Hard Money Loan and Refinancing

[Tim Morales]

Hi,

If you take out a hard money loan using a property as the collateral for that hard money loan, in order to pay off that property's mortgage, does the hard money loan act as another mortgage against the house once the mortgage is paid off?  I'm trying to figure out if the hard money loan would act as a liability against the house if I was to try to refinance the house after the mortgage was paid off with the hard money loan.  And then use the refinance to pay off the hard money loan.

Any feedback is greatly appreciated.

[Jonathan Holmes]

If I am following this you have a current mortgage that you wish to pay of with a hard money loan before securing a new mortgage to pay off the hard money loan. While I can’t really imagine a scenario that this situation would occur the answer would be it depends on you HML lender. They would legally be able to record a lien with the county which would then show up like any other mortgage. They would not have to do so but I can’t imagine why they wouldn’t as this would be the only way for them to actually secure the loan.

[Tim Morales]

@Jonathan Holmes Thanks for the feedback.  It is a complicated situation and not ideal but just exploring options.  

So it would go:

• Hard money loan pays off mortgage 
• Refinance house now that there is no mortgage on the house
• Pay off hard money loan with refi money

My thought was similar to your. The hard money loan would be leveraged against the house just like a regular mortgage as that would be the only way you could obtain a HML.

[Jonathan Holmes]

The only concern I would have would be the holding cost of the HML. You may have to wait for a seasoning period after the refinance into the HML. You’d have to clarify with your lender about how long that may be and make sure you can cover it.

[Upen Patel]

@Tim Morales Yes the HML would be a mortgage against the property (irrespective if it is recorded with the county or not) and it would be paid off by the refi loan.

[Tim Morales]

@Upen Patel Thanks for the feedback.  Does the refinance then hinder someone from obtaining another mortgage on another property?

[Chris Purcell]

Originally posted by @Tim Morales:

@Jonathan Holmes Thanks for the feedback.  It is a complicated situation and not ideal but just exploring options.  

So it would go:

• Hard money loan pays off mortgage 
• Refinance house now that there is no mortgage on the house
• Pay off hard money loan with refi money

My thought was similar to your. The hard money loan would be leveraged against the house just like a regular mortgage as that would be the only way you could obtain a HML.

I’m lost.  What are you trying to do exactly?

A HML is a mortgage btw

[Upen Patel]

Originally posted by @Tim Morales:

@Upen Patel Thanks for the feedback.  Does the refinance then hinder someone from obtaining another mortgage on another property?

No, the refi just replaces one debt with another. It wouldn't hinder. If anything it would help lower your DTI.

[Jonathan Holmes]

@Upen Patel You made me curious when you say that a HML is a mortgage irrespective of whether it has been recorded are you saying in the sense that it’s a loan on a piece of property and therefore a mortgage or is there another method of legally recording a mortgage? Is it different in different states? I mean in terms of having it show up on a title search.

[Brent Coombs]

Originally posted by @Jonathan Holmes:

@Upen Patel You made me curious when you say that a HML is a mortgage irrespective of whether it has been recorded are you saying in the sense that it's a loan on a piece of property and therefore a mortgage or is there another method of legally recording a mortgage? Is it different in different states? I mean in terms of having it show up on a title search.

Won't any Refinancing Lender ask about all debt obligations (including HML loan/s)? In that sense, it's "a mortgage by any other name...". So, even if an HML is silly enough to not use the actual property as security against their loan, the Refinance Lender will include the HML Loan as part of DTI. [@Tim Morales, what's preventing you going straight to conventional Refi?]

Everybody, don't even think of trying to hide debt obligations from Lenders!

Mortgage fraud can result in very serious consequences! Cheers all...

[Upen Patel]

Originally posted by @Jonathan Holmes:

@Upen Patel You made me curious when you say that a HML is a mortgage irrespective of whether it has been recorded are you saying in the sense that it's a loan on a piece of property and therefore a mortgage or is there another method of legally recording a mortgage? Is it different in different states? I mean in terms of having it show up on a title search.

What ever you all it - mortgage, loan, etc. - its debt tied to the property. Even if it is not recorded, I use the loan note to manually add it and then include it in the payoff.

[Tim Morales]

Originally posted by @Brent Coombs:

 [@Tim Morales, what's preventing you going straight to conventional Refi?]

Everybody, don't even think of trying to hide debt obligations from Lenders!

Mortgage fraud can result in very serious consequences! Cheers all...

There is possibly an issue with the deed being in someone else's name.  So the thought is to pay off the mortgage ASAP to get the loan out of the picture.  Just exploring options.  I appreciate the feedback.

[Christian Bachelder]

Hi Tim,

This is a very interesting situation that I have never heard of before. I am new to BP, so to avoid breaking any rules of the forum, feel free to pm me. I am a mortgage broker in Los Angeles and I feel there may be a much easier way to take care of the title issue with the property.

Quit claim deeds, assuming the current mortgage, refinancing to pay off the current mortgage into another one, etc. The last would obviously require a title report as the lender will not lend on a house where title is in question, but there may be work arounds with your particular situation. I know a great title company that will find a way to make it work if there is one.

[Brent Coombs]

Originally posted by @Tim Morales:

Originally posted by @Brent Coombs:

 [@Tim Morales, what's preventing you going straight to conventional Refi?]

Everybody, don't even think of trying to hide debt obligations from Lenders!

Mortgage fraud can result in very serious consequences! Cheers all...

There is possibly an issue with the deed being in someone else's name.  So the thought is to pay off the mortgage ASAP to get the loan out of the picture.  Just exploring options.  I appreciate the feedback.

 Curious... What would you expect to gain by paying off someone else's property?

(Or, if that same someone is selling you the property, where's the complication?)...

[Jason D.]

@Tim Morales what you are suggesting can be done. Hard money loan can pay off the original mortgage, then the re-fi will pay off the Hard money loan. I'm not sure if it will accomplish what you are looking to do, but you cam do that. You could eliminate the middle man and just pay off the original mortgage with the re-fi, and save a few thousand dollars in HML fees.

[Tim Morales]

Originally posted by @Brent Coombs:

There is possibly an issue with the deed being in someone else's name.  So the thought is to pay off the mortgage ASAP to get the loan out of the picture.  Just exploring options.  I appreciate the feedback.

 Curious... What would you expect to gain by paying off someone else's property?

(Or, if that same someone is selling you the property, where's the complication?)...

The loan and title are in different names. The loan holder wants out and I can't refi with his name on the loan. So my thought is HML to pay off the loan and then refi to cover the HML.

[Jason D.]

@Tim Morales what are you trying to do with the property? Renovate and flip? Rent out? What you're trying to do can be done, but there is a lot of missing info to give advice on whether it needs to be done. You can avoid paying thousands in fees and interest if you don't go the hard money route.

[Brent Coombs]

Originally posted by @Tim Morales:

Originally posted by @Brent Coombs:

There is possibly an issue with the deed being in someone else's name.  So the thought is to pay off the mortgage ASAP to get the loan out of the picture.  Just exploring options.  I appreciate the feedback.

 Curious... What would you expect to gain by paying off someone else's property?

(Or, if that same someone is selling you the property, where's the complication?)...

The loan and title are in different names. The loan holder wants out and I can't refi with his name on the loan. So my thought is HML to pay off the loan and then refi to cover the HML.

I believe normal procedure would be that you'd buy the property off the Titleholder, and pay off any loans/liens at closing (regardless of whose names were attached to those).

ie. Deducted from the Titleholder's net proceeds. [Please say you can afford / find financing].

Is there anything else different about this one?...