All Forum Posts by: Dion DePaoli

Bryan, the Due on Sale clause or Alienation Clause came about as a result of exactly what Brandon Turner described in the 1970's and early 1980's. In 1982 congress created the Garn–St. Germain Depository Institutions Act which made the DOS a federal enforcement issue. The clause is enforceable and was used back then. I would say, history is your example of what if's. Since the roll out of Garn, rates have been falling so you will not have a bunch of examples of the clause being used. I can also tell you, I have personally used the clause in a couple of some notes, accelerating and calling due. It is not a myth. It is and always be an option to the mortgagee to use where the law allows and will be used where it benefits the mortgagee's interests in general not just with rate.

If the Mortgagee calls the note due, then paying the Mortgagee satisfies the demand. Can that be done with with a Wrap? NO. A Wrap usually refers to wrapping the existing mortgage with a new mortgage with enough interest and principal so as to allow debt service from that note to pay for the existing note that was wrapped. A wrap does not usually involve payment in full of the underlying mortgage obligation.

Essentially all a Wrap does is create a payment arrangement with a secured interest inferior to the present mortgage. The mortgage that was called due is the superior mortgage and if the mortgagee demanded payment in full then paying less than entire balance does not satisfy the demand. Or another way to say it, a Wrap is not a refinance which 'replaces' existing mortgage debt, it only goes on top. So, a wrap would not satisfy a payment in full.

In the event the DOS is triggered and the note balance is accelerated and called due, the mortgagor (borrower) has time to pay in full and failure to pay in full leaves the mortgagee with the ability to pursue foreclosure per the state where the subject property is located. During said foreclosure process, or anytime, prior to the expiration of any foreclosure action including any redemption period, paying the full balance of what is due, always satisfies the debt, since that is all that was due.

Just curious if we have any Birmingham, AL multi-unit land lords and if so do any of you have experience in some of the lower income areas around the northeast and slight northwest sides of the city?

If you are here, where do you see your rents going over the next couple years? I know there are some downtown developments taking place and I hear some conversations that something about the lower income areas should be done but is there any short term upside in rents or occupancy that might be still a little concealed, in your opinion?

Do you think rents in those areas are a little depressed in general or are some of the depressed rents ($300 to $400) due to simply poor ownership? We think we are seeing some upside to some rentals (in DD) we are looking at and we think there is a bit more of a market trend closer to $500 to $600 (2 BD/1BA) with good management.

Any other relative or even random market insight is more than welcome.

Thanks.

It is good you are the sole owner of the corp. The issue may not really be where you are thinking. You can likely Quit Claim to yourself and not have too much of a problem but you may remove your liability protection under the C Corp and create a line right back to you from the Corp. Essentially making it very easy to pierce the shell of the C Corp to pursue you. Since you know what you did with the property in the C Corp, there should not be concerns of title defects of the owner and I assume the C Corp received title insurance. You may call the title agent who did your policy and simply ask if they will endorse you as a natural person with the QCD to be safe and see what they say. I think the bigger elephant in the room is when you send it back to yourself, does it also come with C Corp liablities that you may not want personally. If that is the case, you may need to do a more formal exchange, treating the transaction in an arm's length manner.

I doubt that is a high enough bid to get the asset. If the asset is in Florida and it is completely defaulted they might think about that if there is no foreclosure start, even then that is still a pretty low bid. I would guess they will look for you to be up in the mid 50%'s if not close to 60%. You did a reverse inquiry, so they have an idea you have a plan with the borrower to some degree, they will make you pay for it, they are not naive. Just a heads up to make sure you are ready to sharpen your pencil. Good luck.

@Account Closed

I don't know if I agree with the position of that article. I think to some extent it is crying pretty loud the sky is falling and it is not.

The QM rule points out 8 concepts as a minimal consideration for a QM loan:

1. Reasonable expected Income or assets
2. Current employment status
3. Monthly payment requirement
4. Monthly payment on any other simultaneous loan
5. Monthly mortgage related obligations
6. Current debt obligations
7. Debt to Income ratio
8. Credit History

The rule does not disallow un-Qualified Mortgages, it provides for a standard to presume the criteria was considered to some level of detail that the borrower can repay. You know, prudent lending practices.

The rule recognizes that UQM loans will be made and it made a point to talk about those loans. Even so far as to carve out some additional characteristics around loans which are not considered QM loans but are prudently underwritten. For instance, a balloon note mortgage can still be made and even expects them to be made where creditor areas with little credit service can do business, like remote rural areas. "Creditors are only eligible to make rural balloon-payment qualified mortgages if they originate at least 50 percent of their first-lien mortgages in counties that are rural or underserved, have less than $2 billion in assets, and (along with their affiliates) originate no more than 500 first-lien mortgages per year."

They adopted an additional stance:
"...category of qualified mortgages for certain loans originated and held in portfolio for at least three years (subject to certain limited exceptions) by small creditors, even if they do not operate predominantly in rural or underserved areas. The loans must meet the general restrictions on qualified mortgages with regard to loan features and points and fees, and creditors must evaluate consumers’ debt-to-income ratio or residual income. However, the loans are not subject to a specific debt-to-income ratio as they would be under the general qualified mortgage definition."

The rule expands what use to be governance over "High Priced Loans" or "Section 32" loans. The main thing the common public seems to be missing is Hard Money loans or Private Money loan would be exempt. So a loan to an investor on a rehab is exempt from QM. The key difference is the rule protects the "owner occupied" home.

To some extent I believe we need to put some of the ideas in check in regard to sub-prime lending practices. I think that is what the rule will do. The concepts are in opposite to each other and I have always found it a little funny. The people with the worst borrower attributes have to pay the most so they can continue to be the least likely to pay the loan back. Should we be making 10% loans to folks with 450 credit, a job at McDonalds for 20 hours a week? (No) So, then does the rule really remove the base of potential client/borrowers? No, I don't think so. I think it helps put a circle around those folks and says you can lend to them, but you have to make sure they can pay the loan back. That goes for institutional lenders and private folks. Stop making loans to people who can't afford them.

In short, to address K. Marie's question. You, as the maker of the loan should take steps to ensure the borrower can pay you back. I would say look at it more like a guide rather than a burden.

I don't think it is all that big of a deal really.

I think the core issue or barrier to this going the way that some of the guru's describe is that the SELLER actually acts as a LENDER. That is the key, IMO. If you are acting as a Lender, you will need a license that allows you to lend. Being a licensed LENDER is not the same as being a licensed MLO. The acronym for MLO get's throw around in many cases incorrectly for that.

For instance, I have been a licensed Florida mortgage broker for many years, however I can not lend, my company has to obtain a Lender License from the state, then have to put my license under it and then I can lend. Technically, I (the natural person) am not the lender, the company is. My broker license allows me to collect a fee for service, the service being negotiating the loan between the two parties which includes taking application.

While state and federal rules do require some specific paperwork, there is not really too much new stuff. More revisions than anything and that is not really anything new for the industry. Regulation Z has always been around and is not going anywhere. It was just updated, but it just calls for brokers to do a better job at their job. Something, IMO, that was needed as the integrity of the disclosures required under the rule was diminished. We all heard stories that the GFE didn't match the HUD. There was always a rule around the variance allowance and when an updated GFE had to be issued. Now the regulators have some teeth and the rule is a little clearer on when and how much calls for redisclosure and what needs to be considered in disclosure.

I know many are all up at arms about all of this but I still simply think it is not too far from what use to be with a little twist. 10 years ago, many were concerned about similar ramifications with "mortgage processors" and whether some states required license for what was usually considered an administrative task. Now, most states actually do require them to hold license. We use to have policies that prevent our processors from speaking to a potential borrower so there was no crossing the line of negotiating terms with the client as our state did not require license back then. For instance, now California also requires license for processors and underwriters regardless of borrower interaction or the lack of term negotiations.

I would also conclude that those moving away from activities that require license, is they simply don't want to go get licensed properly. I don't think there is more risk. If I am a licensed MLO working for a Mortgage Broker Business, a broker house not a lender, not too much changes in the world. A MBB only acts as intermediary between lender and borrower. The lender lends the money making the loan, not the MBB. So the fee paid is for the action of taking application and negotiating terms. MBB is not a universally used term in all states but I think it speaks to the concept and helps bring an understanding of what I am contrasting. In most cases, people just like to complain I suppose.

Nate, I glanced at the Utah state statute. The contract can prevail according to the state.....BUT....I would still be a little careful as the new mortgages rules, specifically the "Qualified Mortgage" and "Ability to Repay" rule makes distinctions between "high cost" and "low cost" loans. The laws go into effect in Jan 2014 and we do not fully understand the implications of the rule just yet. There 'could' be overreaching situations that serve to essentially remove the relaxed idea of some state usury laws. The rule itself does not intend to create usury limits or definitions but offshoots from the rule could have that effect.

I won't speak for Bill, but yes, we both draw concerns on the advertising the company is doing and whether it is in compliance by them being properly licensed. Advertising loan interest rates requires annual percentage rate disclosures. An advertisement only talking about a payment and not disclosing properly A.P.R. could be deemed a violation. That would cause the company to be fined and if could create some level of affirmative defense, especially with some of the new laws coming out, for the borrower.

The repercussions on your side of the fence could be that the loan you buy is deemed unenforceable. You would have recourse against the company depending on the terms of sale in the loan purchase and sale contract. You will want to make sure you have legal counsel review the contract and perhaps create some warrants around this type of issue so you can recoup funds. Although, if they are doing lots of bad stuff, they may go broke, so there is some risk that you need to get to the bottom of.

You will certainly need to do some due diligence on the originating company. By what you just said, the company is "Holding itself out to the public" for loans. I am not all that familiar with Utah MLO laws, but many states will require that company to have and hold a MLO license and perhaps company license. The property may allow for exemption from licensure if it does not fall under the state definition of 'residential' real property. I would simply call down to the department of real estate or finance (or whatever it is called in the state) and ask someone about license requirements specifically for that type of loan on that type of property.

In addition, law may restrict maximum interest charged. If they are exempt from license, some states also cap the amount of interest that can be charged and at 12% interest you are likely on the edge of that cap if not past it already. Also, bare in mind, other costs that went toward closing the loan may need to be included in the computation of interest to see if you have exceed usury.

While it may seem highly likely that such a niche property will not get purchased at a foreclosure auction, do not make that a part of the plan. You are only entitled to the principal, interest and fees per the note. The property could sell at auction, and may even be likely to sell at auction if the amount due at the time of auction is considerably lower than the value of the real property.

Attorneys are not exempt from licensure if they can be deemed "in the business". An attorney, through the normal course of working with their clients can orginate as a function of protecting their clients interests. If the attorney turns to the public with this service and seeks compensation or gain for the act of originating a loan, then they too must obtain a license. That is the case for most states that I know of.