Need assumption help ASAP!!! - Posted by HT

import · October 25, 2000, 1:27pm

Posted by JPiper on October 27, 2000 at 17:38:51:

As I understood your direction, you were attempting to have the buyer assume YOUR loan. Therefore, the buyer will have to qualify according the underwriting criteria on YOUR loan. That underwriting criteria may well be much different than the underwriting criteria on HER loan that she qualified for. So the fact that each loan has a similar LTV doesn’t mean that she can assume YOUR loan. It will depend on whether HER credit and HER income meet the requirements of YOUR loan.

The fact that the loan is “safe” for both lenders really doesn’t have much to do with this. If I have a 50%LTV outstanding balance on a loan that required A+ credit, and I now have a borrower with C credit who qualifies for a 50% loan with another lender…I will assure you that this borrower will not be able to assume MY loan.

If I have misunderstood what your direction here is with this deal then disregard my post.

JPiper

import · October 25, 2000, 1:27pm

Need assumption help ASAP!!! - Posted by HT

Posted by HT on October 25, 2000 at 13:27:11:

I apologize in advance for the length, but it is needed to provide the pertinant info. I am in dire need of assistance on a possible assumption of a property.

I acquired a property which I had on a L/O to a tenant with questionable credit. While I was able to acquire option money and all my rents, when it was time to exercise the option, her credit only allowed her to qualify for a 75% mortgage (far short of our agreed purchase price and my profit margin).

This wouldn’t be a problem if I wanted to hold a second, but I don’t. While her loan amount was short of our purchase price, it is just enough to cover my own loan, which opens up the option to let her assume my loan (I believe since she qualified for one mortgage, she should qualify with my mortgage co for the same amount?)

The problem is, that I want some cash out of this deal! My suggestion to her was to take a short term signature loan from her credit union to cash me out of the loan (hence providing the cash I want)and I will provide her with a lower sale price and interest rate than she qualified on her own.

The tricky part is that if she gets the signature loan before she assumes the mortgage, when the mortgage company runs her credit, her increased debt ratio will lower the amount she would qualify for, thus killing the deal. In essence, she can probably qualify for one loan but not two.

Is there anyway I can work around this to let her qualify for the assumption and be able to get the cash I want?

The only solution I can come up with is to write up the assumption paperwork for the exact value of my loan and then write a separate promisary note for the cash amount I want with the agreement that it must be paid prior to the completion of the assumption or the property is forfeited back to me.

I figure that by having the loans separate, that I’ll be able to have her qualify for the assumption and have a legal document holding her liable to provide me with the agreed upon cash amount. This would leave her with the responsibility to get the money by whatever means she sees fit or return the property. Can I get burned with this option?

Any thoughts, feedback or suggestions on my problem or suggested solution would be greatly appreciated.

NOTE: I’ve got to have this completed by December.

import · October 26, 2000, 9:36am

Re: Need assumption help ASAP!!! - Posted by JohnBoy

Posted by JohnBoy on October 26, 2000 at 09:36:46:

Rather than have her try and assume your loan, or have her get a new loan and you stuck with carrying a second, and assuming she COULD get a signature loan through her credit union or any other finance company, why not try this,

Have her get the signature loan to pay you the cash you need. Then YOU carry the balance by selling on a wrap around YOUR loan. This way YOU get the cash you need NOW, AND you still get to make a positive cash flow from carrying the wrap. You already have a lower rate, so you just finance her at the higher rate keeping the monthly spread! Why walk away from all the extra profit you can make by just financing her yourself, assuming she can get the signature loan?

Do you HAVE to get your loan paid off for some other reasons?

import · October 26, 2000, 1:00am

Hold On… - Posted by JPiper

Posted by JPiper on October 26, 2000 at 01:00:28:

The fact that your borrower qualified for a 75% loan does NOT mean that they will qualify to assume your own loan that happens to be 75%LTV.

Loans have different guidelines. Your borrower in qualifying for a 75% loan tells me that her credit is poor. So eventhough there are subprime lenders who will finance these borrower at certains rates, that certainly doesn’t imply that your borrower could assume YOUR loan, which could be any type of loan…to include an A loan. You don’t say.

Better check it out.

JPiper

import · October 25, 2000, 2:21pm

Re: Need assumption help ASAP!!! - Posted by Mark-NC

Posted by Mark-NC on October 25, 2000 at 14:21:26:

HT,
Go ahead and have the mortgage company get started to close the loan. Then a couple days before close have her take out the signature loan. It usually takes a minimum of 30 days for new credit to show up on a credit report so it shouldn’t be a problem at all.

Good luck!

Mark

import · October 27, 2000, 11:53am

Re: Need assumption help ASAP!!! - Posted by HT

Posted by HT on October 27, 2000 at 11:53:46:

JohnBoy,

Thanks for the feedback. Sounds like a great idea.

In response to your last question, I want to get rid of this property to move on to other investment opportunities in which I may need to acquire some bank loans. This will improve my loan/debt ratio and allow for other ventures.

I hate to sound like a newbie, as I am somewhat knowledgeable of the real estate game, but could you give me some more insight on proceding with the wrap.

Does it operate similar to the sandwich or is it the same? Also what documentation would need to be drafted and stating what to make this legal?

What’s most important to me is pulling some cash out of the deal and making sure that this property does not fall back into my ownership 2-3 years down the line because the new owner misses payments & gets foreclosed.

I know I’ve asked alot, so if you can’t answer everything, would you please refer me to a source where I can research it further.

Thanks for your assistance.

HT

import · October 27, 2000, 9:27am

Re: Hold On… - Posted by HT

Posted by HT on October 27, 2000 at 09:27:40:

JPiper,

Thanks for your informative insight on this situation.

Let me provide these additional facts and see if what you have provided me thus far is still applicable.

My loan on the property is top grade (no credit problems). My current balance is below what she has already qualified for and she is clearing up additional items as well.

Whould this change your viewpoint on your proposed course of action? I would think that if her 75% approval already exceeded the outstanding loan balance, that it would be a pretty safe loan for the lender, or am I missing something?

Because I’m not interested in the property any longer, any suggestions on how to pull out some cash and move on would be appreciated.

Thank you,

HT

import · October 27, 2000, 9:32am

Re: Need assumption help ASAP!!! - Posted by HT

Posted by HT on October 27, 2000 at 09:32:21:

Mark,

Thanx for your feedback.

One question though, if I go with this course of action, couldn’t that leave me open to get burned.

Lets say the assumption goes through, but my optionee breaches on her agreement to get the signature loan or is denied, couldn’t I be out of my property and money?

Any feedback or suggestions are appreciated.

Thank you,

HT