Refi on house used for collateral

4 Replies

My wife is being offered ownership to a company where she would have to use our MFR (we owner occupy, only property we own) as collateral, in return she would become a share holder. If our house is being used as collateral we are being told we will not be able to refinance. Our intention with our current property was to refinance a portion of the equity to purchase our next property. If we have to put our property up for collateral what options do we have moving forward using our properties equity to purchase future properties? Is refi possible? other options we are not thinking of?

Originally posted by @Shawn M. :

My wife is being offered ownership to a company where she would have to use our MFR (we owner occupy, only property we own) as collateral, in return she would become a share holder. If our house is being used as collateral we are being told we will not be able to refinance. Our intention with our current property was to refinance a portion of the equity to purchase our next property. If we have to put our property up for collateral what options do we have moving forward using our properties equity to purchase future properties? Is refi possible? other options we are not thinking of?

 Looks like you've answered your own question that you can do either or. The entity holding the collateral determines the terms of the ownership and the liens placed on your property that result. Only that company can explain the terms to you. Collateral means the company has right to your houses equity if the business incurs liability it can't pay back. What do you stand to gain from the business over the short/ long term by putting your property up as collateral? What do you stand to gain by instead refi your property and investing in rentals instead? What risks are associated with the company that could jeapordize your property and have them take it back if company were to get in trouble? Pick the one that you stand to gain the most and have the risks most acceptable to you after talking with your financial and legal advisors.

@Jeff I have not spoken directly with the bank setting the terms,  I only spoke with company business adviser.  I plan to speak with bank.  Do you know if banks allow a refinance while property is part of collateral?  some ideas I thought of are refinancing prior to deal or using our house as collateral with third party loan.  Do you know if we can front property as collateral for two deal? i.e. we move forward with my wife being a share holder (house in collateral)  and then I offer my house as collateral to separate lender (relative) in exchange for loan.

@Jeff Bridges undefined

Originally posted by @Shawn M. :

@Jeff I have not spoken directly with the bank setting the terms,  I only spoke with company business adviser.  I plan to speak with bank.  Do you know if banks allow a refinance while property is part of collateral?  some ideas I thought of are refinancing prior to deal or using our house as collateral with third party loan.  Do you know if we can front property as collateral for two deal? i.e. we move forward with my wife being a share holder (house in collateral)  and then I offer my house as collateral to separate lender (relative) in exchange for loan.

@Jeff Bridgesundefined

 I'll start by saying I'm not a financial professional. If the company is saying they want the property as collateral, they would likely be placing a consensual lien on your property following the completion of that deal. That lien will be recorded and visible to all lenders saying "all equity beyond the existing loan is reserved for this business to recover should the owner default on their terms. No one else can lend against this asset" You also can't have multiple entities take collateral on the same asset or would be over committing the available equity. If house is worth 100k for example, you only have 100k in equity to borrow against regardless of how many different lenders you utilize. Anyone lending to you would know not to lend you 200k secured against your house if it only has 2k in equity after your existing debt. Further, the lien would prohibit them from trying if they were to want to. You might be able to refi before entering into this deal, but if you max out all available equity, then the company would be able to research this and determine that your collateral is no longer sufficient guarantee for them to offer ownership and would require something else in place. That could put you in a difficult position where you might not be able to become an owner if you cant provide alternate collateral. We don't know the value of your piece of the company or your house so we wouldnt know if the guarantee they are asking for is a big ask relative to the value of your house or just a token value to show you have skin in the game and cant just walk away. You need to weigh this all out with an advisor to see if the risk is worth the reward based on the option you select.

https://www.mcrazlaw.com/what-is-a-consensual-lien...

Join the Largest Real Estate Investing Community

Basic membership is free, forever.