The purpose of this post is to explain how to avoid a property tax sale for those who find themselves getting behind on their property taxes. There is no doubt that it can be a scary situation but there are solutions.
In California, a property can be sold at auction after property taxes have remained unpaid for 5 years. Depending on whether you are looking to save a property from a tax sale or buy one at a tax sale, this could be good or bad.
For those who have fallen behind on property taxes, it is important to know what to do to avoid losing your property. Knowing the 5-year rule gives you the timeline for when it could happen. If you are two or three years behind, you still have some time but if you have reached the 4-year mark, it’s time to do something now before it’s too late.
Some county tax collectors will let you make a payment arrangement to get caught up on your taxes but if you are too far behind, they may not agree to do so.
Another solution is to get a mortgage on the property to get the taxes caught up. In many cases, the new lender will want to have property taxes collected with your mortgage payment to prevent the same situation from happening again.
Delinquent property taxes don’t go on your credit report so they won’t hurt your credit score. This makes it possible to get a regular bank loan if everything else fits their guidelines. But if you can’t get a bank loan, hard money can be used to solve the problem if there is enough equity in the property.
Fortunately, hard money can be a fast solution to this. I have done multiple loans in the past to help homeowner’s save their property from tax sales. The first one I ever did closed in 4 days, closing on the final day before the auction. It was a close call because the client waited until the last possible moment to try to get a loan.
Yesterday, I got a call from a loan officer who has a client who inherited some properties and didn’t realize that because it wasn’t from a parent, the property taxes had increased after each property was reassessed. The client kept paying the old amount which is thousands of dollars less per year and is now in danger of having their these properties sold at auction to pay the delinquent property taxes.
To make matters worse, the properties this client owns are free and clear (meaning they have no loans on them). Yikes! That could be a disaster!
The loan officer who called me can now help their client save the properties with hard money loans as a temporary solution until a more long-term solution can be found. This will avoid the loss of hundreds of thousands of dollars.
For more information on how to get a hard money loan, regardless of the reason it is needed, fill out the contact form no this website or call today.
What is a Bridge Loan?
There is a common misconception that a bridge loan is just a short term loan. Correctly defined, a bridge loan is where someone is buying one property before selling another one and they need to get a short term loan until they sell the property they already own.
It is called a bridge loan because it bridges the gap between buying a new property and selling a property you already own.
The problem is that banks don’t do bridge loans. They focus on the very plain and uncomplicated loan types that don’t require a lot of expertise or creativity to figure out. This is probably because most banks sell their loans and the people who buy them are investors, not seasoned mortgage professionals.
One of the many different uses of hard money is the bridge loan. Hard money is the ideal vehicle for them because decisions in hard money are generally made by an individual and not a board of directors. And even if the individual who is lending the money isn’t an expert in mortgages, he or she can be educated quickly so that they understand.
So how do bridge loans work?
There are 3 ways to do a bridge loan:
1) The loan is secured by the property being bought.
2) The loan is secured by the property being sold.
3) The loan is secured by both properties.
Which one is best will depend on the situation. Some of the factors involved are how much down payment there is (if any), how much equity is in the property already owned, the value of the property already owned and the purchase price of the property being bought.
Most bridge loans are for 12 months or less although that can be negotiable. This is why some people think of any short term loan as a bridge loan.
One of the biggest advantages of bridge loans is that the requirement for proving income is waived for this type of loan, regardless of whether either of the properties will be owner occupied or a rental property.
If there was a single thing that one should know about bridge loans, it is that they are all about figuring out how to make the numbers work. Anyone who is expert at doing them should be able to figure out the numbers in a couple of minutes and let you know if there is a way to do the loan.
So if you have any questions about whether you qualify for a bridge loan or if one could solve the problem of trying to buy one property before selling another one, ask someone who has done them before.
This is part 2 of 2 in a short series to clear up some of the questions and misunderstandings regarding owner occupied hard money loans. In this post, I will cover bridge loans and temporary loans.
Bridge loans are fairly well known, at least in terms of the name, if not what they actually are. Temporary loans are similar to bridge loans but not exactly the same thing.
A bridge loan is specifically a loan that is used to buy a property before selling another one. These are short term loans, usually no more than 12 months. There are three basic ways to set on up.
The first way is to use both properties as collateral for the loan. The second is to use only the property already owned as collateral. The third is to use only the property being purchased as collateral. Deciding which option works best for you is something you may need your loan officer to help you with.
Whenever a bridge loan is done, an exit strategy is needed because the lender wants you to have a plan of how you will pay off the loan. They don’t want to foreclose any more than you want them to foreclose.
There can be many valid exit strategies. Probably the most common is to sell the property you already own. In the case where this strategy is used, the entire loan can be paid off from the sale of the property. In some cases, there isn’t enough money to pay off the entire mortgage so a new smaller mortgage is needed at the time of the sale.
Your loan officer should be able to help you figure out your ideal exit strategy and even if you already have it worked out, it is a good idea to go over with him or her to make sure it is workable.
Temporary loans are also short term, just like bridge loans, but they have a different setup and a different purpose. When you have enough equity in your property, are unable to get a loan from a bank and need a short term solution, a temporary loan may be an option.
They are typically setup with no more than a 12-month term and, if the property is your primary residence, there is no prepay penalty allowed.
Regardless of the reason for needing a temporary mortgage, whether it is due to bad credit, income that can’t be proven or a property that won’t qualify for a bank loan, the biggest factors in being able to get approved for one are the equity in a property and having a good exit strategy.
There has to be enough equity in a property to give the lender the comfort to not worry about their investment in lending you money. They have to have confidence that if anything goes wrong, they won’t lose money. You should also want this because you want to make sure you have the ability to pay off the loan and your equity can play a big part in that.
A good exit strategy is one that has a reasonable likelihood of working to the benefit of all. Once again, the exit strategy is something your loan officer should be able to help you with.
I could go on for days explaining all the different ways these loans work but rather than doing that, if you have questions about it, please call or fill out the contact form on our site.
Owner occupied hard money is one of the most misunderstood subjects in the mortgage industry. Most people, including mortgage brokers, hard money lenders and even attorneys, don’t understand how it works.
Many of them will tell you it can’t be done. Others think that because it’s hard money, the rules don’t apply. Neither of these are true.
The fact is that there are ways to do it correctly and there are rules about how to do them. In other words, there are limitations on what can and can’t be done. The purpose of this post is to clear up some of the confusion in this area.
The most common type of owner occupied hard money loan is the business purpose loan. As you might guess, the purpose of the loan must be to use the money for business purposes but there is a bit more to it than just that.
To qualify as a business purpose loan, the money needs to be used for a business that the borrower has an ownership interest in. This could be a new business being purchased or started, an existing business or a business that used to exist but doesn’t anymore.
An example that you might not think of is to pay off debts that were incurred for the business, like when a business owner uses credit cards to expand their business or to get through rough times.
Fortunately, to qualify as a business purpose loan, not all of the money has to be used for business purposes. The rule is that the primary purpose of the loan has to be for business use, meaning that more than 50% of the loan proceeds has to be used for business.
So if you want to put $100,000 into your business and you also want some money to pay down your credit cards that were used for personal expenses, as long as the amount being put into the business is more than the amount being used for personal expenses, the loan would still be considered a business purpose loan.
A major benefit of the business purpose loan is that the guidelines are pretty simple and easy to understand. There are no specific appraisal requirements other than the lender needing to make sure that the value is sufficient to protect them in the event of default.
Proof of income is generally not required. Proof of assets other than the property being used as collateral is also not normally required. What is required is a clear statement of how the money will be used. It must be written and signed by the borrower.
If you have any questions about how these loans work or if you could qualify, please call or fill out the contact form on our website.
In the next post, I will cover the next type of owner occupied hard money loan, the bridge loan or temporary loan.