Welcome to Chez Cliff!

Mentor:  Can I be honest with you?
Clifford:  Always.
Mentor:  The lender is trying to back out of the deal.
Clifford:  I thought the same thing.
Mentor:  I believe the Fed is quietly whispering to the lenders to tighten their lending practices.
Clifford:  Barron’s agrees with you.
Mentor:  For your situation, if the seller finances the 10% will the results fit into your model?
Clifford:  Barely.
Mentor:  What do you think about that?
Clifford:  It is really really close.  If I’m off on one calculation by just a fraction, then the property doesn’t work.  I won’t get what I want out of this deal.
Mentor:  Always listen to your model and what your model is telling you.
Clifford:  Right now, I’m hearing this won’t work.
Mentor:  In my model I always, always figure in 10 to 15% for unforeseen expenses.
Clifford:  That sounds like a good idea.
Mentor:  Now with you, I think you answered your own question.
Clifford:  Yes, I did.  The deal is no good.
Mentor:  If it were me, I’d get the hell out of there.

Strangely enough, I was not sad about this decision.  Relief is what filled me.  If  this deal were forced through there’s no guarantee I would have gotten what I wanted.  Once the documents were signed, I would have been stuck.

As fate would have it, my phone rang shortly thereafter.

BossMan:  Good Morning Clifford.  My name is BossMan.  I’m LenderLady’s boss.  How are you?
Clifford:  I’m doing well, thanks for asking.
BossMan:  I wanted to apologize for the screwup on our part.  We had this all wrong from the beginning and I’m sorry.
Clifford:  Well I am disappointed I didn’t know about this earlier.
BossMan:  I also wanted to tell you that the seller financing option will not work with this program.  Either we finance the first and the second or you’ll have to go elsewhere.
Clifford:  That won’t be necessary.  I’ve already decided not to let this deal go through.
BossMan:  I am sorry to hear that but I understand.  Because we’re the ones who screwed up, we’re going to refund the cost of the appraisal to you.

There is justice in the world after all.

And thus the deal died on the operating table.

Champagne hangover be damned!

SFX:  Phone Rings
Cat:  Good morning Clifford.  How are you?
Clifford:  I’m fine, thank you for asking.  Ask the seller if he would be willing to finance the second mortgage.  If he does, this deal may saved.

Seller financing.

I almost missed it.

The 13% interest rate on the second mortgage had to go.  If that would diminish to 8%, then I am back above $100/month in cashflow.  My zany scheme: Offer the seller 8%, payment of $100/month with the balloon payment due at the end of term (3 years).  After two years, the property could be refinanced and the seller could be paid off.

There was one more trick up my sleeve.  Break Glass in case of Emergency type of thing.  I could pay "points", that is to say pay extra at closing and reduce the interest rate on the first mortgage.  Add to that finding a cheaper insurance company, maybe asking Cat to reduce her property management fees.  I felt this deal could yet be saved.

LenderLady told me that the seller financing was acceptable.

One item down.

It was at that moment an interesting question popped into my head:  How far do you go to chase down a deal?

I have become accustomed to the idea that anything worth having requires a fight.  If, at the first sign of trouble one abandons all hope then nothing will ever be gained.  Nothing every goes perfectly; nothing ever goes smoothly.  Throughout life, there will be the proverbial bumps in the road.  We win, we lose.  It is the nature of the game: the nature of life.

I am not some kind of Emergency Room Doctor, trying to save a patient’s life.  This is a real estate deal; nothing more.

So when do you call it quits?

This question was beyond me.  This type of situation had never confronted me before. 

There was one person who I knew I could talk to and he wouldn’t be afraid to be honest with me. 

My mentor.

The following takes place one day prior to the close of escrow.

LenderLady:  Clifford, we can’t give you the interest rates we originally quoted.  The lender has changed the requirements.

My heart stopped beating.

LenderLady:  Your first was originally at 6.175% and now it’s at 8.875%.  Your second was at 8% and it is now at 13%.  This raises your monthly payment $300 per month.

The whole "second home" scheme failed.  Per the lender, a multi-unit residence cannot be declared a "second residence".  It was now being viewed as purely an investment property by an out-of-state resident.

Clifford:  You know this is the day before the close of escrow.
LenderLady:  Yes Clifford and we’re really sorry.

With my cashflow at $195/month, a $300/month increase in my mortgage makes this deal negative cashflow territory.

Cat:  I can’t believe this!  Plus they increased your closing cost $2,000!!

In my shock, that fact was missed. 

Another realization hit: I was past the point of no return on my contract.  All the earnest money I had put down: gone.  All the inspectors and appraisers I had paid: gone.  All the contractors, plumbers I had paid: gone.  In total, with this deal going bad I was going to lose $2,500.

All the day before the close of escrow.

Cat:  I’ll call the seller and let them know we can’t make the deal work.

I asked her to wait.  My romantic side cried out "This deal can yet be saved!" I just couldn’t see how.  But Cat confirmed waiting 24 hours on this deal wouldn’t change anything.  Why not take advantage of it?

So what did I do?

I called my friends, bought a bottle of champagne, and celebrated.

That night, my rosé champagne head hit the pillow.  As the bubbly buzz filled my imagination with all sorts of interesting images, an idea appeared as to how the deal could yet be saved.

It was so crazy it might just work.

A character flaw exists in my world: pettiness.  Pettiness is brought out by anger.

Don’t assume I get angry on a whim.  It takes a considerable effort on someone’s part in order to make my blood boil.  For instance, crushing my foot under your car probably would not invoke much anger.  Pain yes, anger no.  Steal my Twinkies and the wrath of God will rain down upon that unsuspecting soul; their little dog too.  For revenge, I wield pettiness like Chuck Norris wields nunchuks.

So when InsuranceGuy started saying "That will make your rates go up", my anger started growing.

InsuranceGuy:  So let me ask you a few questions before I give you the final quote.  Is the structure wood or cement?
Clifford:  Wood.
IG:  Wood?  That will make your rates go up.  How old is it?
Clifford:  50 years.
IG:  50?  That will make your rates go up.  Do you want Hurricane Insurance?
Clifford:   . . . um yeah you know I do.  I told you that before . . .
IG:  That may be but your rate just went up.

 
InsuranceGuy failed to include Hurricane Insurance in his estimate. 

Due to the frequency of hurricanes which hit the Corpus Christi area, insurance companies don’t cover damage caused by hurricanes.  That requires special insurance.  California has something similar with Earthquake Insurance.

The question I asked myself: Am I comfortable not having hurricane insurance when I know a hurricane will hit Corpus Christi within the next 5 years?

I wasn’t.

In the end, the insurance was 1.45% of the purchase price.  Nearly double the 0.8% estimate he gave me to work with.  So instead of $99/month for insurance, the new number was $179/month.  My cashflow dropped from $276/month to $195.

Revenge is mine, saith Cliff.

Almost 10 other insurance companies were contacted.  While most failed to even return my call, the ones who did agreed the total insurance would be around $2100 per year.  My objective: find one company who was $1 cheaper than InsuranceGuy.  Deny him I would.

One kind lady gave me a quote for $2050 per year.

He was denied.

There are certain phone calls you do not want to get.

I received one of those calls.

A family emergency requires my immediate, undivided attention.  A return to the homeland, Michigan, is in order.

The story will resume on Wednesday.

Take care of yourselves.