Crushing Code Violations and Liens

When purchasing properties it is always best to order a Lien Search which costs about $125.00 to $150.00 as the search shows any open permits, liens for cutting grass, violations for exterior repairs, tax information on the property and water utility debts.  The Lien Search is separate from the Title Search and open permits and/or code violations that are not a lien yet on the home do not show up on just a Title Search.  You must have a Lien Search that will contact all parts of the City and have them advise if there are any code violations not yet filed as a lien.

I have been purchasing properties from individuals who have inherited a home from a family member, like a mother or a father.  Individuals who inherit homes that have no debt on it and there is only one heir, usually take longer to file an estate, go through the house for belongings, repair what is needed and then either rent it or sell it.  I have found if there are multiple heirs to the property, the probate to the estate, repairs to the home, are normally done within 6 to 9 months once they start the estate process. I believe this to be true because the heirs want their money now and don’t want to wait.  However when there is one heir to the estate, it takes them years to grieve and settle the estate.  During this time, they may not be able to keep up with the yard or exterior maintenance which then allows the City to have the lawn mowed and give them violations due to the condition of the property.  Unfortunately, since there is never an estate done right away and/or a change on public record of the new owner or their physical address, all notices are sent to the home and/or attached to the door of the home.  The mail is usually returned because the house has been tagged as vacant from the Mailman so the violation never gets to the heir unless they find it on the door.  If they do not go over to the home for months, they don’t ever receive the notice.

Recently my partner, Kristen, and I entered into a purchase agreement to buy a home from an heir.  Her mother had died in 2010 and she herself is 70 years old.  We ordered title work and a lien search only to find out that there was a lien on the property due to the condition of the pool, (green and mucky), torn screens on the enclosed patio and that one of the enclosures did not have a permit.  Many investors would take title to the home with the exception to this lien.  The investors will buy the house and they will request the City to reduce the lien.  Each City has their own way to handle reductions in Code Liens.  Prior to purchasing the property I would highly recommend that you check into how you can have the Code Lien reduced and removed from the title to the home as closing with the lien may mean you accept the home and the total amount of the lien is due and payable.  The City of Maitland informed me that if the home was sold to another person without first having the Seller apply for the reduction and receive it, that they would not negotiate with the new buyer/owner because they were well aware of the total amount due on the property and therefore no reduction would be granted.  Other cities that I have been involved with are willing to take a discount on their code lien violation for hard costs paid by the City to cure the violation.  The City of Sanford will allow a reduction; however, they do have a maximum amount that they have agreed to charge for a violation which is $2,500.00 no matter what the lien amount is owed.

The problem with Code Violations fines they will not stop accruing interest and fines until the problem has been resolved.  Fixing the screens and tting the pool in shape is an easy one.  However, the issue of a permit for an enclosure is another.  Many homes that I have purchased the Sellers have either purchased the property in its present condition like enclosing a garage without a permit and/or adding an enclosure on the house without a permit years and years ago.  So what do you do?  You then make a decision to either remove the structure and/or obtain a permit to confirm that was built up to code.  I  just fought with the City of St. Petersburg on a pre-existing garage that was built prior to 2001 which they had an application allowing us to apply for a permit on a pre-existing structure.   This is called a grandfather clause which allows us to obtain a permit and not have to bring it all the way up to 2017 code.  The application for a pre-existing structure informed us of everything needed to show that the house already had this done prior to purchase and/or prior to the year they have on their application.  This particular enclosure was put on prior to 1984 and prior to the Seller’s mother purchasing the property.  We looked for a survey but couldn’t find one and since the title company is no longer in business, we were unable to find out who did the survey as the survey would had reflected the enclosure on the drawing.  The City of Winter Springs does not have an application for a pre-existing structure.  So … the enclosure was torn off the home allowing the City to come back out to the home and see that everything is up to code based on their violations and they now can stop accessing the fines of $500.00 a day on the home.

I am presently dealing with the City of Winter Springs wherein I am assisting the Seller on the Petition to Reduce the Violation.  After weeks of waiting, I received a call from the City informing me that the lien of $176,500 for the above violations can be reduced to $17,650.00 which is 10% of the lien amount.  In addition, they said that the Seller could not sell the home to an investor and she has to sell the home to a homeowner who will be homesteading the property.   I was shocked to hear the amount that they agreed too and in addition, requiring technically a deed restriction on her new buyer.  I informed them that they are being unfair to a Seller with a First Violation and being unreasonable requiring her to sell a home to a homeowner due to the condition of the home.   Also based on the fact that she has already entered into a purchase agreement to sell the home and that the Buyer did all the repairs to the home prior to closing.  I informed them that they are discriminating against investors who are fixing up homes and increasing their taxes.   I requested a copy of their ordinances which informs you of their policy when it comes to negotiating liens.    I looked at the ordinance and right there in front of me it mentions that should an investor purchase the property with this lien on it, they can obtain a reduction on the lien but it will be based on the purchase price of the home and potential profit that they would receive from the sale of the home.  It also mentions in a paragraph about selling to a homeowner too which is what they are requiring.  I then prepared additional facts regarding the argument as to why the City should reduce the lien for more than $17,650.00 and not put a deed restriction on the home to sell to a homeowner.  I am now waiting to find out if my argument is acceptable.  If it is not, then a hearing can be held before the City for consideration.

I really feel bad for Sellers who are going through a hard time grieving the loss of their parent and unable to even walk into the house.  Cities should not take advantage of Sellers and make them pay an unreasonable fine amount.  It is the Sellers’ responsibility to give clear title to a Buyer and the funds come out of the Sellers side not the Buyers.  Yes, many of you would have said “ok” to the lien reduction only if they remove deed restrictions and close the transaction.  However, I believe that the amount is too high and I will fight a little harder with the Seller’s help to reduce it to a reasonable number, remove the deed restrictions and then will close. All investors should do the same and help protect the sellers.

I hope this article helps educate you on how dealing with the City for code violations and/or liens is very important.

Happy House Hunting!!!

Kimberlee Frank

www.ForeclosuresGoneWild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

www.SellFastRealty.com

Like me on www.facebook.com/foreclosuresgonewild

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When I am purchasing a property either for myself or with my student/partner, we determine which exit strategy is the best for both parties.  Knowing whether you want to wholesale a property for a small profit or rehab/retail it for a big profit is important.  Many investors start off with wholesaling the properties because they either don’t have a money lender or partner to help them rehab/retail the house and sell it for a bigger profit.  If this is you, then I believe you really should find a partner or money lender so you have more than one exit strategy.

When you purchase a short sale, some of the lenders will put a hold time for the new buyer requiring them to hold the property for 30, 60 or 90 days before they can resell the property for a profit.  In addition, they may tell you that you can only make a certain amount of money on the property if you sell it earlier than 90 days.   Holding doesn’t bother my student/partners or myself because we normally choose to rehab the property and retail it for a higher profit.

Let me tell you about a home that a student/partner and I purchased.  It was a short sale on a home in St. Petersburg, FL that was vacant for about 7 years.  The area was an up and coming neighborhood and the two houses directly across the street from the home sold for $195,000 and $240,000 which both are smaller, only 2 bedrooms, one car garages and no pool.  The area was known for termites.  We replaced all rotten wood, treated the home and provided the buyer with a 1 year termite bond.  So … after negotiating the deal for some time, we purchased the 3 Bedroom Home, 2 Bathroom, and Pool with approximately 1500 Square Feet for $69,900.00.  The garage was already converted but needed repairs. This home was built in 1950 and needed everything from Roof, Electrical, Windows, Air Conditioning, and Pool repair.   The repair budget when we started was about $65,000 and we ended up around $75,000.  The short sale lender placed a 90 day hold period on the Deed so the Buyer could not sell it to a mortgage buyer for a period of 91 days.  Since this was a huge rehab with a large profit we didn’t mind fixing up the home.

So what did we do to the home to get it move in ready?  We were trying to keep the costs down and were going to keep the existing roof that had about 3 to 5 years left but decided to spend the additional $8,000 to replace the roof.  We received multiple quotes from electricians ranging from $3,700 to $40,000 to upgrade the electrical box and replace all the switches and plugs.  We ended up paying around $3,200 for the electrical.  The air conditioning unit needed to be replaced so we contacted an a/c contractor associated with the REIAs and got a great deal of $5,100 which included 5 new runs, new box, new air handler and new compressor.  If we didn’t have to add the additional runs and new box, we could have gotten it for only $3,500.  We had to get hurricane glass windows which were almost double the amount of the windows of non-hurricane glass windows!  We used Home Depot which was American Craftsman and the cost was 2 times cheaper than the quote we received from ABC Supply.  We painted the vinyl siding of the house which painting any house gives a great curb appeal.  We had to replace almost all the flooring in the house except we refinished about 600 square feet of wood flooring for $2,600 in the living room, dining room, hallway and 2 bedrooms.  They were beautiful.  It would have been cheaper if we didn’t want them to replace the bad wood in some of the rooms and two closet floors.  We tiled the family room, 2 bathrooms, kitchen, 3rd bedroom, hallway, utility room and office area.   We needed all new doors, hinges, knobs, some baseboards, light fixtures, ceiling fans, kitchen cabinets, granite counter tops, bathroom cabinets, new shower tile, new tub and surround, all new faucets, toilets, mirrors and more.

The outside wasn’t in too bad of shape but needed some TLC.  The wooden fence around the backyard needed minor repair, we only replaced the bad pieces and power washed the fence.  The backyard we covered completely with red mulch because there was no grass.  The front yard, we just raked and put red mulch and plants around the flower bed area.  The pool was another story.  We had it acid and power washed and it still looked yellowish in spots based on the white body color.  We received quotes from $3,900 to $9,800 to just refinish the body.  My partner/student’s son works for a company that purchases real estate owned properties in bulk and he told us that they were just painting the inside body of the pool.  We checked into purchasing the correct paint for the pool and with material and labor it costs us $1,300 to refinish the pool.  The paint life line for the pool was for 5 to 7 years.

When we first started rehabbing the property the best comparable we had was a house that sold for $220,000.  After rehabbing the property for 2 months, the values of the properties increased and we are able to list the house for sale for $264,900.00.  We could have spent more money on the property but as an investor, you must understand that you are not going to live in the home and this is a business.  So safe something for the new homeowner to do!  When we sell this property, the profit to be split will be between $70,000 and $90,000 depending on if we receive our list price and/or if we have to contribute to the buyer.

If we were going to wholesale this property we would have wholesaled it to a seasoned investor with a profit of $30,000.00.  Any rehab over $30,000 is very hard for a new investor and we figured without the roof that rehab cost was above $65,000.  So, I am asking you was it worth the hold time and extra $40,000 to $60,000 profit to buy, fix and resell?

Based on this article, I hope I have persuaded you to start going after pre-foreclosures and retailing for bigger profits.  You can also find pictures of the house on my facebook account if you would like to see the finished product.

Happy House Hunting!!!

Kimberlee Frank

www.ForeclosuresGoneWild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

www.SellFastRealty.com

Like me on www.facebook.com/foreclosuresgonewild

Like me on www.facebook.com/sellfastrealty

 

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Less Competition With Short Sales

Many Investors avoid working with Sellers in pre-foreclosure or making offers on short sales. They all say the same thing, it takes too long! I strongly disagree with this decision. I have been working on short sales for years now and even though it does take a few months, it has been the best deal spread in profit that I have ever received on any type of deal. Let me tell you why you should consider working with Sellers in pre-foreclosure and making offers on short sales.
The Pre-foreclosure market will continue to flourish due to the adjustable mortgages, loan modifications and reverse mortgages that they have provide to many Sellers. A lot of the Sellers in foreclosure will have second mortgages that can be discounted to pennies on the dollar. Sellers that are doing a HAFA short sale program requires the second lender to take a maximum of $8,500.00 on their second mortgage. The government bailed out the mortgages companies some time ago and also required them to assist Sellers who were in foreclosure. So, you would think that the lenders would contact Sellers who are attempting a loan modification and agree to reduce their principal to help them out so that their payment would be less. That is not the case. What they have been doing is forgiving the second mortgage on the property and getting paid full value or more on their loans. How does this help the Sellers? Well if the Sellers are the lucky individuals who were paying on time they were NOT the individuals picked to have their second mortgage paid off. The banks chose the Sellers who were in foreclosure. This way the second lender received full value or more for the loan versus nothing if the house went to foreclosure or pennies on the dollar if it was a short sale. Knowing this information as an investor will help you cash in big on your short sales.

Recently a partner and I started working with a Seller who needed the house probated and was in foreclosure. We paid for the attorneys to probate and for foreclosure defense during this time based on future rents. While my office was negotiating the short sale, we ordered title work and found out even though the second mortgage company was included in the foreclosure action, that their lien was paid off – discharged. After a couple of months of probating the property and transferring the ownership to our Seller as the rightful heir, instead of a short sale needed on this property, it was a full payoff. This has happened to me several times now wherein the second mortgage is discharged and there is enough equity in the home and profit for the investor to just payoff the loan.

During the time the house was probated, the Seller agreed to allow the property to be rented and use that money to pay towards the attorney fees of approximately $4,300.00 and repairs. The house wasn’t in bad shape but needed approximately $3,300.00 worth of work and materials to make it “rent ready”. Because we did not fix the house up completely, we asked for $300.00 less on rent making this property a very desirable rental to tenants. The lease that was signed was a month to month and they were informed that the house was in foreclosure, needed to be probated and once that was completed, they would have to move out as the house would be fixed up and sold. The tenants agreed to the terms and conditions and moved into the house and paid $900.00 a month for a total of $5,400.00 while this process was going on.

The property went through probate and the Seller was now the rightful heir and could sell the house once we settled the short sale. The first mortgage company was still pushing the foreclosure and a trial date was set for June. Like I said above, we found out that the second mortgage was paid off and that it would be a full payoff to the first. Because the trial was coming up, we decided to purchase the property as soon as possible to avoid additional attorney fees on the first mortgage. Now that we have it, we have two options. Sell it “as is” to a landlord with or without a tenant, remove the tenant, or rehab it and sell to an end buyer. Purchase price $130,000 with $30,000 in repairs with a value of $210,000. Either way, we shall profit a minimum of $30,000.00. The time frame on this property was 6 months due to the probate. A total of 40 hours invested of my time which equals $750.00 an hour. Are you thinking differently now???

Based on this article, I hope I have persuaded you to start going after pre-foreclosures with less competition and better profit on your deals.
Happy House Hunting!!!
Kimberlee Frank

www.ForeclosuresGoneWild.com

www.RealEstateJunkie.com

www.ShortSaleNegotiating.com

www.SellFastRealty.com

Like me on www.facebook.com/foreclosuresgonewild

Like me on www.facebook.com/sellfastr

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