How do underwriters evaluate loans to LLCs or land trusts? By effectively guiding a loan from application through underwriting to a successful closing and helping mortgage lenders comply with regulations.
Today, Clint Coons of Anderson Business Advisors talks to Andrew Duane, Associate Attorney at Polunsky Beitel Green, LLP. Andrew’s focus on lender support includes file underwriting, complex loan products, and post-closing matters.
Andrew is Due Diligence Certified (DDC) by the International Due Diligence Organization and a professional member of the State Bar of Texas. Previously, he worked with the firm’s document review and preparation team while attending law school.
- What if a client or investor wants to refinance a transaction and pull property out of a land trust? Find a lender willing to refinance the property in the name of the trust.
- Why create a living trust? You don't want to tell the lender to move it out of the trust and have another effect on their asset protection portfolio or other kinds of disastrous effects.
- What was the solution? Convert the land trust into a living trust because all trusts can be amended and restated.
- What is Andrew’s role? He is an attorney that represents lenders. He doesn’t represent individual borrowers, but banks and lenders closing home loans in the State of Texas.
- Why does Andrew perform underwriting and review guidelines? What are lenders like Fannie Mae and Freddie Mac experiencing on origination? Andrew backs up, not just the closing process, but that underwriting process.
- Why is Andrew’s firm the backstop for lenders? There are other attorneys that do this. When the underwriter gets a document such as a land trust or limited liability company (LLC), they don't understand it and want to make sure it is legitimate and can be used.
- When the loan originator/lender can't sell it, they don't want to hold it. They don’t deal with that land trust? When investors/clients talk to their loan officers, Fannie Mae requires direct negotiation for the land trust. Freddie Mac doesn't. Freddie buys the land trust where they are statutorily authorized and the individual beneficiary is the borrower.
- If the property was in an LLC and it's a residential loan, would it get across the goal line? It’s doubtful. Fannie and Freddie do not allow for LLCs. In their general borrower eligibility section, they like a natural person.Then, they make exceptions. An LLC for people selling to Fannie and Freddie isn’t possible because it’s a residential mortgage.
- If you put it into a land trust and the land trust is owned by the LLC, you can convert the land trust to a living trust, get the loan, and it doesn’t state your name? If you're thinking about your structures and you plan to refinance the property, if you don't want it in your name, consider using a land trust held by an LLC for your asset protection.
- If you buy or close on new investment property, are there any traps to be aware of before going to the lender? Get your documentation ready to go. If it's closing in a trust, check with the attorney that did it. If it's been a few years, it might be time to restate and update it. It makes the process smoother all around for borrowers and lenders.
- What’s FHA’s anti-flipping provision? It’s in the HUD handbook. FHA is concerned that houses are going to get flipped for an artificial value and FHA will have to insure all of them. Guidelines and recommendations include waiting 180 days from the time that the deed is delivered, when they acquire legal ownership, to go under contract.
- If you transfer property to yourself, deeded in the corporation, when you list it for sale, and a first-time homebuyer will not qualify because of that transfer? FHA wants the seller on record to be the person making the sale.
- When it comes to putting deals together if you're a real estate investor, do you need an authorized signer? When selling a property that might be held in an LLC, or you're with a private bank or wealth company that could close in an LLC, get an authorized signer.