Notice of Default from Lender on Second Home used as temp rental

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Notice of Default from Lender on Second Home used as temp rental

Daniel Rozen
Investor · NY · Member since 2021 · 18 posts · 7 votes

Hello all,

I'm in need your advice on how to handle the situation i am currently in.

A year ago we purchased a second home in FL and rented it out right away. To be honest, we were thinking of at least partially spending some time in FL during the Covid times but found a great renter for 1 year within a month of closing. It was great as we didn't have to drop everything and move there right away. Today, i received a certified mail notice of default letter from a lawyer's firm which lender retained to represent their interest. Apparently (my bad in reading the loan docs) i was not allowed to rent it out as a second home.  My guess is the lender is stuck with this loan as investment (more risk), while they wanted to sell it as second home (less risk). The letter does not tell me specifically what my actions should be with regards to this. 

Im sure some of you have dealt with situations like that so if you could share or educate me what my actions should be i would greatly appreciate it.

Best regards,

Daniel

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Andrew Garcia
Lender · Charlotte, NC · Member since 2022 · 739 posts · 410 votes
4y

Hi @Daniel Rozen, you will likely have to refinance this property as an investment property.

You will be looking at much higher interest rates now and you might have to come out of pocket to make up the difference if you do not have enough equity.

You can also look into selling the home to make the lender whole.

Also, try calling the servicer of your loan and explaining the situation. Maybe they have a better solution.

I hope this helps! Let me know if I can be of any assistance.

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  • Andrew Garcia
    Lender · Charlotte, NC · Member since 2022 · 739 posts · 410 votes
    4y

    Hi @Daniel Rozen, you will likely have to refinance this property as an investment property.

    You will be looking at much higher interest rates now and you might have to come out of pocket to make up the difference if you do not have enough equity.

    You can also look into selling the home to make the lender whole.

    Also, try calling the servicer of your loan and explaining the situation. Maybe they have a better solution.

    I hope this helps! Let me know if I can be of any assistance.

    1Reply
  • Mary Jay
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    4y
    Quote from @Daniel Rozen:

    Hello all,

    I'm in need your advice on how to handle the situation i am currently in.

    A year ago we purchased a second home in FL and rented it out right away. To be honest, we were thinking of at least partially spending some time in FL during the Covid times but found a great renter for 1 year within a month of closing. It was great as we didn't have to drop everything and move there right away. Today, i received a certified mail notice of default letter from a lawyer's firm which lender retained to represent their interest. Apparently (my bad in reading the loan docs) i was not allowed to rent it out as a second home.  My guess is the lender is stuck with this loan as investment (more risk), while they wanted to sell it as second home (less risk). The letter does not tell me specifically what my actions should be with regards to this. 

    Im sure some of you have dealt with situations like that so if you could share or educate me what my actions should be i would greatly appreciate it.

    Best regards,

    Daniel


     Interesting.

    How did the lender find out? Did you transfer it into an LLC? Or did you change your Home owners insurance to include a rental coverage?

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Daniel Rozen

    How do you know that is the reason your in default if the letter didn’t say the reason for default?

    Typically a default notification will tell you the reason for default and indicate a cure time (30 days typically).

    If that is the reason, you will need to refinance or they can foreclose on the property. Your other option is to sell it.

    I would also check your documents from the lender as typically on a 2nd home they make you sign something saying you won’t rent it out. By the way I would take this seriously as if you did sign that and rent it, it is considered fraud whether or not it was or was not known.

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  • Daniel Rozen
    OP
    Investor · NY · Member since 2021 · 18 posts · 7 votes
    4y

    Thank you guys, 

    it does look like i will have to pay it off and then maybe sell. I would probably tap into my heloc (not the best way to invest currently, but looks like the best way to avoid further complications). I have plenty of equity there and a good paying tenant. so for now i would just move the balance from a lender over to my heloc and see what happens. Maybe sell and cover the heloc balance later.

    thank you all though. Appreciate BP help as always.

    Daniel

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