactions that less-reputable investors make is the subject-to deal where the investor takes the property and then lets it go into foreclosure.

In my opinion, when you buy a property ’subject-to’­, you have a moral obligation to not let that property go into foreclosure. If you are not sure you can ensure that, or if the deal is not good enough to make that happen, you should not do the deal.

Phill