Can lender force me into foreclosure if I can't repay at maturity

CA · Member since 2016 · 1k+ posts · 1k+ votes

I have a rental property that has a market value of $1.5M and $300K mortgage on it... The 10 year ARM is coming to maturity around 7/17, but I can't find a lender that still does that type of loan anymore (TIC for rental)..

What is going to happen if I can't make the balloon payment at 7/17? I reached out to the bank (Stanford Credit Union) and they told me they could extend "a few months" but that does not really solve the problem...

They dont want to renewal the mortgage because they are getting out of the business themselves... Any one has a similar experience before?

0 Reply

416 views

Most Popular Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Diane you need a commercial banker who understands your situation. This is a pretty foreign concept out side of Silicon valley... are you sure your loans are not joint and several.. ??

And how much other debt is in the TIC ? whats the total debt load ?

I seriously doubt though the bank wants to own a % interest in a property.. they can't do much with that....

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

3 Reply

See this reply in the discussion

121 Replies

Jump to latestLatest

Sort by

Albert Bui
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
9y
Originally posted by @Diane G.:

@Jessica Zolotorofe
Jessica - it is a TIC, a hybrid of you will between commercial and residential....few banks touch it... Stanford credit union, my current lender, was in that market 10 years ago but not anymore...
Bank of Internet (BofI) out of San Diego will do these unusual type cooperatives/TIC of ownership last I checked.
They also operate in the bay area as well so its something to consider.
They do all the non conforming types of paper that fall outside of Fannie and freddie including non unwarrantable condos w/ certain requirements.
0 Reply
Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Albert Bui
Thanks Albert, I will definitely give them a call after the holidays...
0 Reply
Albert Bui
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
9y
Originally posted by @Diane G.:

@Albert Bui
Thanks Albert, I will definitely give them a call after the holidays...
Cool, I went ahead and asked my contact down there in SD to confirm if they'll agree to take out your first loan.
If they will or still do I bet it will be around 5.75-6.25% 5/1 ARM on their portfolio program.
Stay tuned...
0 Reply
Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
I will look forward to hearing back from you...Thank you....
0 Reply
Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Albert Bui
Also Albert - I have other rental properties that are NOT TIC, but SFH or condo, that have sizable equity that i can take out $300K equity on... But they are all rentals... Do you know of any lender that does HELOC on rentals? That is another option that I am happy to explore...
0 Reply
Albert Bui
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
9y
I do mostly credit unions but not on TIC's.
Have you taken a look at your other properties to utilize their equity with a loan to payoff your loan on your condo?
0 Reply
Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
9y
Originally posted by @Diane G.:

I have a rental property that has a market value of $1.5M and $300K mortgage on it... The 10 year ARM is coming to maturity around 7/17, but I can't find a lender that still does that type of loan anymore (TIC for rental)..
What is going to happen if I can't make the balloon payment at 7/17? I reached out to the bank (Stanford Credit Union) and they told me they could extend "a few months" but that does not really solve the problem...
They dont want to renewal the mortgage because they are getting out of the business themselves... Any one has a similar experience before?
FHA and conventional loans are made with a TIC interest, that shouldn't be a problem. You need to speak to a commercial bank. Next, the CU can sell the note.
Along the lines of selling the note, you may offer to modify the note providing a discount for a note.
Yes, if you don't arrange financing, or if they don't renew or sell out to someone who will renew they can go to foreclosure, so you need to consider selling at some point.
Selling in a TIC can be to another partner who can pay, or to other TIC owners, or to anyone else, but the sale will need to payoff that note.
PS> didn't read the 34 posts, just this question. Good luck, look for lenders ASAP. Good luck :)
0 Reply
Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Bill Gulley
I know as a matter of factor that CU kept my note, did not sell on the secondary market....
They told me they are aware of my equity $, and that I have never been late in 10 years, but they just wanted to get out of that business segment....Is it worth to try to negotiate a 5/1 ARM with the current CU as that is all the time I really need... I really only need 3 more years and this will pay off....
How expensive is it for CU to try to kick me into foreclosure at this point, when they could just sit back and collect 5.25% for 3 more years and I will come off their books anyway?
0 Reply
Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y
Hi @Diane G., and thanks @Jay Hinrichs,
What I'd suggest has already been covered.
1) Open refi escrow and get a prelim done to see what we're really working with. All sorts of things were explained to consumers incorrectly back in 2007 Diane, so there's no guarantee that what you were told is what is real. Worth checking even if it has a low probability of success. Off topic, but I suspect "...loan is blowing up on me after 10 years..." is going to be a common theme of refinances in 2017 because 2017 minus 10 equals 2007.
2) Pull equity out of another property to pay this one off and own it free and clear. Advantage here is we can stay in Agency 30 year fixed world. Disadvantage is that there is much BP thought to the effect that owning anything free and clear is bad because you aren't leveraged as much as you could be.
3) If the prelim comes back showing what has been described, brokering to Bank of Internet or another similar portfolio lender. In the ARM world, but still residential. Avoid anything with a balloon so you aren't just kicking the can down the road.
4) Suck it up, go commercial.
5) Hard money.
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
Diane,,, your really barking up the wrong tree thinking you can negotiate with a lender that is leaving the space.. better use of your time is to find a new lender..
Banks will often change their positions on what they will and or won't do.. you have no way of knowing if there loan portfolio is out of balance and too heavy to real estate and the regulators have dictated them to reduce exposure to RE.. this was common of course in the Meltdown.
good luck with it.. should not be a big issue If Chris cant help you then dial for dollars... but thinking you can convince a lender that wants to exit and has a legit balloon coming up, that's a fight you cant win.. foreclosure in CA takes 7 to 9 months give or take. and of course there will be bidders and you would be entitled to the overage as this would probably bid up to 1.4 to full price of 1.7...
Check with CPA overage's may have tax benefit as opposed to selling...
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
1 Reply
Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
what is the market rates for #4 and #5? and are they hard to qualify?
0 Reply
Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
9y
Originally posted by @Diane G.:

@Bill Gulley
I know as a matter of factor that CU kept my note, did not sell on the secondary market....
They told me they are aware of my equity $, and that I have never been late in 10 years, but they just wanted to get out of that business segment....Is it worth to try to negotiate a 5/1 ARM with the current CU as that is all the time I really need... I really only need 3 more years and this will pay off....
How expensive is it for CU to try to kick me into foreclosure at this point, when they could just sit back and collect 5.25% for 3 more years and I will come off their books anyway?
Absolutely talk to them, they should be able to place a new note in the secondary. They can't do anything until after the note is in default of payment. After they give notice of demand for payment and foreclosure, you may have months pass before any sale, but most likely, it sounds like they will work with you based on your record and the circumstances. Good luck and talk to your lender. :)
0 Reply
Doug Van Liew
Real Estate Agent · Virginia Beach, VA · Member since 2016 · 29 posts · 24 votes
9y
If there's truly that much equity, it should be pretty easy to refinance. You could sell at a discounted price and still net a healthy chunk of change as well which is a lot better than a foreclosure.
1 Reply
Jessica Zolotorofe
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
9y
Ok but is there an actual MORTGAGE on the property from this lender? With TIC interests, nearly every single one I have ever seen has only pledged TIC interest as collateral (which is one of the reasons lenders won't do it anymore) and not a mortgage, unless all TIC members agree and sign consents or the actual mortgage. So, the lender could foreclose your TIC interest, but not on the property. You must have the original loan documents, or a title report...this is the absolute most important question. If it turns out there IS a mortgage, you have a lot more leverage to have all of the TIC members refinance. Otherwise, there is no real incentive because they won't be significantly impacted, nor will the property, and only your interest will be at issue. In that case, I would offer them a little bit of your interest or some money, or at a very minimum, you pay all closing costs and any increase in their rate or monthly payment which would result from the refi. .
0 Reply
Kenneth Mooney
Rental Property Investor · Augusta, GA · Member since 2016 · 348 posts · 171 votes
9y
Can you not refinance?
0 Reply
Kenneth Mooney
Rental Property Investor · Augusta, GA · Member since 2016 · 348 posts · 171 votes
9y
Either sell or refinance.
0 Reply
Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Jessica Zolotorofe
I dont know the exact wording on the original document, but I am pretty sure they CAN NOT touch the rest of the building, they can probably foreclose on mine and sell it, but not without a lot of legal work, so I really hope they realize it is a lot better for them to keep a willing/able payee (me) and give me another 3-5 year ARM, than kick me into foreclosure.... But who knows.....
When I talked to them a couple of months before, they told me they can extend my term by "a few months" and repeatedly ask me to shop for refi and document it and send proof (that I shopped around) to them...
yes even with this equity, it is NOT easy to get a lender... Who would have imagined that?
0 Reply
Jessica Zolotorofe
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
9y
Diane, you are completely missing the land ownership aspect of this from a legal perspective. When you are a TIC member, you do not own anything other than an interest in the WHOLE real property. I don't believe there is an ability to partition. A mortgage cannot be placed on a portion of a property deeded as tenants in common. The exact wording is not the issue... the actual legal instrument changes the scenario 100%. Not even similar. Is there a mortgage lien recorded against the real property, or did you just pledge your tenant in common interest to the bank as collateral? Without that answer, it's impossible to help you. You need to understand the difference and then find out which situation you are in. Maybe speaking to a real estate lawyer in your area is your best bet.
1 Reply
Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Jessica Zolotorofe
jessica - i just took out the original paperwork and it is a "promissory note", with frequent reference to "TIC agreement"... The funnies part is that, in default, they can take whatever bank account I have with them, they can garnish my wages, they can do 'set-off", and they can put "statutory Lien" on my interest of the building....But no mentioning of foreclosure???????
your thoughts
0 Reply
Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
@Jessica Zolotorofe
By the way, I looked at CU website, and apparently they are out of the "commerical loan" which they used to do.... That is probably why they wont renew my loan...
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
Originally posted by @Diane G.:

@Jessica Zolotorofe
jessica - i just took out the original paperwork and it is a "promissory note", with frequent reference to "TIC agreement"... The funnies part is that, in default, they can take whatever bank account I have with them, they can garnish my wages, they can do 'set-off", and they can put "statutory Lien" on my interest of the building....But no mentioning of foreclosure???????
your thoughts
these are standard clauses in commercial debt obligations with a lender.. and for that reason many borrowers do not keep large deposits were they bank.. the bank can literally one day come in and clean your accounts out if they deem you in default.. garnishment would take a court action.
your getting closer...I would round up the cash ... maybe get a money partner .
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Jessica Zolotorofe
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
9y
YES! Exactly. OK, that's what I suspected. They have no mortgage on the property and can't foreclose in the typical sense that you were thinking of. They can basically just kick you out of ownership. That's the easiest way I can explain it. So all of the TIC owners will still stay the same, except the bank can step into your shoes and you will no longer be a TIC member or have any interest in the property, but your partners will be unaffected. The other option is they leave your ownership alone and levy your bank accounts, foreclose on other properties you own, etc. which would be executing on the promissory note.
0 Reply
Jessica Zolotorofe
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
9y
TIC Agreement that they reference, by the way, is an agreement between you and the other TIC members, sort of like an operating agreement would be for an LLC. You must have signed one at some point and it would have been provided to the bank before this loan was given. The reason it is referenced repeatedly is because the bank would step into your shoes as a TIC member pursuant to that TIC Agreement, which would then govern the bank as a TIC member once you were out. Hope that makes some sense now. Sorry if I wasn't being clear before!
0 Reply
Diane G.
OP
CA · Member since 2016 · 1k+ posts · 1k+ votes
9y
well, I really hope they dont go the extreme route of foreclosing any of my other properties....When they have a paying person, would they really go the long route?
0 Reply
Ben Miles
Investor · Beaverton, OR · Member since 2016 · 12 posts · 4 votes
9y
I don't see where anyone weighed in on a HELOC on a rental. For what it's worth, I have a first on a rental with Wells Fargo and they are willing to provide a HELOC on that rental up to 60% value. Good luck.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.