HML #20 Started - Possibly (Updated)

I've been falling a bit behind on my blogging here. A hectic pace at work and a recent battle with the flu have been sucking up all my time. But today I managed to squeeze out a few minutes so here's the latest...

Back in the first week of October, my partner found another property to lend on. This is a single family home in San Leandro, California. The exterior looks to be in good shape, but the property is occupied, so we don't know what the inside is like. The location is not that great - it's near a freeway offramp. The property was purchased at auction for $197,500. The opening bid was $170,000. The buyer is one of our best customers and is personally guaranteeing the loan. He normally pays early.

Comps are hard to come by for two reasons: First, there aren't many in this area. Second, there is some confusion about the actual square footage of the house. The MLS listing says it is 1,080 square feet, but county tax records say it is 880 square feet. Using the lower figure, we estimate the value to be between $200,000 and $225,000. There is a comp that has the same square footage (880) but has a better location that recently sold for $275,000. How much is location worth? $50,000?

Our loan is for $136,500. Using the lower comp value, this gives us a LTV of 68%.

I went ahead and invested in this one, mainly on the reputation of our borrower. Found out on Friday that the owner is claiming he filed bankruptcy before the auction. This happens with about 5% of the properties at auction and I'm surprised it hasn't happened to use before. No final resolution yet. The next step will be the trustee will have to examine the auction documents and the bankruptcy documents to see which was filed first. If indeed the bankruptcy was filed first, we get our money back, the sale will be voided, and the house still belongs to the old owner.

Update: Turns out, the bankruptcy was filed before the auction, so the sale has been voided and our money has been returned.