Can You Pre-View a Note & Mortgage?

Question

I am going to go for my first-ever loan on a SFD. I am the kind of person who tends to like my ducks in a row. So, I am wondering about this scenario to see if it's possible: 1) I sign a contract and send it to a seller, who also signs 2) one of my contingencies is about the ability to obtain a mortgage 3) the underwriting process gets underway 4) they approve me and send me the Note, mortgage, etc. to sign (from what I hear) a day before the closing 5) I read it, and find something the bank's attorneys put in the Note and mortgage that is unsettling 6) the bank won't make any alterations to the contracts 7) I decline to get a loan or at least, get a loan with that bank 8) seller takes earnest money because I backed out of a loan.

I assume most people are so pleased to get a loan that they just kind of sign whatever is put in front of them. Buying with cash and refinancing is probably a possibility for me, but again, the Note and mortgage.

If I ask the lending officer to provide me with a copy of a blank Note and mortgage ahead of time, will they do so?

If I back out of signing at the last minute for such reasons, is it a loss of the earnest money as the typical purchase contract would read?

I have already asked about things such as pre-payment penalty, and recourse. If I can't get the lender to show me those docs ahead of time, perhaps I should just ask him to commit in writing to my top 10 questions?  In which case, what besides prepayment penalty and recourse vs. non-recourse would be items to find out about?

Sean OToole · Answer

I got such a surprise on a commercial loan I took last year. An assignment of rents clause is pretty standard, but their's actually read that they could take the rent even if I was making payments.

While you'd have to ask the bank to give you a copy of the note, it should be fairly easy to preview the Deed of Trust or mortgage by just going to your local title company and search for DOT's made by the lender you want to use. Make sure its for a similar loan type (sometimes docs are different for fixed and adjustable, other times its just a rider).

Best,
	Sean O'Toole

Founder/CEO PropertyRadar.com

Bill Gulley · Answer

A judgment from a deficiency can be placed against property as a lien, they can't take other property, when it's paid the lien is released. If you sold the property the put a lien on they get amounts from that sale. They can garnish wages and income or tax returns until the deficiency is paid.

Now it sounds like a commercial loan, buying investment property, so yes, you can have a prepayment penalty, if it wasn't common, they wouldn't be doing it.  :)

Jason Merchey · Answer

Residential, yes. Oh, hmm, verbally I thought I had gotten it straight with the banker that is was non-recourse, which to me means that they can only take the house itself in case of foreclosure. You're saying that if they foreclose, they would almost automatically have the right to seek my personal assets, such as residence? I'm putting probably 25% down on a SFDetached. Is this what is known as a deficiency judgment - and that holds true for investors as well huh?

Bill Gulley · Answer

Yes, contracts should always be read and understood.

The Dodd-Frank is in effect, you didn't say if this is commercial or residential?

Residential, you won't have any prepayment penalty.

Any note you sign from a bank will be full recourse, non-recourse notes are only made in business transactions, corporate with very strong borrowers in special circumstances. All mortals borrow on a recourse basis at a bank. :)

Jason Merchey · Answer

Ohh, ok Bill you are saying that these are standard documents regulated by the State?  OK I see. Yes, true, I should probably have nothing to worry about.

Just to clarify, then, the attorneys from the bank didn't draft the Note and mortgage, so what, there are boxes that get checked to specify if there is a prepayment penalty, or if it is a recourse loan and so on?

And to further clarify, if you got a contract of some kind (not a mortgage) from a person you were doing some kind of business with it wouldn't be boilerplate - in that case you should read it carefully because their attorney did draw it up and might have put who knows what in there, true?

Bill Gulley · Answer

Jason, the bank's attorney isn't sliding anything in there. The note they give you is the same note they used before and will be after you. They are standard notes and will not be changed on a residential note. If you deny financing unreasonably, which it will be if you turn down a standardized note, yes you'd lose your earnest money and you'll be in breach of contract. Your contract may contain damages, like ten% of the sale price plus costs. If you used your own investor super duper buyer friendly whiz bang contract and left out such damages, then the seller will be free to seek what ever damages may apply and justified by some attorney under state law that could end up being more than the usually agreed to penalties.

I suggest you go to the lender and ask to see a blank note if you really must.

The problem could arise since you don't really know what customary terms are that you'll form an uninformed opinion and just get cold feet.

You will have three days prior to settlement to review documents, nothing will be changed unless there is an error. The notes used have been "approved" by regulators at the federal and state level. You didn't say if this was an owner occupied note or commercial loan, but either way, there should be no issues. Just make sure it's the type of loan you were given a commitment for, rate, terms. The note covenants will be standard stuff. Calm down (LOL)  :)

Account Closed · Answer

Some lenders will have prepayment penalties  and if your personal guarantee the loan the lender will do a recourse loan; they do that, so they can come after you if you run south.

Joe Gore

Jason Merchey · Answer

I haven't read it yet. I assume you don't get to see the docs until the day before the closing. I really don't have 10 questions because I don't really know what to look for. If this were a car, I'd want someone to say "Don't forget to kick the tires, look under the hood, check the speedometer, check the dipstick, drive it, see if it pulls to one side while driving, slam on the brakes at 25 miles an hour" etc. etc. I only really know to look for things such as prepayment penalties and whether or not it is a recourse loan.