So we have a loan that is supposed to close on the last Friday of the month. On the last Wednesday of the month, yes two days before closing, it comes out of underwriting. The borrowers and their team are up in arms about one big condition, and historically in most cases I would agree with them. This deal must have a second appraisal.
All timelines issues aside, this is about the need, as discussed in previous posts, to make sure that not only will the payments be made, but that the loan can be sold in the secondary market. And though, I think everyone in this deal is on the level, I appreciate the underwriter’s caution.
The property in this deal is the challenge. It was purchased four months ago for $57K by an investor. The investor bought a beat up, run down, worst case scenario foreclosure. He spent 2 months putting in new flooring, cabinets, fixtures, appliances, pipes, paint, carpeting. The works. It shows brand new and my buyer is in love with it. It’s under contract for $137,000 and I have no idea what the investor/seller has in it aside from the purchase price.
My underwriter says she wants a second appraisal. My buyer says she is appraised for what she is paying, so what’s the problem? Let’s close! In this case, underwriting is right because the transaction is thisclose to mortgage fraud. Caution is warranted.
Over the last several years, the opportunity for fraud in deals that fit the profile of this one exists in spades! It’s far too easy for a builder to pick up a beat up property that has been through some or all of the foreclosure process, slap a coat of paint up with the cheapest Home Depot or Lowes appointments and “triple the value”. If they get the realtor on their team or throw a few bucks at the appraiser to ensure a favorable opinion now you have fraud.
After closing the buyer finds that the “great deal” was no such thing, they got scammed and then they stop making their payments and property returns to distress. However, at this point my company is on the hook and the market does not recover.
I believe in this transaction. The housing market will surely improve more quickly when investors, like this one, rehabilitate housing stock in places where buyers, like mine, want to live. Far better to take a few days, get a second appraisal to confirm that the work has been done right and the value is there. The buyer, as well as the lender will sleep better at night in the long run.
