Loans to Probate Estates and Trusts, with Michael Most of Most Home Loans

0:07 In probate, one of the niches of the niche is when you have to get a loan to maybe pay off, you know, one of the heirs or divide up a property efficiently or for major expenses. And loans to probate estates and even trust estates can be very particular and require some expertise as well as an individual client. I'm always on the lookout for people who have this expertise. And one of the people we have today, I'm really lucky to have good friend, longtime friend, one of the top originators, you could say he's the most home loans in the in the industry, Michael Mo of Most Home Loans. Michael, thanks for joining us today.

0:42 Thank you, Bill, for having me. Appreciate it. Thank you. So, I know you've been in real estate loans for a long time. And yet, how did you get into this particular niche of lending money to probate estates and related entities? It kind of like fell into what we do. I spend a lot of time on regular loans as well, but I like anything else, I kept getting a lot of questions for this, looked into it and found a product set that we would put together. So, there's many times, as I'm sure you've witnessed, where the estate has a big tax bill that's due, whether it's a property tax bill or maybe an IRS bill that it needs. And although this is not cheap financing, it's quick financing. So, you can get this stuff from as quickly as 5 to seven days and it can help sell the property, pay off an IRS bill, pay off a property tax bill, whatever it is, it gets liquidity out of the trust in a very quick way.

1:39 Yeah. And so, the number of scenarios that I've seen these come, you haven't had the chance to work on this yet, but when I talked to you, discovered you're in this field, decided to learn more myself about your business. So, let's talk a little bit about some of those scenarios. One scenario I come across regularly is mom and dad pass leave a property to three siblings. Sibling A and C should get 33%. The problem is that if it's sold if it's free and clear, let's say it's worth you just use a round number $600,000 that the one gets the house the other two should be getting $200,000 and there might not be $400,000 cash in the estate to pay off the other siblings. Hence the need for a loan. So what does that look like? I've seen the past where we do these loans, they're kind of short term where we close the escrow out and then they have the buyer has to refinance to pay off the loan. Is that how those how this works?

2:28 Yeah. I got to give you credit, Bill. You answered your own question, but that's exactly how it works. Exactly. Yep. Okay. So again, this is not designed to be a new an alternative to a Fannie Mae or FHA loan. This is really leveraging financing for short term because there's some major advantage to the estate. Correct.

2:49 Yeah. I wouldn't even put them in the same boat because here we're lending to the trust and it's completely an equity based loan. So, we go up to 70% of the appraised value. So, there's no income. There's no credit. There's no like they're not doing a full-on loan like they would for a regular loan. This is a short-term loan to get their money quick, pay off the other two siblings, and then there have to be an exit strategy for them to get out of this loan. And so again, when we're talking about just to clarify, there's no income documentation because typically there's no income in a probate estate deed passed, but his income doesn't his or her income don't count anymore. Sometimes there's assets that have income, but by and large, that's not an option. The probate doesn't have a credit account. And so what are you making a decision on as far as whether or not you're loan on? Is it is it just the equity?

3:40 Completely the equity. Yep. Yeah. And I think for those listening, this is where I try to come in and maybe help phrase the legal case as the words at because one of the concerns always lenders like this have is well, you know, who's got the authority and is there litigation? Are there objections? Because all those would drag things out. So typically, what kind of term of a loan are you doing?

4:02 When you talk about term, you're talking about the length of the loan. Yeah. So generally these are about three to six months also known as like bridge type loans until the estate is settled or the property sells

4:15 Right and so typically this gets done like at the end when they're ready to distribute funds and have it approved they fund the loan they can distribute the money to the heirs now an heir has a property with loan on it and then they in turn refinance it so I imagine you would preapprove let's say the heir that holds the property still so that you know he's already preapproved to be able to execute what you're going to call the takeout loan at the end. Correct.

4:38 Yes. Don't forget this is a first trust deed. So if for any reason they don't, we could take the property, too. Right. Right. So, but the goal is not to. So, I would think you'd want the whoever's going to keep the property would say to, "Hey, I want to make sure I can qualify for a loan. Here's my income. Here's my credit." At some point, you're giving them a commitment to refinance when all this is done. Right.

4:58 Most of the time, most of these deals that we see, it's a short-term goal for them to sell. There are times where, yes, to your point, one of the trustees wants to keep it long term, but then we would have a conversation with them about, well, how are you going to refinance out of this thing and then yes, we could also preapprove them for a long-term debt and this would just be short bridge, but to pull this back to like go ahead. So, you're doing a loan where maybe there's a foreclosure on the books, maybe there's reverse mortgage. They dillyd around too long. Now, they're not just paying interest, but they're paying penalty interest or penalty fees, and then come to you perhaps with low loan to value and pay that loan off with the idea of selling the property once everything gets settled up.

5:40 Yeah. Probate and trust estates often get stuck because there's no liquidity, right? So, we run into most cases the family's in attorney need fast money. Like I said, pay taxes, fix up the property to sell it, or make distributions, and they're stuck. There's no liquidity. When you go to, let's say, a traditional bank, they won't lend to a trust estate because it's a non-living entity, and heirs don't want to sign as personal guarantees, right? So, this program fills that gap. It's fast, short-term capital without heirs putting their personal credit at risk. And I think oftentimes I have challenges trying to sell this to an attorney or, you know, a third party who all they hear is, "Well, it's a higher rate than my Fannie Mae federally guaranteed primary residence mortgage. It's a 30-year fixed rate where I qualified for income credit and everything else in the world." And this loan has none of that. It's really hardly it's not even the same genre. This is really more to me like a hard money loan to a real estate investor who's acquiring a property for the purpose of flipping it or remodeling it, right? More of a it's more of that genre.

6:44 Correct. This is for quick liquidity. So, it's a private it's a private loan, correct? Versus a long-term loan. We get other cases all the time where people are just trying to buy out an heir, but there's no time shot clock hanging over their head, right? So, then yeah, we get them regular loans, but more than none is someone's trying to sell this thing, has a big bill to pay off andor they don't have the right credit, they don't have income, right? And they just want to borrow off the trust until the trust can actually sell the asset.

7:17 So of course at the end of the day I'm sure you get asked about the price. How do these loans price in comparison to say at the loan of the spectrum would be a Fannie Mae residence loan? The higher end might be a hard money loan. I imagine it's very it is a hard money loan by its nature. So it's probably priced like a hard money loan.

7:33 Yeah, interest rates as low as 10%. Remember this is not about an interest rate like we talk about an exit strategy of 3 to six months. What is the difference between paying 7% or 10% over 3 to six months, right? This is about getting quick liquidity. We do not recommend this loan for anyone that's like, oh well, I need it for two years,

7:53 Right? That would be very expensive. It's almost in some ways like taking money against your credit card, right? And they give you, let's say, six months free interest on your credit card, right? And then you're like, "Okay, well the time's coming due and I'm going to need this money for an extra month or two." Okay, well the credit card companies sometimes will charge you 18 20% but it's for a month or two

8:15 And it's on a smaller amount of money. It's not as painful. So really depends on what their exit strategy is, right? And so do you get into comparing the strategies or you just or is the Realtor® like me having that situation teed up and bring it to you just looking for the money?

8:31 Either or. I mean, either way, we're going to have the conversation with the client. If the agent, like yourself, teases it up first. Definitely makes for a smoother transaction. But either way, we're going to talk to the borrower, make sure they're comfortable with the terms and understand the kind of loan they're getting.

8:46 Got it. Now, in probate, we obviously have a case where somebody's been authorized by the court. They have an order. They have letters of authority, and then the letters have to comply with what they're trying to do. So, if they're trying to borrow money, they have to have either full authority or something like that. Are there any restrictions that you're aware of as far as trying to get this done? Do they have to do they have to do a notice of proposed action? Does the other parties have to sign off on it? What's the process look like? Because at some level they're putting the estates assets at risk.

9:20 Yeah. So, we'll be normally directly in touch with the attorney, the trust estate attorney or probate attorney to make sure that everything there is buttoned up so that we know again there's an exit strategy and that there's nothing hindering us from getting paid back.

9:35 Got it. Are there particular title companies that you require to work with? Are you open to working with any of the legitimate companies? Yeah, we work with anyone

9:43 And most of the time we run our own title so it's even easier. Remember, these are quick liquidity loans. Got it. People are in a bind. They need money quickly.

9:53 So, instead maybe instead most loans, it should be quick loans. Well, yeah. Well, this is not the only product I offer. I'm a broker, so we do everything. This is just a little nichy to the fact that like most probate attorneys and trust attorneys that I've reached out to are like, "I get these calls all the time." And I'm always like, "Sorry, I don't know how to help you." So, there's a great resource to have. It's not something that I focus on as my primary source of business, but it is something that I'm finding in California being a probate state, there's a lot of this out there. So, reaching out to agents like yourself that are really professional and really focus on this and it's very nichy. I mean, you know this space inside out. So,

10:36 Well, it's fascinating you say this because I come across this from time to time. Both the solution of a loan it was on it was a podcast that one of my favorite attorneys had a competitor of yours on this product on their podcast and so I you I saw that and increasingly I'm getting these kind of requests from families where there's multiple owners, multiple heirs and there's well we don't want to sell the property we don't want to sell the property we have to or I want to keep it but I don't have the cash to pay them out and so this loan becomes a solution and so I'm land launch a new podcast called Fractional Interest where we're going to go into depth and I started to research well how many lenders are there that do this and I only came up it's so funny because the day I you called me or I called G about something else. I had like a list of 10 and I emailed out like four of the emails bounced back two of them don't really do the business. I'm like, I need a few more people to make this into a podcast. And then you called me and I said, well, this is exactly what I'm working on. And it's just, it's interesting. And I think the way I would phrase it is I think our business increasingly has to be working at the outer edges. As much as we don't want to, the business is very competitive. The easy cases are increasingly competed for by online services and price cutting and such. And as professionals, we have to be able to work more outside the bullseye to earn the business. And then we get the bullseye business from our best clients. At least that's how I look at it. So talk a little bit about for you know, you are one of the most successful mortgage people in the business. You've been around for a long time. You know, I mean, I know your track record. You know, 20 years ago, you would have just focused on certain type of mortgage and now it's the opposite. Is it what I'm saying that it's competitive and it kind of forces you to keep your customers and serve more of your customers needs or what's driving you to even consider this niche?

12:25 So the main reason that I have branched into this is it's not my core business. Definitely not. I would also argue that and you might even agree with this statement which is how many people a year call you and ask you for this kind of financing. It's probably single digits to maybe a dozen, right? Versus how many people are looking for regular first trust deeds and purchases and stuff is that like millions, right? So it is a very nichy product. Because California is nichy. That is where you know we do everything. I do bridge financing to first time to first liens to second liens. We use cash flow analysis, asset utilization. As a broker here in Los Angeles, you have access to almost all different types. There's really nothing I can't finance. The question is what kind of terms can I find someone? So although you focus on certain aspects more than anything, my core business is homeowners buying homes and we're trying to refinance, but we were getting a lot of questions about this and I said, "Look, there's a need in the market for it. So when these opportunities come up, let's have a place where we can finance it, understand it, and execute really quickly for it."

13:39 So let's talk about your core business a little bit. How would you describe the core or the bullseye part of your mortgage business today? The core of my business is self-employment. NonQM as people know is a large number of origination. Today long gone is the borrower that just makes a W2. Has a you know I mean a lot of money in his bank account with a perfect credit score. We're seeing a lot of the market is more credit scores have been beaten up. Income, especially with new tax laws, people are able to write off a lot more of self-employment income, whether it's through escorps, schedule E, schedule C's, whatever else it is. And those homeowners still deserve to get loans without having to pay a very expensive rate. So, we're finding that the margin between the borrower that's like your regular tax return loan, and someone that's self-employed with a lot of cash flow, the marginal difference has now become almost less than a half a point difference in rate, which is pretty phenomenal. I had a deal that we locked up earlier today at six and a quarter% interest rate on a rate in term refinance with interestonly payments without using tax returns to qualify.

14:50 Wow. Those days are back right now. That guy could have maybe on 6% without it. But for a quarter point, do you want to be busy going through a financial colonoscopy of tax returns?

15:01 Right? When we all understand that tax returns are there to take expenses and losses, right? So there has to be other options for borrowers. That are self-employed andor writing off some of their income and cash flowing some of their personal expenses through their business

15:17 Is the predominance of maybe what I call might call irregular financial setups versus the W2 the traditional of the 80s and 90s is that a function of your geography being focused more in California or is that the overall market has it moved in that direction do you think

15:34 It's predominant in California no question about it I cover I think we're in close to 40 plus states now. So, we are seeing it more and more in a lot of the other states as well. Sure.

15:47 And here in California, are there any particular industries that you see, you know, I don't want to get into any privacy issues, but are there any industries that you see doing well that are you kind of jumping off your radar as, hey, well, there's a few people in that area or just more function of your referral sources? I would say the multifamily game here in West LA where I cover most of the market has really been the core of my business in the last 200 days I would say. There's a ton of multif family as you could see. How many times Bill do you ride down the street and see a sign for someone building an ADU? ADUs have really taken over especially in California. So, we have very niche products that allow for people that have a two unit plus ADUs or a 4unit plus two ADUs, you're now getting six units. When it used to be that someone would be like, okay, I'd have to buy a six or an eight or a 10 unit building or get commercial financing. There's now residential financing available for four unit complexes with up to two or three ADUs. So, now you're getting a six or seven unit project with residential financing.

16:55 Wow. Beautiful. It's really competitive. So, we're seeing a lot of that. The investors are that's great cash flow for an investor that's buying sub5 $5 million putting down 20 30%. He's cash flowing. It's a very niche market. So, we're seeing a lot of that popping up because the ADU market has really strengthened over the last few years.

17:16 Now, you say that I mean and I don't mean argumentative. You know, my experience with it is so many customers are hit and miss. And that might be because I'm doing with the consumer, not the professional, where, you know, they reach out and they have high hopes of what that what it will yield them. They have high hopes what the cost will be. And it turns out to cost more, take longer, and yield less. Obviously, I know there's professionals who are just turning these things out because they found a formula that works. So, what do you see as the key to the formula that's working for the people that are making these things work for them? You know, to your point, I'm only seeing the ones that work. So, I'm not really finding the ones that don't work, right? I think it has a lot to do with the real estate agents, whether they're setting them up for success or not. Understanding cap rates, understanding amorization schedules, understanding debt service coverage, understanding vacancy factors. These are like big terminology that I'm using, but you got to know this stuff

18:10 The way I do, like the back of your hand. Right. A lot of agents are not very well verssed on this. And you have those that are that are really cleaning up that side of the market.

18:21 So, it sounds like those are people really focusing in, niching in, learning the particulars and able to leverage education into that specialty. Yeah. And I also feel that you have the I'm coming in from a different angle. What I'm saying is that there was before there were commercial brokers that if you wanted to get a five or a 10 unit commercial property, you have to go find that commercial broker.

18:45 Right. And when you found that commercial broker, they tend to deal with 20 to 50 to 100 unit projects and really want to play with a 5 to 10.

18:54 Correct. Now that the door has opened up on the residential side that you can have a four plus ADUs, you now have residential brokers selling those properties and therefore more agents doing more business.

19:08 Wow. Well, that's a real eye openening opportunity for somebody to get a little deeper. I'm pretty deep on what I have now and I'm kind of behind my I have a learning program to keep up to my niche. But the ADUs I just feel like it here in LA you know if you don't go that way you are swimming against the tide. The tide is all about you know low-inccome properties you know larger multif family buildings adding ADUs higher density buying a property and you know while for years it was just building bigger houses now it's multiple units is a is a another strategy that I think people have to look into. So thanks for the clarity on that as well.

19:45 Sure. So lastly, I want to say you I know you work with some of the top real estate agents in the industry. I mean I know some of your clients again don't want to drop names or get any privacy issues, but I know that you've been very successful and work with top people. What are the consistent factors you see in those top people are successful versus those that you see that struggle and aren't making it right now?

20:04 That's a great question. I think it's relationships. So the agents that I'm working with that are doing really well are not just professional. I think most agents are professional, but they understand that having a team and support built around what they're doing is key. So, when you have a real estate agent, and here's one of the greatest myths that's out there. You know, there's a myth that real estate agents have to give out three names.

20:34 Well, I happen to be a licensed real estate agent. I've taken the classes and all the ethics. There is no such rule. No, for the record, I'm also a broker. I can say broker. There's no such rule. There's no such rule. What happens? A real estate agent starts to work at whatever company because we don't want to badmouth anyone. Walks in and there's an office manager from 1985 that's still the office manager and he doesn't he or she the office manager doesn't want to have a problem. So they teach all the newbie agents give out three names. Why? Because you're a newbie. You don't really know what you're doing after the problem. You don't want someone coming back to you,

21:08 Right? When they morph into like more established professional agents, they tend to the referrals that I'm getting and I could show you testimonials all day. You know what I mean? All day long. The agents are like, "Here's my secret weapon. My secret weapon is Michael Most, my lender. I need you to talk to him right now."

21:28 Yeah. Because once we have him locking you in that you're good to go, right? I as an agent can go negotiate on your behalf with the sellers and the listing agent to know that we are your buyers.

21:40 Right now, if you approach a transaction that way, right, you're going to succeed nine out of 10 times. The only thing that'll beat you is someone that's offering significantly more money on the property

21:52 And you weren't willing to pay that much. Why wouldn't you want the transaction to come down to whether or not I'm paying the fair market price I feel it's worth versus losing because I didn't have the right lender because my agent wasn't able to fight for me because I did not know what my insurance premium was going to be especially with wildfires and stuff. The good agents and the ones that are really excelling in this market have strong relationships with a lender like myself, a strong relationship with an insurance agent, right? Buttoning up all these things beforehand because I think what's happened is the new real estate in California is multi-million dollar homes. And it's weird to me that a real estate agent that's selling a multi-million dollar home is not prepared with their only go-to lender, with their only go-to insurance person, with their only go-to inspectors. Be prepared. The buyers are looking to be led down the right path of a successful professional agent. We're finding that all of our escros are flying through seamlessly, right? Because they were all prepared upfront with the proper expectations for the buyers. That's what the buyers are looking for. Smooth, simple transaction.

23:05 You're so right. You know, I think that I do think of my vendors as my secret weapons. Not secret, I might promote them, but my title rep, my escrow company, that's why I'm reaching out to financial companies of probate business. I don't do that much of it, but I certainly don't want to turn a deal over to somebody who doesn't know what they're doing. And you know I my secret sauce is my rolodex. So other people I know in my particular niche which is on listing property probate property and related and it shocks me when I have a listing when an agent will call me and I'll look at see who the mortgage person is it just how I always ask them just I'm just curious how they present the person and it's almost like an afterthought. Well they went online to whatever company. I don't care if they went online and found you. That's not what I want to hear. I want to hear my best friend's Michael Mo. He's going to kill for me and he's gonna as soon I'm done when I text him. He's going to call you. That's what I want to hear because my commission's online. My reputation's online with my attorneys and my clients. And it just still this day, you know, I don't think the bar is that high for you to reach out to the agents. But there is a bar you have to get over. I think at least make a phone call and not act stupid that so many mortgage people still in today's market can't do it. Just shot and the buyers agents don't think of even doing that. You're so right. It's just

24:19 Yeah, it's an issue. Yesterday I was yesterday afternoon, as I mentioned to you, I was at the Rams game, opening game, fun game. Came home, I would say it was about 5:15 at night, and John, one of my good agents that I work with, sent me a text, and he goes, "You know, I was out all day with this buyer, showing him rentals. Maybe he might want to buy. Can I introduce you to him now on a text intro and I'm going to tell him that you can talk to him first thing in the morning. So I said, "Sure, no problem." And then John called me and he's like, "Look, I just want you to understand what this buyer loves is just communication. If you could even just reply back to this text tonight would be great." And I'm thinking to myself, here I am Sunday afternoon of a real estate agent that just worked all day.

25:07 Yeah. And he's like, "Hey, could you make sure the financing is okay?" He's asking me if I could reply to a text to just earn business. And the fact that he's been asking me this question, Bill, is what's so funny, right? Like, why, to your point, aren't people ready to go? And I want to be clear, there's a lot of professionals out there. They're on my team. I work with a lot of very good lenders, a lot of good people. Unfortunately, the reputations that the majority of them aren't, but those that are good, and many people find good ones, the good become great and everyone else just falls apart. You have to be able to offer a service and a relationship back to the agent. This guy just worked John an entire day. He's working so hard. He wants to sell a$ two to three million home. I better be available, right? Like, how can I not be available? Yeah,

25:58 If that makes sense. Yeah. I mean, I think, you know, it doesn't mean you have to be available 24/7 every day of the year, but there's certain slots that if your clients are working, they need the support that you or somebody on your team or there has to be some method to take care of them and feel like they're being supported. And that's important in every part of the business. I say for me personally, I'm lucky I designed my business in probate real estate where I'm pretty much done with attorneys. They don't really work on weekends. And I'll get buyers agents call me in a panic and I'll just text about, "Hey, don't worry. I'm not going to do anything with the property till Monday. I promise you. Because we're not I can't even talk to my client until Monday. So, but to your point, I do think that you want people hungry. You know, I always feel like hungry dogs hunt best and when you have somebody who's really pushing hard, you want to support them, not spend all day in your case, not to miss the RAM game. God forbid. Not that you would give up the barbecue before the Ram game. We're not talking crazy here. We're just saying a text. Just give the guy a text and say, "Hey, I'll call you in the morning." And he's happy. Why not do that?

26:54 Yeah. And those are little touches. Well, look, Michael, I got a little longer than I had signed you up for. So, I appreciate your time today. You and I could talk forever about the business. You have such great experience. I think the best way to reach you, I have your website up on screen here as well as I have Oops, I lost my banners. I have all these fancy banners my team. There you go. Your contact information cell phone and office number off the website and your email address as well. That best way to get a hold of you.

27:21 It definitely is. And thank you, Bill, for making the time today for doing this u for the introductions to your attorneys as well because this is great for them to know. And I appreciate just the time today and like you said, love chatting with you all the time.

27:34 Always. You know, we see just for those who watch to the end, Michael and I pass each other. I walk for exercise around noon and he's going to a meeting around the same time and so we pass about once every couple weeks. I was living one day I was I walked to a client's meeting. It was on Pickford almost to Robertson. So, I'm walking east and you're walking north and I met with you and literally I was talking to at this meeting with an attorney, a fiduciary, a couple other people and whatever we talked about came up at that meeting. I'm like, "Yeah, I just bumped into him." Where'd you bump into him? You walked here. Well, that's why you say that. We walked. We met in the middle. So, Michael's a neighbor, a good friend, great member of the community. Thank you so much for your time today. Really appreciate it.

28:15 Thank you, Bill. Talk to you soon. And for the rest of you, this is Probate Weekly. Who get together every week with a new episode of Probate Weekly to most commonly with attorneys but oftentimes with vendors that help us be more successful in our business. You can go online to our Facebook group Probate Weekly on Facebook if you have questions, want to continue the conversation. You can reach out to me at Bill Gross Probate. If you want to be interviewed on here or know somebody you should be, put that in the comments as well. Reach out if I can help in any way. As always, make today your best day ever. Thanks so much.