I hold the note. Borrower cant refi cause of credit. What are options to renew, foreclose or deed in lieu of foreclosure, etc?
All the above, assuming you have a valid, properly originated note.
If he's still paying on the note, I would renew, but you should charge him a point or so for the trouble.
How bad is the credit? Have you looked at a FHA 1023?
POINTS are prepaid interest on cash advances, not equity.
You can not charge points on an equity financed note!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Wayne is one of the nails on the head, do you have a legally enforceable note, did you check against the Dodd Frank requirements.
Next, any modification of a note is a new extension of credit, so again you need to check compliance under Dodd Frank.
Since you made the loan, was his credit about the same when the note was made? If so, you failed in taking reasonable diligence in extending credit, it can well be viewed as predatory lending. In which case, you lose, if not all, to some extent. If you go to foreclosure you need to pray the borrower doesn't object and seek council or read posts on BP.
Failure to use reasonable care in extending credit has always been an issue that lenders can lose money on with a seller financed transaction, the sell, finance, foreclose, rinses and repeat stuff is predatory dealing. It's easier to show when the lender-seller has greater knowledge (like an investor) than that of the borrower-buyer.
Even cities are attacking predatory practices!
If the borrower is the walk away type you may get a deed-in-lieu of foreclosure. Check title before you accept the deed or you'll be assuming liens.
I suggest you see a mortgage broker as they may have an outlet for credit issues. If not, see an attorney to proceed (look at the trustee on the deed of trust) or have a RMLO modify the note, fully amortized as you don't live in the subject property.
Meant to say Wayne hit the nail on the head..... edit timed out 3 times!
Thx guys for the interesting but informative comments to a complicated matter. The buyer credit is now worse than what it was at time in beginning as she missed a credit card payment laat month causing her score to go lower than minimum the lender can use. Now I face this dilemma of what to do. She has paid on time for 3 years, so i really dont think any foreclosure is warranted. This is first time having this situation so I turn to BP to grab some early ideas before going to attorney if needed.
I'm a mortgage broker and I speak from experience saying that not all banks/lenders have the same lending criteria so I'd try to find a broker and ask about loan options just as @Bill Gulley recommended. If there's enough equity in the home maybe its possible for her to sell the house to a relative, gift the relative the equity in the property so that the relative doesn't have to come up with a down payment and then that relative qualifies for a new loan to pay off your existing financing. That's another route I'd investigate.
Reference to your question regarding docs, I had a lender provide me with a GFE, & pre-qualification, Title company for a HUD 1 closing statement,. had Texas docs drawn up for a real estate lien note, deed of trust and a purchase contract. I'm sure I missed something with all thats needed now adays.
Can a 531 fico with a recent 30 day late on the only active acct get a mortgage? She paid off the the other 2 this year.
Unlikely, and I don't think was in the ball park before the missed payment, if it was just a single one.
If, for some reason, she has negative equity in the property she can qualify for a FHA 1023 refinance.
Here is a link:
@Bob E. Thx for the link but I have read over that and guides day seller/lender has to be willing to forego 10% equity. Unless I read it wrong.
Yes, look to relatives to sell to, if it's only your note, they could buy sub to and continue, I doubt you'd have an issue using the same terms and simply extending the loan without other modifications as that will look better for you. A sub-to puts title to someone else so later as equity is established the refi can be easier, no up front cash other than closing the sub-to. If they can buy and take you out as Jessee suggested that's even better but that lender may not accept a gift letter for the entire down. If it were a sub-to refi the down becomes irrelevant after one year.
Might do a DIL and then do a lease-option, the option price being the equity she had, state the payoff as the sale price and lease it back. It will take her 3+ years to qualify for purchase money after a DIL. Credit will need to be 640+ as well for most lenders after that.
The issue is that she will miss the balloon payment putting her in default of a mortgage, I know you don't report but she has to state that on any application once you get to that date, so extending may be the best option, keeps the black mark off her application/credit and may improve credit sooner.
If you make an attempt to extend the original terms to an amortized loan you'll be in much better favor under any violation, shows you tried. Not correct but better than being worse off. Dealing in good faith and trying to correct something goes a long way. Good luck :)
@Barry Ratliff I usually buy non performing so 10% below market usually leaves a solid margin and saves the problem of having to FC. I realize Texas can be a quick FC state but there is always the chance things get tied up with a BK or other delaying tactic.
How mach do you leave on the table if they refinance at 90% of FMV and is that coming out of your profit ar an actual hit against your equity?
@Barry Ratliff 531 fico is too low, 580 minimum on fha products with my investors. The family member/purchase gift of equity is the way to fly if your existing borrower can do that. I've done this many times, and I've never had an issue with a lender not accepting the gift of equity, this is a fannie mae guideline.
As was pointed out a FICO of 531 is not a result of one missed credit card payment. There are other derogatories on her credit that are causing that score. The FHA refinance program requires negative equity at the time of application it is not simply a short refinance, meaning if there is no negative equity the loan does not qualify regardless of whether the lender is willing to take the 10% haircut. I am guessing this loan will not qualify for the program.
The borrower needs a little help and plan to get her credit repaired. It is likely that your mortgage is not being reported on her credit and if she has made 36 on time payments and has reduced the original balance there are credit methods to manually report your trade line to boost the score. Of course all of that and the impact it will have really depends on the rest of the credit.
As mentioned the borrower is a little over 100 points down. It is not clear what trade lines were "paid off" nor if that actually means the lines of credit were closed. If that is the case, where she paid the cards to zero and closed the accounts, then likely she does not have enough positive credit with those closed not reporting credit use and you her mortgage not reporting credit use and on time payments to battle against the derogatories she has. Thus downward pressure on score. There is a credit product out there which can sample what the score would re-score to if you add your line.
There are some loan brokers and shops which have more experience with sub-prime type borrowers than others. The credit vendors they use offer re-scoring and evaluation of score products which can shed some light on to the whole credit issue. If you are not familiar with credit from a lending standpoint it is wise to find a broker who is and see if you can get them involved. They can help the borrower come up with a plan to improve. It is probably important to mention here that you will also need to be mindful of the loan to value which she will need to be at in order to refinance when credit is good enough. Again, talk to the right kind of broker.
These are very common mistakes made by consumers, closing lines they should keep open. They believe they are doing the right thing under responsibility but credit score wise has negative affects. Not an insurmountable obstacle by any means but it will take time. How much time really depends on what the current credit picture looks like. Remember credit functions on a per month cycle at best so if a there are a couple of issues this could easily be another year.
I would be careful with the idea of moving into foreclosure rapidly here. As Bill points out, you made the loan to a consumer for a primary residence. Texas protects home ownership with some vigor and they do not care for predatory practices.
@Dion DePaoli is spot on regarding the credit rescoring and very wise to point that out as an option. I'd help you out if you were in California, but you're not. The broker that helped you out originally should be able help in that area.
@Dion DePaoli Thanks Dion for the info. I am aware of the negative pressure having cancelled lines and or no active lines on a consumers files. I did more investigation and found that she only has one active trade and the other derogatory accts are from past medical bills from child health complications. I am locating brokers to speak to that can work with this challenge. The most concern issue I have now is that the balloon expired Sept 30. What is safest legal way to get this back on track? Create new loan and term to have more time? Extend current terms? Dont want to DIL then lease option as this will just hurt buyer and not pay me off NOW!
Well I would say step 1 is get the whole picture before making a plan. Medical derog's have a fleeting effect when there are other trade lines which are positive. As time rolls forward the missed credit card payment will also start to diminish its affect. For now, I would simply forebear the maturity and get to the bottom of what to do next. If the process seems like it will take a couple of months then I would offer a modification to extend the maturity. It is important here, obviously, to make sure the borrower makes on time payments at the least to ensure that when you do report it does not include a delinquent payment. Note: a delinquent payment is not a late payment. Delinquent is 30 days past due. Late is past the due date and prior to being delinquent. Do not let the borrower slip into delinquency because she thinks all is lost, not being able to refinance on time. There will be some costs for the reports and process show that you are here to work it out and also sort that out between the two of you so it all stays upfront and friendly. You both want the same thing.
you network with RE investors and sell it. Everyone wants a seasoned note.
Well BP friends, time has passed with this post and borrower is no better off than last. I did extend the loan for one year same terms. I've enrolled her in credit repair and suggested a credit card to establish credit and improve her score but she has only been made payments on time.
I cannot baby sit her and feel I need to get house back if she is not improving her self. The mortgage I created was a 3 year balloon that I extended. Any Thoughts and what would you do or have done?
Hello, I was just following up on this thread. I was wondering what did you do with the buyer? Was it a smooth foreclosure? How did it go? Thanks
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