The borrower purchased the property from a private seller for $260,00 and planned to renovate it for $40,000 with expected time of 90-120 days from purchase to completion of the renovation. He deliberated to sell the property for $425,000, generating a profit of $125,000.
After closing, the borrower hired a contractor who was not licensed. The contractor told the borrower that permits were not required. He did not inquire further. The borrower advanced 50% of the renovation amount ($20,000) to the contractor and $30,000 at closing, totaling $50,000.
The borrower was able to pay his first 3 payments on time. However, there was no request for renovation funds. When no permit was found, the servicing department scheduled an inspection and it was clear that no work has been done to the property. On the fourth month, the borrower did not make his payment. The loan was sent to our attorney who sent a Notice of Default (NOD). After three days, the borrower offered a Deed in Lieu (DIL) of Foreclosure.
This case study is a perfect example of a borrower not being prepared or properly capitalized.
To read the full case study, click the link here:
By Jeff Levin
Private Lender, The Official Magazine of AAPL
Fall 2022 (Q4), p.40-43
Published on October 4, 2022
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