My parents received a notice of default (NOD) on their mortgage several years ago and then filed for bankruptcy which cleared several judgement liens from the house, leaving only the secured mortgage loans. After bankruptcy, to avoid foreclosure, my parents brought the mortgage loan current however the lender did not record a Rescission of NOD at that time. No payments were made after bringing the loan current and my parents are now very behind in their payments. The loan has since been transferred to another servicer. Neither the new servicer nor the old servicer is willing to record a Rescission because each say it's the other servicer's responsibility.
My parents want to stay in the home. I would like to help my parents by buying the property from them and they would pay me rent. I have tried several times unsuccessfully to purchase with a conventional loan due to it being a non-arm's length transaction, the fact that there is an old (cured but still on record) NOD, and the fact that they are currently behind on their payments. The lenders consider this a "bailout" by Fannie/Freddie standards.
The house is worth about $800,000 and the mortgage balances total $550,000. I'm looking at my options and considering some sort of cash purchase.
Thought#1: With personal loans I could probably scrape together the $550,000 to satisfy the mortgages and maybe a gift of equity for the remaining $250,000. Then with the house in my name I would cash out refinance, either immediately or after some seasoning period if necessary. I have heard of "delayed financing" but I'm not sure if this is an option for me. Will the facts that it was a non-arms length purchase, a gift of equity, and an NOD belonging to the old owner affect my ability to refinance either immediately, after some seasoning period, or ever? If I can refinance will I be able to get the full cash out?
Thought#2: With even more personal loans I may be able to come up with the full $800,000 to purchase the home outright in cash without a gift of equity. Then with the house in my name I would cash out refinance, either immediately or after some seasoning period if necessary. Is this plan any more desirable than the above plan for my ability to refinance either immediately, after some seasoning period, or ever? Will I be able to get more cash out than the above plan?
I'm hesitant to go hard money because I'm not 100% sure on my ability to refinance after purchasing. I've heard so many "yes's" just to hear "no" at the end that I'm quite pessimistic and jaded. If anyone with specific experience in situations like this with clouded titles and non-arms length transactions has any recommendations I'd be eternally grateful to hear them.
Have you considered doing a subject-to deal with them? They would basically sign over the deed and you would take over the payments on the mortgage. There are a number of subject-to facebook groups you should look into.
Are they going to stay in the home after you purchase it?
@Dimitry Moltoff When you say cleared, were the liens stripped? If the home had equity the liens likely weren't stripped from the home. You need to check title as those liens may still very well be on the property. Discharging personal liability from a lien and having it stripped from title are two different things.
Since it's your payments it may be worth looking into reinstating the account and taking it subject-to the existing mortgage.
@Paul Beets Thanks for the idea. I've considered it but their interest rate is prohibitively high. They could go either way on whether to stay in the home and pay me rent or just move somewhere else - that hasn't been decided yet.
@Brett Goldsmith The liens were avoided (stripped) and the avoidances were recorded against the property. This was granted by the bankruptcy judge because they had bankruptcy exemptions that were greater than the equity of the home at the time. I can't really do a subject-to transaction because their interest rate is prohibitively high.
@Dimitry Moltoff Got it, sounds like you're in a tough spot since it's not affordable as-is.
Have your parents reapplied for a loan modification? How many brokers have you spoken to about a loan? How old are your parents? Depending on age ( older they are easier to qualify ) and how much true equity there may be a chance of them getting a reverse mortgage.
If you can't qualify for a loan and if your parents don't qualify for a loan modification there isn't really a true solution besides selling.
@Brett Goldsmith Thanks again. They will not qualify for a modification as they are on a small social security income. I have spoken to 3 different loan brokers who shopped the loan and issues out to several lenders each. I went through the entire loan process trying to close for months with the first two, then the third one I asked to go to the underwriters first before we go through all the effort again. He got a commitment from a lender that they would do it despite the issues...but after 8 months of being jerked around they said "no sorry it's a bailout" So I'm back in the same situation.
I have considered a reverse mortgage but their equity of only ~30% does not qualify them.
I don't qualify for the loan only because it's a non-arms length transaction and the sellers are in default with a NOD. My question was if I structure some sort of cash purchase so that it is entirely in my name, would there be any issues with me being able to refinance later?
@Dimitry Moltoff You could show contributions to the borrowers income as part of the modification application and see if that will make the difference to get approved. Obviously if you show too much or too little it could result in a denial and I know time is of the essence. This is one way to supplement income in a LM review.
I don't see why you wouldn't be able to refinance "eventually". At times when buying cash you will need to wait a certain of period of time before a cash out refi is possible. I suggest speaking to some lenders.