Live with Principle Inspections, Patten Law Firm and Legacy Mutual Mortgage!

By 2017-12-11Radio Show

RPRE 249 | Principal Inspections

Principle Inspections give a lot of perks for their investors because they understand well the five major systems of a home, the roof, foundation, HVAC, the electrical and the plumbing. Jeremy shares the differences that they see from a flooded versus and non-flooded house. Ashley Patten of Patten Law Firm answers the scariest title question and explains executory contracts. He shares his insights on why most people are conflicted to sell or finance and how filing bankruptcy can stop the foreclosure process. The first thing you need to remember about rebuttals is that you are calling the appraiser, and Legacy Mutual Mortgage is the middleman for all of this.

Listen to podcast here:

 

Live with Principle Inspections, Patten Law Firm and Legacy Mutual Mortgage!

Our guest for this episode is Jeremy. He’s with Principle inspections. You’ve been doing house inspections for how long now?

Three years.

You had a construction background before that or no, not so much?

I had a brother-in-law who was a contractor. When I was in high school and growing up, I helped him quite a bit, so yes and no.

You know how to swing a hammer? You know how to turn the drill?

I know how to swing a hammer. I did commercial roofing for a year, so I was on a lot of job sites.

Now you work only with investors and you do inspections. Tell me a little bit about your pricing structure.

Our pricing is $350 for any home up to 2,500 square feet. It’s really $375 and then every investor gets a $25 discount. We also do what I call consultations, which are a miniature inspection of the five major systems of a home: roof, foundation, HVAC, electrical, and plumbing. That’s $125. It’s much more affordable and a lot of people do those on off-market deals and before they go into contract because I have to get that basic information very quickly.

RPRE 249 | Principal Inspections

Principal Inspections: We do consultations, which are a miniature inspection of the five major systems of a home: roof, foundation, HVAC, electrical, and plumbing.

Great deals move fast, but I also recognize if I’m a brand new investor and I realized that I don’t know construction numbers or I don’t know the big gotchas. Those are the big gotchas. I mean if you can account for those big five, no one’s ever lost money because they’re like, “I forgot to include paint on the estimate.” It’s like, “The air conditioning system looked good to me. I didn’t realize it wasn’t working right.” Sometimes an air conditioning system doesn’t look that bad, but it still might be 12 or 14 years old, which is surprising sometimes. You can’t always judge its age by just the way it looks. That’s 125. How quickly can you typically get out for something like that?

You’ll get the email with that information within 24 hours.

I went and looked at a property up in Spring yesterday and one of the things that concerned me is that it’s a homeowner that’s kicking the tires for selling the house. They actually lived in the house. They were staying in the house until the water actually started entering the house and then they evacuated out, found shelter, all of that. They’re starting the process of rebuilding on their own. They’ve hired a contractor. It’s not been going swimmingly. They’ve given the guy some money down, so he was supposed to be hitting certain benchmarks. Thanksgiving came along and there was supposed to be texturing. They’ve put up the sheetrock already. I know how I would do things before the sheetrock goes up, and I’m like, “I don’t know that I trust A) The seller and then B) This. What concerns do you have in those situations, with a house that is flooded? A house that is flooded and for investors that are going out there and buying a house that’s already been rerocked. In other words, baseboards aren’t in but it’s been rerocked and has been retextured, but it’s not been painted. The rock and texture looks good, but I noticed it’s primarily brick on the outside. I’m wondering, “What did they use for insulation?”

We can use infrared to find out about the insulation. That’s not going to be too difficult. The bigger question is how well was it dried out? That’s definitely my big concern. I was at a house. I was the buyer, they were the seller. They have had SERVPRO come out. A lot of the folks that are not investors, they are having the good companies come out and take care of that, the reputable companies. That’s obviously the best case scenario. If there’s no record of what’s going on there, it’s really difficult to know. We can use moisture meters, we can use infrared, and find out some things, but some of it is time will tell, to be perfectly honest.

That was one of the things that made me nervous. The other thing was here we are, we’re in a house that probably, pre-flood, was maybe worth $235. I asked her, “What do you think your house was worth pre-flood?” She goes, “I think $235.” I’m like, “I think you’re in the ballpark. What do you think it is after flood?” She goes, “The same.” I’m like, “You don’t think there’s any economic loss from your house having four foot of water?” She goes, “Once it’s rebuilt, it will be like a brand new house.” I’m like, “ Sure.” It’s really difficult. What are the things that you’re looking for that’s different on a flooded house versus a non-flooded house? Are there some things that you can educate new investors what to look for?

Most of the flooded houses that we’re doing right now still don’t have drywall. Very few of them have had any type of rebuilding done. When we’re going to those, the things that we look for are where was the waterline, for one. Did they take out enough drywall? What components got wet? Did the outlets get wet? Did the switches get wet? Did the electrical panel get wet? We try to give a very detailed report as far as what needs to be replaced due to that. We’re using moisture meters, checking the moisture readings. None of us are certified mold inspectors. I do have to say that. If we notice what is obviously mold, we can put it in the report as “There are signs of microbial growth.” We can do those types of things, but we’re not legally allowed to say the word “mold” in the report. We’re checking it for moisture. That’s the biggest thing. Is there still moisture in this house and is it adversarial.

What percentage of the houses that you’re walking in are you still finding moisture in, where the people haven’t controlled the moisture?

Surprisingly high.

Is it more than 50%?

It’s less than that.

Would you say, “I’m expecting it to be 20% and it’s 30%?”

It’s probably 25% of flooded houses still have high moisture.

Those that have high moisture, do they not have any dehumidifiers in the building at all or they just have inadequate?

It’s mostly ones that are like in Bear Creek where the whole neighborhood is vacant. They’ve closed up the house. There’s no power on. No dehumidifiers, no fans, no movement, and they closed it up. There’re so many houses in there that people need to realize to just open the windows, open doors. It’s empty. No one’s going to do anything anyway.

You’re not a mom-and-pop business. It’s not just you that goes out and does inspections. You have other folks so you have enough capacity. Could people get an inspection tomorrow if they call today?

Unfortunately, not right now. We are surprisingly busy this week. Usually you would think this time of year, we’re really slow. We’re not. If you need consultations, we can still get those done tomorrow. Consultations are very quick. Inspections usually have about 24 to 48-hour turn time.

If we need inspection done right now, do you do inspections on the weekends also or do you take weekends off?

We do. Not Sundays though. We work on Saturdays.

RPRE 249 | Principal Inspections

Principal Inspections: We focus on getting you the pertinent information with no extra fluff.

When I had Fast Track, being a contractor, at some point in time you have to set boundaries. Otherwise, there’s 24 hours a day and there’s seven days in a week, and customers will let you work all of them if you want to.

If you want to, they will let you.

I’ve found that. I had to take Sundays off as well.

We’ll work Saturdays, absolutely.

What are some of the surprising things that you’re finding that you wouldn’t have expected to as a result of the flood? Anything that caught you by surprise?

Not so much, honestly. A house is a house.

The thing that caught me by surprise is how few of the air conditioning condenser systems can be salvaged. I thought those would have just been trashed. We just replaced every single one of them. There are really only a couple of components that if it’s not working well, you replace those few components and you’ve got a brand new system really. It is not designed to have three or four foot of water in it. However, it is designed to get wet all the time, just not to be submerged.

My house in Bear Creek had four feet of water in it for nine days and the AC unit is working fine.

Did you do anything to dry it up?

I replaced the capacitor.

There’s been a lot of people that as soon as the air conditioning system didn’t work, they called out an air conditioning company and they said, “This needs to be replaced,” and they got a new brand one. I’m like, “Let me know the name of that company because I don’t ever want to use them.” That’s where you got to be careful. If you’re a brand new investor or an experienced investor and you want to have a property looked at by someone that’s a trained professional, especially the five major systems, when you’re not doing a consultation where you’re looking at the five basic systems, it’s my understanding that inspectors are inspecting on seventeen systems. Is that right?

Yes. It’s going to be a twenty-page report that’s very detailed. We really focus on getting you the pertinent information with no extra fluff. It’s going to be detailed, it’s going to be good. There’s not a lot of mumbo jumbo in there.

The other thing that I love about what you all do is you actually have ZIPLEVELs.

All of us. All my inspectors have one.

Prior to you, I don’t know of another inspector that carried ZIPLEVELs.

For people that don’t know what a ZIPLEVEL is, it’s an electronic level that measures foundations. We use those. It’s what all the foundation companies use as well.

In fact even, with foundation check, that’s what they use too. It’s PrincipleInspections.com, (832) 684 5516. Give them a call and thank you.

If you’ve got any title questions, if you’ve got a difficult title issue, I’ve got the man himself, the man, the myth, the legend, Mr. Ashley Patten of Patten Law Firm. If you want to ask me any of those questions, you can go to Facebook.com/RightPathRealEstate or you can call us at (713) 785 1817. Mary Anne, Brent, what’s going on? You want to talk about executory contracts. Can you explain that?

The executory contract is anytime you’d transfer the property or you’re set to transfer the property more than 180 days or more than 179 days from the date you execute the contract. For instance, if a bill of sale or contract for deed would meet that qualification, you could have a lease with option. If somebody can’t qualify for financing, you agree to lease them the property and you give them an option to purchase. That option makes an executory contract. What’s wrong with the executory contract is in 2001, they were legislatively made really hard to do. You’ve got to disclose everything. Failure to do so, including annual reporting, deem it to be deceptive trade practices. You could lose the principal and interest including every rent pay.

RPRE 249 | Principal Inspections

Principal Inspections: With executory contracts, you’ve got to disclose everything. Failure to do so, including annual reporting, deem it to be deceptive trade practices.

Anytime you bring in DTPA, normally it’s treble damages, right?

Normally, it’s treble damages.

What you’re talking about is this purchase price is $180,000, assuming that you’re liable, and the court and the jury and all that decide that you really have been deceptive, it could be $540,000.

Yeah, it can be that, plus there’s a $250 a day penalty. I’m actually going to Austin to litigate a case where my client is a realtor back in 2005. She did a good deed. A Hispanic couple couldn’t qualify because they weren’t natural citizens, weren’t American citizens. She bought the property, sold it back to them.

On an owner-financed, right?

It wasn’t owner-financed. It was a lease purchase. They came in, they paid the down payment, and then they were making payments until 2011. They leave the country, they stopped making payments, and they wanted their kids to take over. The kids couldn’t afford the $1,500 a month payments, so they were paying $1,100 a month. Fast forward 2016, she gets a demand letter for about $980,000 , based on $250 a day penalty because she never supplied the annual accounting, she never supplied the survey, and the house was not free and clear. My client’s now in her 70s so if she loses this, she’s got to file bankruptcy. The law is all against her because executory contract is a law.

You’re representing her?

I’m representing her.

You feel it’s a tough case to win?

It’s a tough case to win. What I have going for us is the NACA program. The kids actually qualify for a home under NACA, but you can’t own any other property. How is she suing my client for $900,000 in ownership of the property? If the case is won, my client’s going to have a mortgage and they’re going to have the house, which means that basically my client will be stuck another twelve years paying the mortgage and have to supply them a free and clear house. It’s just a really bad deal. I would encourage people that if you want to do owner financing, keep it the traditional way of securing a vendor’s lien, transfer the property immediately.

Transfer the deed over. What you’re saying is instead of having a deed of trust, like a traditional mortgage, she held onto the deed. Is there a correct way to do it? In other words, is it legal to do it even if it’s more challenging? Are there any advantages to doing it that way? It sounds like you’re saying there’s not.

Here’s the advantage. You could do it if you dot every I, cross every T.

You better set it up like a business. The advantage is if the people stopped paying, in theory, you never have to foreclose on them. The foreclosure takes the deed away from them and gives it back to you. If you already had the deed in your possession from the get-go, then you don’t have to go through foreclosure to get the deed back, right?

That’s correct. With the traditionally, “Get out of my house. You have three days.” The problem with that is one more thing they did legislatively in Texas is if you pay 40% of the price or four years of payments, then you have to go through the foreclosure process regardless.

Four years of making on-time payments, and then you really have to go through the foreclosure process, as if it’s a traditional mortgage at that point.

The equity automatically transfers by law. You’re not getting anything because if timed right, somebody who’s two payments late, you could have the property foreclosed. All you have to do is accelerate the note. They miss a payment, you give a 30-day acceleration. At the end of that 30‑day acceleration, you turn around and give a 21-day notice. If timed right, by the first Tuesday of the month, you can have the property foreclosed after missing two payments. It’s not that hard of a deal. Most trustees will charge about $1,500, so just build that into the price in case you have to foreclose.

You said that anytime that you contract a property where you’re going to sell it beyond 179 days, right?

Or transfer title beyond 179 days.

Let’s say I’m just contracting a property with a TREC 1-4, but I’m not going to close on the property for ten months. Does it even fall into that situation?

It could. It depends.

I’ll tell you the situation that we had one time. There was a house over in Alief. It was a three-bedroom, two-bath, one-car garage house that this guy that was living in North Carolina had bought. His family was living in it like 25 years ago. His family’s living in there then he got transferred to North Carolina while his son stayed here in Houston. He was going to law school and then met another student in law school, they got married, living in the house, then they graduate law school, and they’re like, “We don’t want to live here. Now that we’re both attorneys, we got good attorney jobs, we got a good income now, we want to go build a custom-made home to fit our new lawyer degrees.” He wants to sell the house but he says, “ I don’t mind agreeing to the price and all that right now, but I don’t want to force my kids out. They need a place to live.” They needed to go find the subdivision they want to live in, identify the builder, let the builder build the house, all that. We agreed to a price that we contracted, but we set a closing date. We said, “Let’s set it ten months out.” Sure enough, we closed about nine and a half months out there. We had already agreed to the prize and we stayed in contact over the time and things like that. Should I keep in the back of my mind, “I might be running into a difficult situation.” Does it apply in that situation?

In that situation, no, it wouldn’t apply because basically you’re just saying, “We’re going to have a contract.” You haven’t entered into the contract. You just said, “We’re going to agree to contract.” You got a purchase agreement. A situation like that, you’re okay. Normally, you run afoul when you have a lease. For instance, if someone’s going to live there, that’s when you run afoul of it, but not if you have a contract that’s not going to close, for instance.

Why would an investor want to do a lease option versus do an owner finance sale?

They’re afraid of the eviction process. That’s the only advantage you get. Obviously, with the lease option, you’re getting a tenant who actually cares about the property because they’re on it.

The number one concern that most people have is, “If I seller finance it and I’m trying to evict them through foreclosure, then they file bankruptcy.” It seems like that that’s what happens oftentimes and that stops the foreclosure process.

It does until you lift the property or get a stay of the property from the foreclosure, which depending on the foreclosure court, it’s going put you back maybe two or three months. I had a couple properties I’ve foreclosed on which they did that. Before the bankruptcy code was changed in 2013, in this particular case, I was foreclosing a property, husband filed bankruptcy on the day of foreclosure, had to rescind the foreclosure, and then got the property lifted, took about two to three months, and then the wife files bankruptcy, then the husband files bankruptcy, and then the wife.

Each one can go three times in a year, right?

Back in the old law, yeah. The new law, they both have to go and it’s one time.

They can only do it one time in a year?

Yeah. It’s not that critical. I think it’s one time in maybe a two or three-year period, and it’s both the husband and wife.

One can’t file it without the other one filing? It’s all for one and one for all.

RPRE 249 | Principal Inspections

Principal Inspections: Secure property is exempt from bankruptcy.

They both are doing it. They changed that so it’s more doable because obviously it’s your property. Secure property is exempt from bankruptcy. You can’t discharge a secure property. At the end of the day, what happens is it becomes more of a headache and more of a cost factor, but a lot of people today run their credit and they’re not willing to risk that.

You don’t normally go to court, right? You’re not normally a litigator.

I take only about two cases a year and those are cases which are involved in real estate. I always take them on pro bono. For this particular case, I’m not charging anything for this.

Give Patten Law Firm a call. Their number is 713-621-5808 or PLFPC.com. I also want to give people the Texas American Title as well, a great title company. It’s who we use for all of our Houston House Buyers deals. Thanks for coming.

We’ve got Jennifer Hernandez from Legacy Mutual Mortgage. How the heck are you?

I’m good.

I was in a house talking to a seller up in Spring and they got about four foot of water in it. I said, “What do you think the house was worth before the flood? She goes, “I think it was about $235.” I said, “Now that it’s flooded, what do you think your house is going to be worth after the flood, fully fixed up?” She goes, “The same.” I said “How do you justify that?” She goes, “It’ll be like a brand new house. It wasn’t a brand new house before and everything will be all brand new. It will have new flooring, a new paint, a new texture, a new sheetrock, and new appliances, and new everything. It’ll be like a brand new house, so it’ll be worth the same.”

I haven’t really seen. I will have your opinion after this of what you guys have seen, but on the MLS market, we’re doing after fixed-up stuff. The appraisers are just going by what the comps are. They’re not using the off-market sales of a rock bottom property lot value that you guys did, that doesn’t hit the MLS, so it’s never really incorporated into those values. Whatever is showing on the MLS, that’s what appraisers are using. Now, they may comment as to is the home flooded, the home did not flood. I want to clarify for any home owners or realtors out there, I have had some realtors that have said, “This house should have an uptick in value because it didn’t flood.” There’s no uptick in value for that. It’s just they go off the comp and that’s it. It’s business as usual and things are happening just as they’ve always happened. Where we’re going to get into trouble as if the house hit the market on the MLS, on the open market, and then they start to get sold that way in that condition, that’s where we will have to see. That’s were some may comment. It’s almost like you can’t use the foreclosure in an appraised value because it’s just not a fair assessment. Using a flooded house that’s not fixed up is the same thing. That’s what we’re seeing. I don’t know if you have any comments on what you guys are seeing or hearing from some of your realtor friends.

What’s interesting is that they don’t really know. This house was about a 2,600 square foot house. A house probably ten or twelve doors down on the same street, same side of the street, everything like that, did not flood. It had been listed at like $230, and then in October post-flood, they dropped the price down to $259, even a non-flooded house was dropping the price.

RPRE 249 | Principal Inspections

Principal Inspections: The main thing I want people to understand is that when you’re rebutting, you’re calling the appraiser’s baby ugly.

Just probably sell it and get out of the neighborhood, don’t you think?

The question’s going to be, “Do people want to live in a neighborhood that still has a bunch of flooded houses in it?” Jason’s been making the comment on the radio recently and also in events where we’ve been talking and things like that, that we really believe that in neighborhoods that had been completely decimated where there’s been 50% or so of the houses had been flooded, I do know that the realtors that have been saying, “the 50% that didn’t flood, they should go up in value,” but really, they’re going to drop in value because they’re going to be pulled down by the entire neighborhood.

That leads me to what I wanted to mention to you today and talk a little bit about the rebuttal process because it is linked to that.

Tell me about rebuttals.

The main thing I want people to understand is that when you’re rebutting, number one, you’re calling the appraiser’s baby ugly. That’s the first thing to remember. When you’re shooting back this reply to us, we’re the middleman, we just tell realtors, “Here’s the appraisal report. Give us information that wasn’t used, so give us tactical, tangible information. Please leave your opinions out of it.”

It’s a little bit like going before the Supreme Court and saying, “We just got to discuss the facts. These are the facts based on this comp, based on that comp.” You’re going to actually be teaching a workshop about how to do a proper rebuttal. Can I go to your website?

Yeah. That’s Jennifer.LegacyMutual.com. One good thing about Legacy and how we are different than some lenders is not every lender is favorable to rebuttal. Some of them say, “Here’s the value. It’s our way or the highway. We don’t care what you think. No, you cannot challenge our appraisal.” Period, end of story. We really just want to make sure correct information is passing through to each party, so we act as the middle man between the appraiser and the realtor, seller, whoever, to keep everything at arm’s length. We get it in writing, we pass it to the appraiser. It takes normally 48 hours for us to get a response on the long side. Then the buyer and seller can either move forward or not or renegotiate or whatever they’re going to do. Just to let the consumers know that we are favorable to that. Just make sure everyone’s communicating and the right info is switching hands.

Have you seen any houses yet that have been flooded, remodeled, and now are trying to be sold at the retail level where you’re representing the buyer on a mortgage on a post-flooded?

No, we have not seen one yet. If you think of the timeline, it happened in late September. In October, everyone was just running crazy. Everyone was like, “I’m in the cloud. I have no idea. I’m so stressed out.” People realized like, “ I’m in a situation. I either need to sell it wholesale to someone like Tom, or I need to sell it to whoever.,” November, which is really just a month, the last 30 days, is when things have been switching hands. Then if you add the rehab in there, three or four weeks, things are going to start hitting the market right in the New Year. The first quarter is when we’re going to really know what’s happening with these values because people are just now getting their insurance checks.

We are still hearing that a lot of people, they know what the amount is but they haven’t gotten the check yet. I’ve seen that there’s been a ton of activity among buy and hold investors. They’re buying but not planning on selling those, just buying them to rehab them. That’s the bulk, of the two areas I’ve seen the most of the construction taking place are buy and hold investors and then also guys that they’re remodeling for their own homes that are planning on staying in there. I haven’t seen a ton of activity among flippers yet. I love that you are going to do an entire workshop because that’s way better than what I’ve been teaching. When I don’t like the appraiser’s number, I just go, “Na-ah,” and they don’t seem to like that too much. 

There’s a way to do it and there’s a successful way to do it. It’s just to set guys up for success to make sure that your voices are heard and your analysis. Appraisers aren’t perfect, so they need sometimes information from you that they may not be privy to.

They’re not perfect, but I will say this, most of them are professionals. That’s what they do every day and so they take pride in what it is that they’re doing. As long as they don’t have a bias going in. I used to know an investor friendly appraiser that was so ultra-conservative, it killed a lot of deals. They were trying to worry about what the value would be two or three years down the road. They wanted to be low enough to where somebody could at least sell the property for what they were appraising it at two or three years down the road. I’m like, “That’s shouldn’t be your paradigm.” It’s Jennifer.LegacyMutual.com, 713-579-3600, one of the best retail friendly mortgage companies in the city. Thanks for being on the show, Jennifer.

You’re welcome, Tom.

Important Links: