House 3: Looking Good

I received another addendum today from the buyer that details the air conditioning info and purchase price increase I talked about earlier. The lender also wanted the contract to include instructions to the escrow company that the $2,500 be made payable only to an air conditioner licensed contractor. Apparently the lender doesn't want the borrower to get any cash back at closing. It doesn't matter to me one way or the other. I was also told that the lender had requested a final list of charges, which means they are working on finalizing loan docs. This is good!

The buyer's mortgage broker today also mentioned to my agent that the termite inspection report indicated some dirt around the base of the house that should be moved and said we "would have to address that." "Excuse me," my agent told him, "but that should have been addressed during your inspection period. We're not doing anything about it." She suggested he pay for someone to move the dirt. He said he'd get back to us on that. Tough luck fella. Contracts have deadlines for this very reason.

Closing is scheduled for one week from today!

Giving Up On Prosper.com

I'm going to give up on Prosper.com. I think they have a good idea, but it doesn't really work for me. I have a couple problems with it:

• The 3 year loan period. I realize this is to help the borrowers to give them a lower payment, but right now, I prefer loans of 1 year or less.
• Small payments. I am unwilling to lend large amounts of money on unsecured loans to people. A small loan amount combined with the 3 year repayment period equates to tiny monthly payments to me.
• I don't think their peer review system works. They push "groups" as a way that people will police each other to help prevent loan defaults. Supposedly, if a group member is behind on loans, the other group members will encourage the late payers to make their payments so that the group as a whole looks good to other lenders. I don't see this happening. With my one late loan, there has been no response from the borrower to the one polite email I have sent. The borrower belongs to a group and the group leader also was a lender to this person. His emails have not been answered either. She is still a member of the group too. I can see people using Prosper only one or two times - it's not like eBay where one person will be conducting many transactions. As a result, the "feedback" or community policing has little to no effect. If people want to take the money and run, they will. This is especially true of high risk borrowers. Their credit report is already not good, so I don't think the threat of another ding will deter them too much.
  

For people wanting to get into hard money lending, Prosper is a good starting place. It is an unsecured loan, but you can start lending with just $50. You will get the experience of lending and receiving payments, the headaches of late payments, and all the other little details and worries that are part of money lending, all for a low entry cost. If you like it, however, I suggest leaving Propser and moving on to making larger loans through private parties secured by tangible assets.

House 3: Buyer's Inspection Report

They managed to beat the deadline. They had 10 days to inspect the property and get me a list of what they wanted fixed. At 9:30 PM on the tenth day, they faxed it. As usual, it was just a copy of the inspector's report with a note saying they wanted everything fixed. (Actually, there was one minor thing they didn't want fixed, but it was basically everything.) Anyway, we counter-offered back with crediting them $1,500 at closing for them to fix the stuff themselves. After talking to their agent, we found out the buyer really wants air conditioning. (The property has a brand new swamp cooler that I had installed, but the buyer wants A/C.) The appraisal came back $1,000 higher than the selling price, so we decided to up the selling price by $1,000 and I'll credit that back to her as well. She will then use the $2,500 to get air conditioning installed.

How Do They Stay In Business?

I am continually amazed by the fact that escrow companies are able to stay in business. They have about the worst performance record for any industry I have ever dealt with. (And this includes dishonest cabinet makers.) It is even more mind-boggling when you consider all their instructions, every single thing they have to do, is in writing! They cannot do anything based solely on a verbal order. How hard is it to follow written directions?

As of yesterday, I had not received the earnest money deposit from the aborted sale of House 3 that I was told would be coming my way. So this morning, I called the title company to find out what was going on. Neither my title agent nor his assistant had any recollection of speaking to my real estate agent about this. They said they would call me back while they did some research.

About 45 minutes later, they called back telling me they found my fax instructing them to release the deposit to me and asked me for an address to send it to. They also said the amount was $1,000. This is what I thought it was, but whoever my agent spoke to earlier told her it was $500. I never bothered to look up the correct figure on my own, figuring the escrow company wouldn't make a mistake when dealing with actual cash. Anyway, supposedly a check for $1,000 is going out to me today.

But I am still uneasy because the same property is in escrow at the same title company with a new buyer. Their earnest money deposit is also $1,000, so the potential for a mix up is quite large. I made sure they understood that the current escrow was not to be cancelled, just the old one. We'll see how it goes.