Is There A Way Of Structuring This Note.
An owner is in forclosure.
Her property value is $650K (to be confirmed).
Loan amount is $425K.
Default amount is $16K.
Monthly mortgage payment is $3200.
In default 5 months.
Total Income $5700.
Total Expenses $5150 (conservatively).
She does not want to sell. Looking for a loan to catch up + $10,000.
Her high LTV is what concerns us, as far as giving her a loan. Any ideas as to what could be done in this situation.
That's a 68% LTV if 650 is right and I understood your numbers.
why is that high? depending on her credit why would a std. 80% jumbo work? She'd get cash out.
I assume that you are looking to lend her $25K or $26K behind her first of $425K. If this is so your LTV is near 70% which doesn't seem too bad.
I would have some concern about her ability to pay if what you mean by Total Income $5700 is her (including family). You didn't indicate whether this is gross or net.
You also need to check on a few other items. Check for any other liens such as property tax liens, IRS liens or liens for unpaid garbage bills, etc. The other thing is that institutional lenders tend to tack on a lot of penalties and fees when their loans are financially distressed. All of this would have senior position to your loan.
I hope that this is of some help.
Regards,
Ed
Ed, Thank you for your reply
"I assume that you are looking to lend her $25K or $26K behind her first of $425K. If this is so your LTV is near 70% which doesn't seem too bad."
Yes that is correct.
"I would have some concern about her ability to pay if what you mean by Total Income $5700 is her (including family). You didn't indicate whether this is gross or net."
Total Income is net, and yes that is exactly our concern. How do we protect ourselves if she does not pay? What is the maximum we could charge, if she goes in default (points, fees, interest...)?
You also need to check on a few other items. Check for any other liens such as property tax liens, IRS liens or liens for unpaid garbage bills, etc. The other thing is that institutional lenders tend to tack on a lot of penalties and fees when their loans are financially distressed. All of this would have senior position to your loan.
We we'll definitely do a preliminary title report.
reinatalie,
Your main source of protection if she does not pay is the foreclosure process. If you foreclose, you will either wind up owning the house or you will get paid.
You might want to check with someone else regarding what you can charge for interest. I have had people trying to get me to lend money and I have heard that 13% is not a problem.
You might also want to check with the county tax records to see if she has been paying taxes. These may not show up on a title report until a lien is filed. Another thing with foreclosures as that many of the penalties charged by lenders may not be current either. You may need cooperation from the owner to get a list of current amounts owed from the lender. I have found this process a bit frustrating but you should probably see if you can get a statement since some of these items can be substantial.
Regards,
Ed
check your state usary law. 13% might be doable.
I would draft the note as follows:
restrict junior debt
5% (something resonable) is normal rate
13 or whatever (pls late fee, collection fees, etc) if the note defaults.
This way you have almost 30% equity protecting the note.
Or Consider it a HML and charge 12% from start.
Do you want the house, the income strem, other? The would guide you.
the only thing to bite you is senior liens.
Good luck.
If you are lending direct to a homeowner who will be resident in the property you might find that you have to be licensed.
You also might have to comply with some disclosure rules concerning homeowners and borrowing funds that puts their home at risk.
Anyone know the CA rules?
John
[addsig]
in CA you hace to a state finance license or an RE broker lices to charge more than a specific margin over a rate publish by the SF Fed bank.
from a web ref:
"The constitutional usury limit applicable to most business transactions (those not “primarily for personal, family, or household purposes”) equals the Federal Reserve Bank of San Francisco’s discount rate (the rate charged to Fed member banks) plus 5% per year, but the limit can never drop below a floor of 10% per year. As of May 15, 2001, because of a low discount rate (4.0% per year), the maximum rate was 10%. "