A recent Trulia analysis of U.S. listings shows that 3.9 percent of homes that moved from for-sale to pending moved back to for-sale again, nearly double the rate in 2015. What is the number one reason sales typically fall out? Financing is the number one reason! Are there any options to help borrowers that “fall out” from traditional sources? Are traditional lenders the only option?
Such “failed sales” increased in 96 of the 100 biggest U.S. metros, with big swings in areas large and small, rich and poor. That includes Los Angeles and Charleston, S.C., as well as San Jose and Akron, Ohio. In markets like Denver almost one fifth of the recent pending sales have fallen through. I’m seeing the number of failed sales increase on both the residential and commercial side. How do I know?
Since mid last year our phones have been ringing off the hook from bankers, realtors, mortgage brokers, and individuals asking for help. Why do they call Fairview? At Fairview, we specialize in deals that don’t quite fit the traditional lending models. We are a true portfolio lender (not a bank) and therefore have flexibility to close transactions that traditional sources cannot. We can close loans that would traditionally “fall out” if there were no alternatives to traditional financing.
Below are some common examples of loan fall out that Fairview can help with
- Borrower doesn’t show enough income: In many cases the borrower might not claim all their income or show enough income on their taxes for whatever reason. For example, many traditional lenders might not count all their income, for example if they have a property they use Airbnb or other nightly rental service. Traditional lenders feel that the income is too eratic and therefore discount the amount of income.
- Too many expenses: For many small business owners or self-employed, their goal is to take the maximum expenses to minimize their tax liability. Some of these could be “paper” expenses like depreciation that don’t actually impact their cash flow. Traditional lenders don’t care, many just look at the bottom line and plug into a formula to see if the numbers work.
- No taxes/current taxes: For whatever reasons many borrowers might have tax extensions or filed late. Without current taxes, many traditional lenders are not able to assist
- Credit Impairment/Divorce: In many cases a borrower’s credit has been impacted by a major event, for example divorce (divorce is one of the leading causes of credit issues due to spousal issues, etc…) or other life altering event. Many times it is a single even that triggers a credit issue that “haunts” the borrower for years to come.
- Property not performing: If a borrower is buying or refinancing a property that doesn’t perform to its potential many conventional lenders cannot assist. This could be due to tenant transition, repositioning of a property, or owner occupancy of a commercial property.
- Require a quick closing: Traditional lending takes time now with the various requirements on both commercial and residential loans. If something has to be done quickly traditional financing is not an option.
- Excellent equity but complex story: If there is a story and lots of moving parts, this could be difficult for traditional banks to accommodate. Most conventional lenders are thinking within their “box” and either it fits or doesn’t.
- Inherited property: A borrower might inherit a property and need funds to rehab, reposition, etc… even with substantial equity a bank likely is unable to assist if the borrower can’t show the cash flow, tax returns, etc… to carry the property for an extended period of time.
These are just a few of the fallouts Fairview can assist on. We are a small privately funded portfolio lender that is big enough to fund and hold all our loans, but just the right size to take the time to understand the intricacies of each transaction in order to structure the right solution for your clients. We are creative in our approach to lending and have over a hundred years combined lending experience to help you and your clients achieve their goals.
- Bloomberg News: Suddenly home sale agreements are falling apart across the US
- Time Magazine: 5 reasons sales fall through
- Denver Post: Frustration rises as a fifth of all sales fall through
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).