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

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

Diane G.
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?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y

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....

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  • Jesse C.
    San Francisco, CA · Member since 2016 · 10 posts · 3 votes
    9y

    I see you are from CA - there are just a handful (3-4) of companies that do mortgages for TIC's in CA, have you tried them all?

    0Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Jesse C.

    They all do owner occupied TIC, but not rental TIC....Thanks

    0Reply
  • Mike Hanneman
    Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
    9y

    If this is that big of an issue why don't you just sell and take all that equity and get more/other units?

    0Reply
  • Mike Hanneman
    Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
    9y

    If you decide to just keep paying the monthly payment and not pay the balloon it will ruin your credit and possibly more. I can be certain that no bank will just let that fly because "you pay on time" you will be in direct default of the loan terms. The banks make those balloons and have them on their books accounted for and probably are already planning what to do with that money for their working capital. 

    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    It depends on their docs but if the note is due and it is not paid then they can probably trigger the foreclosure process.

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  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    @Diane G., as frustrating as it is I hope you listen to @Jessica Zolotorofe because she is telling you what you need to hear.

    I am so glad I read this topic end to end. In RE there is always something to learn, even if it is about a foreign country like CA;) I thought non-conforming, fractured condos were the worst collateral in the RE world. Now I know that TICs in CA take the cake. If I was an institutional lender I wouldn't touch a TIC, owner occupied or not. But I don't live in CA.

    Diane, note the wording in the link you provided, reiterated 4 times throughout the page: "...As such, there is no subdivision of the property as there is with a condominium, so there is only one regular secured tax bill issued to the property."

    My 2 cents.

    2Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Chris Martin

    I don't doubt Jessica's good intention, like I said yesterday... I don't know if I can be as unselfish as her to allocate so much time to a total stranger....

    The frustrating part comes in when there is several facts that she kept on telling me that were clearly not true for San Francisco, such that group loan, franctional loan, individual sale etc etc...On property tax, I never said separate bills, I said individual assessment on the same bill, which is exactly what it is....the building now gets one bill, but showing 5 tax numbers, one for each unit... That is what I said from the beginning...

    At any rate, this is way too much debating here...I asked a refi question and got myself into a whole argument around the legality of TIC as a property type....Not what I intended.... lets just leave it....

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    OMG lots and lots of misinformation and misunderstanding going on here!

    First of, these loans are called fractional tic loans. They are very specific to San Francisco. The loan interest is only tied to the fractional tic interest, and the bank can foreclose on that specific interest, and resell it. It does not effect the other tic owner interests. They have been around for 10+ years and are legal, although there hasn't been too much litigation on them, yet. 

    Anybody who wants reams of info on them simple needs to go to andysirkin.com. Fractional ownership is first link at top right. 

    Only a few banks, mostly local, do them. Bank of Marin and Sterling are two big players locally. Instead of wasting time trying to convince your bank to extend your loan- as @Jay Hinrichs said most likely a waste of time- I'd push harder to see if the other banks will make the loan as a rental, especially since you have a mucho equity position, can agree to a 3+- year ballon payment, etc.. Talk directly to these banks, not mortgage brokers, as most fractional loans are done direct. You may be able to get an exception, as these are small banks and you can probably get a direct response from a VP there, after some prodding. 

    Next option is to search hard for any bank that will do a heloc on an investment prop. It's rare, but I have heard that it can be done. Lots of searching needed for this imo. 

    Otherwise sell and 1031 exchange. 

    I'd avoid residential San Fran tic's as investment props unless you/friends/family own all the units, exactly for problems like this, and others, as it puts you at odds with owner occupied units, which are the norm. 

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  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Amit M.

    I had a conf call with their VP about 1 month ago, seemed fairly friendly and that is why I am still hoping to work things out with them... In essense they got out of the commercial lending in the last several years and wanted to clean up their books...

    That is what I was asking originally, if anyone had a similar experience.....

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  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Amit M.

    I would imagine banks go in  and out of certain market segment from time to time, and my case can't possibly be the first that such business decision was ever made on planet earth....And do banks throw all their existing borrowers, that can't find a refi, into foreclosure?  Especially given the condo convert in 2 years... That is what I was originally asking, but got off track so badly after that....

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Amit M. this is just like selling fractional interests in a Deed of trust and you simply use an assignment as to the beneficial interest.. I have not done a TIC deed .. but I assume its the same a deed describing a beneficial interest and only needs to be signed by the owner of that interest.

    Given the extreme equity Diane has in this TIC I have to think there is a Niche lender that will bite.

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  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    Regarding, "And do banks throw all their existing borrowers, that can't find a refi, into foreclosure?" The short answer is 'yes'. I don't think you are listening. Certainly in 2007-2008 this was commonplace. As a courthouse buyer, I'd see brand new construction, under contract, actioned off (by SunTrust mostly, but others too) because the builder didn't pay the final draw. It's not personal, it's just business.

    My last post on this topic...

    2Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    I still think you're barking up the wrong tree. It would behoove you to put that same effort into Bank of Marin and Sterling to get a non owner occupied exception, as they are active, and understand this niche market. 

    My last post on this topic...

    1Reply
  • David Krulac
    Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    9y

    @Diane G.  i agree with everything @Jay Hinrichs has said.

    1. Look for a commercial lender who understands TIC

    2.  Look for other credit unions or local/regional banks that do portfolio lending and don't sell mortgages to Freddie and Fannie.

    3.  Contact all the other owners in the building and see who is their lenders and contact those lenders.  If you can't contact the other owners do a records search to see who the mortgage lenders are.

    4. Contact private lenders, perhaps self direct IRA/retirement holders looking for an investment.

    5.  Contact people who know and love you to see if they are interested in earning interest on your solid investment.

    6. Sell you interest in the TIC to one of the other TIC owners or a third party investor.

    3Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @David Krulac

    David - I am doing most of what you suggested in the list, plus I have sent email to their VP and asked a F2F discussion after the holidays.... I will know then whether this is any possibilities with Stanford Credit Union....The last we talked, VP suggested that I refi my other rental WITH THEM and take equity out to pay off this TIC... So we will see.

    This morning, a mortgage guy with a large bank, who I have known for more than 10+ years, called me and told me that upon reviewing my tax return, my ratio are all very good, with rental at $20K profit in 2015 INCLUDING depreciation.... So hope there... 

    1Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    9y

    I have some bad experience as a real estate professional on representing default properties to dispose them for SCU. They never keep their word. I went to to PA Stanford campus office many times.  Often they tell you the policy changed even you have a letter or some understanding.  I suspect they will not even extend your loan since your loan matures in July 2017.  If you can not renew it suggest you do a 1031 tax deferred exchange before.  My suspicion is most homes near SU, PA prices have stabilized and will stay that way.  The only neighborhoods that are still appreciating (>5%) is farther away from job centers as they are still affordable.

    Sam Shueh

    Campbell, CA 

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  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Sam Shueh

    Hi Sam - care to go into a little bit more detail on your experience with Stanford Credit Union?  I do not like their old team either, I remember once screaming at their banker because their internal records were completely messed up...Another time, I had to shoot my email directly to their CEO to get some stupid stuff resolved.... That said I think they had a complete reorg in the last 2-3 years, all the faces there are all new from 2 years ago....Will see what happens after the new year when I meet with them F2F..... 

    0Reply
  • Lily Quan
    San Jose, CA · Member since 2016 · 36 posts · 7 votes
    9y

    @Diane G. sounds like you have a lot to accomplish before the maturity date. I would suggest looking into a local private lender that knows the TIC-SF realm. It sounds like a niche lender could pick this up and run with it if you are willing to pay a bit more premium for the higher interest rate, which in the end will save you time. It does sound like your lender is getting out of this space so negotiating with this company seems like moot point, although notable on the persistency. There are many lenders trying to fit into this space you are in, so worth it to utilize the service. Many hard money lenders have their own in-house counsel and can create a solution until 2019!

    0Reply
  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Lily Quan

    All these "looking for another lender" is a lot easier said than done....Every one has been saying that, but who knows of such a lender?  

    I am sure if I am willing to pay 10% or more, I can get a HML... But I am going to wait until the F2F meeting, and yes, I am betting on Stanford Credit Union realizing that it is in their best interest (too) to give me another 2-3 years than to kick me into forecclosure now, and take over a % of interest in a unit that has tenants in it.... Will see...

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    9y

    You're right, having $1 million+ in equity on a property in a highly sellable market will be seen as a huge disincentive to foreclose, and they will be willing to change their business model to accommodate you. 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y
    Originally posted by @Diane G.:

    @Lily Quan

    All these "looking for another lender" is a lot easier said than done....Every one has been saying that, but who knows of such a lender?  

    I am sure if I am willing to pay 10% or more, I can get a HML... But I am going to wait until the F2F meeting, and yes, I am betting on Stanford Credit Union realizing that it is in their best interest (too) to give me another 2-3 years than to kick me into forecclosure now, and take over a % of interest in a unit that has tenants in it.... Will see...

    Diane what you may not be aware of is the regulators may have instructed the bank that they are to clean up that part of their balance sheet.. the banks these days are not the master of their domains.

    keep that in mind..

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  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Jay Hinrichs

    Jay - I agree that could very well be the case.... I will get more clarity in January when people are back in the office... I will keep you posted on the end solution....

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Diane G.  I had this happen to me with 3 banks.. one day they love your business the next the fed is telling them to cut their % of loans in the Hard Money lending sector.. I lost 15 million in Lines of credit all in one year... disaster  for me.. and I had to retire them all.. very tough position to be in I can tell you...

    So just throwing some thoughts out there.. you will get it done one way or the other.

    Prime real estate in a world class city with a boat load of equity.. not so bad right !!!?

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  • Diane G.
    OP
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Jay Hinrichs

    Lol, Jay, no, not so bad, indeed....

    Worst comes to worst, I will unload another property to pay off the $310K but I do want to hold onto this TIC for now...

    I also had a convo with the Wells Fargo SVP asking her what WF tends to do in my situation - good paying borrower, loan expires and can't refi (temp loss of job, healthy issue, retirement)...... Her answer is that WF would allow the borrower to continue paying at either the existing rate or market rate... .They would never take the foreclosure route until a borrow stop paying.....IF the loan is on their books and has not been sold off in the 2nd market...

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    Diane,,, comparing Wells to SCU though is really apples to oranges one is a multi billion dollar national lender with millions of loans on the books the other is a small regional lender.. they do play by different rules.

    My experiences with my small commercial banks are more akin to what your going through.. I own stock in one and am pretty tight with Senior management so I do get a look behind the curtain on the how comes and whys of how they make decisions and again as stated many times its the regulators dictating their loan portfolio balance to asset class's.. in other words its a great time to have a dental or medical practice  banks are chasing those guys like crazy  !!!

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