I was approached by a Realtor I work with, whose name I won't say, but we will call him Bobby, who was buying a property in Oakland, California.  I have strictly worked with Bobby's clients, never actually helped him personally.  He was working with his regular personal lender (in the business for a long time), who was having trouble with the property, not with Bobby's qualifications, but the property's.  The appraisal he ordered was coming back as "mixed use", because of the layout and one of the rooms that had been converted from it's original structure.  Another issue was that the area is not a conventional residential area.  It is about 1 mile from where the Oakland A's play baseball and Oakland Raiders play football, and Golden State Warriors play basketball, and is truly a mixed area for property type. 

The prior lender had sent the loan to 3 different lenders, each one looking at the appraisal and denying the property because of it's use.  Bobby had enough with the same issues, and asked me to see what I could do to salvage the transaction, because the property is unique and a great find.  I agreed of course, and decided to see why this property had been having problems, and try to avoid the same issues the other lender had been having. 

I went out to the property with Bobby, and looked at it.  Great location, not far from the freeway, and even closer to the Ballpark, Arena, and Stadium.  With the market where it is, the property hadn't had that much demand because there is so much on the market, so I had the cooperation from both the seller's agent and the seller, to do what I could to make this loan work.  Everyone on my side, now I just needed to get it done!

So the property is clean, no major damage, great size, unique.  What could be wrong?  Well when the property was built, the city had approved it for occupancy as a Single Family Residence.  Hands down....One of the previous owners had converted the garage to a "rec room" but apparently they had used it as a bakery as well.  They had done this illegally, the city was not aware of this change.  The zoning of the property is R-35, a special zoning in Oakland for Single Family Residences.  I spoke with the appraiser who performed the initial appraisal, and he let me know that the property is tough to classify, but his opinion is that the highest and best use for the property is as a Residence.  In the use type, however, he had to put the property as mixed use, because of the look of the property, and the unconventional rec room in the front of the building.  He could not determine whether the property was truly residential or commercial and wouldn't do anything else to verify it's use.   

Well I guess that is where I come in...

The issue is not the zoning, it is Residential, but how can I prove to the lender that this property is through and through residential, regardless of the look or "feel" of the property.  I placed a call to my Account Exec, a veteran of 30 years in the business.... I have faith.  His advice was to get a "burn down" letter, from the City of Oakland, stating that the property, should it burn down, would need to be built according to zoning 100% of the time, whether a complete burn down or partial burn down. 

Ok, easy enough.  I call and ask Bobby to go to the Planning Department for the City of Oakland, and he gets their standard "burn down letter".  A "burn down letter" that is specific to what we need will take weeks.  It stated that whether a conforming property or non-conforming property it would have to be built according to the current permits for the property.  Alright!  I have the key to the puzzle.  We add this letter in an addendum to the appraisal, send in everything to the lender for approval. 

The file comes back a few days later approved!  Awesome, now when are they going to sign off the appraisal condition?  The answer....they aren't.  They aren't sure about this property, they want a 100% burn down letter.  (What is the difference?)

Ugh, same old situation, but my first dose.  I don't like taking no for an answer, especially since I am sure that I am right. 

I get a phone call from the sellers agent, who is having to explain the situation to the seller, and the seller is pissed off!  Alright, why is he pissed off.  He said that he has never been denied in the past with financing that property.  However he does admit that the property has had questions about it's use in the past.  Same issues we were having.  The seller's agent asks me to call the seller to calm him down, and reassure him that we are working on it, we just need some time.  Alright, most loan officers wouldn't do this, but I will, because I have nothing to hide, and I can explain what I am trying to accomplish.  We chat, he is calm, and let's me know that he appreciates the conversation.

On a hunch,I call the City of Oakland myself to dissect this property from head to toe.  I ask the extremely helpful person at the office, who we will call Molly, to go through this letter with me after I fax it to her, and we can reason through it all, so that I can understand.  She reads the letter, and interprets it for me.  She believes that it is saying that the property, whether it completely were to burn down, or partially burn down, it would need to be built to the current permits, as I thought earlier.  But, the issue is the property is a little different. Had the old owner permitted any construction when they ran a small bakery out of there?  The only way to find out is for Molly to research the history of this property, to see if the property had ever been permitted. 

After about an hour, yes only an hour, Molly calls me back, and let's me know that the City of Oakland, has NEVER permitted any construction on the property, other than it's original construction as a Single Family Residence.  I ask her now to determine how the property would have to be rebuilt should it burn down, according to the burn down letter I sent her.  Her response, if the property were to burn down, it would need to be rebuilt as it's original permitted use, as a Single Family Residence.  Could this be it?

Knowing how this lender operates, I decide the best way to lay it all on the line is in a professional Letter of Explanation (LOE).  In the mortgage business, an LOE is a great way to explain to the underwriter something about a file, that should be out in the open?  I write the letter, spilling my knowledge about the file, pretty much disproving what the appraiser has though, what the old lenders thought, and what the new lender was thinking. 

This is what I would like to call a Hail Mary.

In football terms, the pass was completed for a 99 yard touchdown!!  The lender accepted my letter, and approved the property as collateral for the transaction.  WooohooooO! 

I am not one to brag, but I think I may at this point.  The original broker sent the loan out there, praying that the lender wouldn't see the whole appraisal, miss something and it would slip through and the loan would close.  That is not the proper way to do loans.  You have to take all precautions to ensure that you aren't going to run into problems, and that comes out in even the most simple ways, like preparing a compliant application and disclosure package. 

I take the additional steps to ensure potential problems are workable, if not fixable in their entirety.  Not many other brokers will do that, and that is how this business should be done.

Jon Vetter - 650-465-5846

Mercury Lending

San Francisco Loan Officer, to CLOSE your San Francisco Home Loan