Common Challenges

Current Typical Client Challenges and Their Solutions. (This section is Realtor-oriented, but may be useful to other clients in seeing how our services may apply or be useful in their situations.)

  1. (Actual recent case) Unemployed attorney just moved to Dallas after losing job in Michigan, looking for work. Left her beautiful but modest price home right at Lake Michigan rented to a good paying tenant family, who loves the house.  Listing ran four months, Realtor couldn’t qualify tenant for a loan to buy, listing has expired, slow market anyway in economically depressed Michigan.  Small remaining equity equal to commission plus small extra proceeds; existing loan “not assumable.”  Loan is in workout status due only to delinquent taxes; payments are current. Seller considering a strategic abandonment and foreclosure of property with consequent ruining of credit status. A real mess (potentially).

JLH Recommended Solution: Seller sells to good paying Tenant on very modest down payment, carries seller financing on carefully worked out terms for tenant buyer.  Financing will incentivize tenant to qualify for cash out new financing.  Technically “nonassumable” loan kept in place as part of financing package, protecting a lender who would otherwise certainly face foreclosing and a substantial loss. Tenant will take on certain personal liability by agreement, so won’t casually walk away from house or payments without adequately protecting both the seller’s credit and the existing institutional loan.  Seller receives otherwise lost proceeds over time in seller financing and keeps credit standing as good as it ever was…

What’s in it for the Seller?  Some sale proceeds, takes her small note and mortgage and trades it for a down payment on a modest Dallas rental house.  Seller begins to rebuild wealth with credit intact.  Local Dallas Realtor referred by JLH, small rental property specialist, gets another sale.

What’s in it for the Realtor?  A saved sale, commission income, client’s undying gratitude, the satisfaction of having gone way beyond the service level usually offered, and for local Realtor, another sale which creates an ongoing relationship in Dallas.  Fabulous P.R. for Michigan Realtor.  Seller tells friends back in same town what a great salvage job Realtor arranged by using JLH.  Everyone’s happy….

  1. Park Cities Realtor’s Listing: (Composite of current issues we observe in the marketplace.) Retiring Seller (married couple) no longer needs large $2 Million+ house in Highland Park.  Now on reduced retirement income, house payment more difficult to manage on retirement income.  Seller needs more spendable retirement income.  Market very slow in this price range, typically no credit qualified cash-out type buyers in sight except for sharky bargain hunters at very low price.  Rental would create negative cash flow, a big drag on Seller’s resources; can’t hold and rent; holding pattern, if possible, would be way too long to sustain financially.

Worse, seller has refinanced several times over a long ownership, now has mortgage in excess of $500k beyond original cost, small but real capital gains tax liability to pay upon any sale.  Sellers and Realtor desperate to find a solution.

Solution: JLH proposes seller financing, carefully structured to attract now well employed but not fully credit qualified buyer.  Realtor prequalifies a nice executive family to buy: Husband lost job and was unemployed for a while, former house had to be sold on a short sale with no proceeds to them at that time; credit status trashed for about three years, but bright future.  Situation largely rectified now but husband earning less.  Strongly motivated to stay in excellent Highland Park schools; alternative is financially unthinkable private school cost for three children.  Have now accumulated around 10% cash down but won’t be able to qualify for at least three years; institutional jumbo financing scarce, nonexistent with only 10% down, this buyer couldn’t qualify anyway.  Workable situation for this buyer to buy a much less expensive but still very nice house with private seller financing.

Seller gets out from under an otherwise unsalable house.  Cash received reduces mortgage down to original cost plus $500k (seller tax free gain allowance); tax liability deferred by creating a qualified installment sale under IRS rules; seller pays no immediate capital gains tax.  Seller earns substantial retirement income, actually earns interest on taxes deferred; interest income closes the income gap to a comfortable retirement for Seller.

Seller’s account reviews and verifies structure as proposed; Seller’s attorney reviews and approves mortgage loan documentation and verifies beneficiary of note is sellers’ living trust, tidying up their estate plan documentation.  Financial Planner now says adequate retirement income should now be solid and adequate for rest of sellers’ lives, and “blesses” the note beneficial interest being vested in Sellers’ living trust, changes their other investments to reflect new fixed income portion from mortgage interest.

What’s in it for the Realtor?  She’s a Hero(ine)! A saved sale, commission income, and client’s undying gratitude.  Fabulous P.R. for Realtor.  Seller tells friends in Park Cities what a great transaction Realtor arranged by using JLH.  Realtor gets ongoing listing referrals by having Seller back in office with JLH once per year for real estate financial checkup.  Realtor works with Buyer annually in real estate financial checkup, eventually liberates some of balance of seller financing installment note. Seller reinvests through Realtor in a managed income property for extra and greater retirement income.  Realtor gets repeat business from both buyer and seller by using JLH during listing/sale and for annual real estate checkup.  Everyone’s happy….


Promotional Phrases /some for Realtor’s Brochure:

Real Estate Financial Consultation- The Glue which holds together the work of the Realtor, Attorney, Accountant and Financial Planner.

Always an ally and a coordinator- never a threat.


Why Value Added Consultation?

After observing and participating in the real estate market from the viewpoint of the banker, private money lender, buyer, seller, real estate broker and consultant, we conclude the following:

–The Realtor is typically not trained nor expected to be, a financial problem solver in the extraordinary and unprecedented economic conditions now facing U.S. real estate markets.  Normally, a realtor’s extent of participating in financing is determining that a buyer is adequately prequalified and that a purchase loan will be reliably funded.

— The Seller or Buyer’s advisory team –attorney, accountant, financial planner—all have a fairly well defined service role.  While any of these professionals may have the specialized knowledge needed to advise on the special issues of financing which have become central to creating and executing sales transactions in the current market, they typically don’t have the specialized problem solving knowledge which we offer.  We readily acknowledge these rare and talented real estate brokerage professionals when we encounter them.

— In our long experience, in a real estate transaction no one coordinates the activities of the four professional areas.  Consequently, in a difficult market, most sellers fail to achieve an optimum disposition and normally leave some money unnecessarily on the table in the form of extra income taxes paid, suboptimum sale price achieved, or, most typically, longer marketing time and/or a troubled or even failed listing.

–In a rising market with low interest rates and easy qualifying, the sub optimization which occurs in most transactions is much less obvious. Respectfully, we find that most Realtors don’t even know what they don’t know about creative deal making and creative financing, and typically don’t want to know anyway. In the current market, both buyers and sellers suffer for lack of our services and are none the wiser.