Use of junior note - Posted by Abe


#1

Posted by Jason-DTX on December 14, 1998 at 11:28:50:

Yes and no.
In order to deal with the 1st mortgagee you need to have the original borrower sign an “authorization to release information” form so that the bank will talk to you. I also have the borrower sign a “power of attorney” for the property and have them assign the escrow account to me. The power of attorney will allow you to change the address and cash the escrow refund checks. I also use it to cancel their insurance policy in order to place a new policy, since the deed has changed their old policy is useless. The power of attorney will allow you to cash the unearned premium refund check from their old policy. You don’t want the 1st mortgagee to recognize you as a borrower, but you do want them to cooperate with you. If your borrower signs the forms I mentioned then you will be able to deal with the 1st mortgagee.
If you don’t have any way to get these forms on the deal you already did then I’m not sure what you can do. They will accept your payments though, so just keep sending them in. They should at least tell you a payoff amount so that you will at least know the balance.
Jason


#2

Use of junior note - Posted by Abe

Posted by Abe on December 11, 1998 at 13:46:56:

I was told that recent law forces senior note holder
to allow re-instatement by junior note holder if
latter would otherwise lose equity, i.e., in foreclosure.
DOES ANYONE have reference to said US law, say about 1996?


#3

Re: Use of junior note - Posted by Irwin

Posted by Irwin on December 11, 1998 at 20:44:45:

If a junior lienholder acquires title by foreclosure or deed in lieu, the senior mortgage may be maintained current by the new owner, i.e. the due on sale clause won’t be triggered. This is covered in the Garn-St. Germain Act, I believe.


#4

Re: Use of junior note - Posted by Jason-DTX

Posted by Jason-DTX on December 11, 1998 at 21:47:02:

Its still a grey area under the Garn-St Germain Act. Its states that the CREATION of a junior lien will not trigger the “due on sale” It doesn’t really say that a title transfer due to foreclosure is exempt. The Garn-St Germain Act is from the early 80’s I believe. There might be a new law in 96 but I haven’t heard of it. It would be great if there is such a law. Let me know if you ever find out.
The important thing is that most banks WILL allow the transfer to a junior lien holder. It is even in some banks (NationsBank, ie) policy book: not to call the loan due from a junior lien holder taking title.
Remember as a junior lien holder the banks views you as another “bank” or “previous Seller” and not a “real estate investor.” The banks like you in this situation and will be nice to you! Its a great way to deal with banks and “due on sale” loans!
Jason


#5

Re: Use of junior note - Posted by Rick V

Posted by Rick V on December 14, 1998 at 24:36:08:

Have you had any luck getting the 1st mortgage to recognize you as the “borrower” and therefore mail the payment coupons to you as well as escrow refunds, etc?

We took over a loan this way, and even though the bank is not calling the loan due, they will not recognize us as the borrower and won’t correspond to us or release any information to us.