Due Diligence

[TommyOH]

I received a call from a distressed landlord yesterday which I thought I'd share here. People who are just starting out need to pay attention to this because it is something we are going to be dealing with. It had to do with a post that someone put up recently about 1 trillion $ in ARM's set to mature.

This landlord has a 2 family home in a very nice suburban area. It needs some work. She is a self admitted pushover and her tennants get by with alot. She has some issues with the city, and is just ready to have someone else take over. Also there were things wrong with the house that were not disclosed to her by the previous owner. This sets up her offer to me.

She said she paid 150k for the house in 2002, and invested 40k in repairs. She also said the house can easily be sold for 190k when repairs are complete. Her offer was 150k on a land contract. Her reason for the land contract was that she is suing the former owner for non-disclosure and needs to keep her name on the title.

I told her I would check into it and get back to her. I am fortunate here in Ohio as our county recorder, county auditor, and many other great sources are all accessible online.

The first thing I did was to look at comparable sales on a local realtor site. The home is only worth 142k. The next thing I did was go to the auditors website to check out taxes and assesments. I discovered there is a tax certificate that was sold in 2006, for 2005 taxes in the amount of roughly $1,300.00. Not too big a deal I guess. Next was a visit to my county recorders website. There I discovered that she had bought the home for 124k, and taken a mortgage for 136k. That tells me she borrowed 12k for repairs. Anyhow, the bad news is that her mortgage is an ARM which is set to mature next month. Going on the 6.99%+LIBOR formula given in the mortgage, it will jump to 12.42% next month. Her current payment is $900/ month, which looked attractive. Her rents are $1500/month. However the payment will jump to $1432/month and the taxes and insurance are not escrowed.

The moral of the story is: Make sure you do your due diligence! This could have been a serious mistake if I did not.

[InvestorJoe]

Good for you, it looks like you side stepped a potential scam.

There are a number of things in your post that should make anyone suspicious.

This landlord has a 2 family home in a very nice suburban area. It needs some work. She is a self admitted pushover and her tennants get by with alot. She has some issues with the city, and is just ready to have someone else take over. Also there were things wrong with the house that were not disclosed to her by the previous owner. This sets up her offer to me.

She said she paid 150k for the house in 2002, and invested 40k in repairs. She also said the house can easily be sold for 190k when repairs are complete.
If it is only worth 190K and she already has 190K in it with work left to be completed then, according to her statement she is already in the hole.

Her offer was 150k on a land contract. Her reason for the land contract was that she is suing the former owner for non-disclosure and needs to keep her name on the title.
This is the one that really set off my BS detector. If she bought the property and the seller did not disclose as required by law and she suffered a loss because of that, she could go forward with the suit whether her name is still on the title or not.

I told her I would check into it and get back to her. I am fortunate here in Ohio as our county recorder, county auditor, and many other great sources are all accessible online.

The first thing I did was to look at comparable sales on a local realtor site. The home is only worth 142k. The next thing I did was go to the auditors website to check out taxes and assesments. I discovered there is a tax certificate that was sold in 2006, for 2005 taxes in the amount of roughly $1,300.00. Not too big a deal I guess. Next was a visit to my county recorders website. There I discovered that she had bought the home for 124k, and taken a mortgage for 136k. That tells me she borrowed 12k for repairs. Anyhow, the bad news is that her mortgage is an ARM which is set to mature next month. Going on the 6.99%+LIBOR formula given in the mortgage, it will jump to 12.42% next month. Her current payment is $900/ month, which looked attractive. Her rents are $1500/month. However the payment will jump to $1432/month and the taxes and insurance are not escrowed.

The moral of the story is: Make sure you do your due diligence! This could have been a serious mistake if I did not.
Yep, because it looks to my suspicious mind that what she was really trying to do was set it up to get payments from you and then stop making payments on her loan.

[Aldo]

Good piece of work

[Bernie (WV)]

I wouldn't have let her off the hook that easy.

I would have taken your research and threw it back in her face and asked her to explain how she paid $150k and made 40k in repairs when the county records show otherwise.

My satisfaction would have been seeing her squirm when she tried to explain while stuttering like Mel Tillis (I hope I didn't date myself) :rockon:

Great job!! You would make a Private Detective proud.

[mike_mn]

This situation definatly falls into the statement that -- 90% of the population basically stinks.

She is looking for a bigger sucker than herself...

[Debbie]

My satisfaction would have been seeing her squirm when she tried to explain while stuttering like Mel Tillis (I hope I didn't date myself) :rockon:

Seriously asking: who?

[mike_mn]

Mel Tillis is an moldy oldy singer. Country or Crooner maybe? He is known for his stuttering while he speaks, but his singing voice was always thought of a good apparently...not sure why I know this as I only remeber seeing those commercials selling his greatest hit tapes when I was like 10 yrs old on tv.

[Debbie]

Mel Tillis is an moldy oldy singer. Country or Crooner maybe? He is known for his stuttering while he speaks, but his singing voice was always thought of a good apparently...not sure why I know this as I only remeber seeing those commercials selling his greatest hit tapes when I was like 10 yrs old on tv.

Now I know why I didn't recognize Mel---I'm not a country music fan.
Thanx for the info!

Back on topic---great job Tommy!

[Jim FL]

My satisfaction would have been seeing her squirm when she tried to explain while stuttering like Mel Tillis (I hope I didn't date myself) :rockon:

Bernie,
Knowing who Mel Tillis is, dates us?
Gee, I don't FEEL that old.

I do remember him, both on television, usually on Carson, and of course, with Bert Reynolds, in the Smokey and the Bandit movies.........with his dog, that basset hound.

Does that say anything about my age?
Nope, just that I remember things well, from when I was a child. :-)
I am not old...........yet, unless you ask my wife and kids.

Take care,
Jim FL

[Debbie]

I do remember him, both on television, usually on Carson

Unfortunately, I remember Burt Reynolds.....when I in my early teens, I picked up a magazine (at the store) and flipped through it. I saw him naked. At that age, I very loudly said: "EWWWWWWWWWWWWW!".

Now, who's Carson?

[TommyOH]

rofl...hereeeeeeeeeeeeeees Johhny.....

[Debbie]

rofl...hereeeeeeeeeeeeeees Johhny.....

Oh man! Now I'm really densed! :SM003:

Oh well....I was never a fan of Johnny cuz I was sound asleep at that timeframe.

Sorry Tommy, we're off topic---let's get back onto his purpose of this thread (hehehe)

[TommyOH]

Anyhow...lol...there were alot of "red flags" in my post, but I wanted to point out about the ARM's because even though taking over payments might look good, it could change fast, and she never even mentioned it.

I believe she was going to collect some payments and let it foreclose as mentioned previously.

[Bernie (WV)]

I'm not a country music fan either, though I remember Mel Tillis as a kid. I thought it was amazing how it took him 5 minutes to spit out a sentence but he sang without a hitch.

Anywho, great job TommyOh!