Are you willing to formally assume the debt on the property and if so would the lender forego their acceleration of the loan if you would take over formally the debt? That may be the cheapest way out of this…
I do not know where you heard or were told that by entering into title through a legal action you would be exempt from an exisint lender accelerating their loan. That is simply not true.
In many states regardless of HOW you obtained title to a property (through foreclosure, quit claim deed, long term option, deed into trust, transfer of beneficial interests, etc.) many lenders have the legal right to assert their claim that the infamous (DOS) due on sale clause provisions have be violated.
I hope you can work this out with the existing lender or try to quickly FIX and FLIP this deal “retail” to a buyer who can either get their own financing or with you using seller financing where when the dust settles the existing loan will be paid off.
You have some time (probably a 3-4 months ) of time to accomplish this as the foreclosure process will take some time to enforce.
Recently I bought a house on the courthouse steps via a non-judicial foreclosure sale. What was foreclosed on was a HOA lien. There was an underlying 1st TD that was 1 payment behind on the day of sale. After the sale I brought the loan current and paid the next month’s payment in advance.
A short time later I am informed by the lender (the underlying loan was an FHA loan that had been bought by FNMA, “the investor”)that the loan is being accelerated because the Due-On-Sale provision (Clause # 17) had been violated when the Trustee recorded the Trustee’s Deed and thereby tranferred title to the property into my name.
I have always been under the distinct impression that such a transfer did not trigger a Due-on-Sale acceleration since the title transfer came about through the operation of law (i.e., the Trustee is required to foreclose and after the sale is required to record the Deed). The “investor” would have me believe that this is not so.
When I wrote the lender to learn what was the basis for his acceleration, in addition to the above explanation he pointed out that the end of Clause # 17 there is also a line (not in front of me as I write this) to the effect that the acceleration is prohibited if prohibted by any Federal law that was in effect when the loan was originated (in this case, in 1996).
My question: does anyone know of any such Federal statute prohibiting acceleration of (Federally or other insured) loans where the title was transferred because of a foreclosure of a junior lien?
Would appreciate a legal citation if possible. The sale, by the way, took place in Nevada.
ONE FINAL THOUGHT: If lenders can accelerate in such a case, who can suggest strategies for avoiding such acceleration? In my case I would not have been able to elicit the former owner’s cooperation as he was, at the time, beginning a free rent agreement with another government agency - the NV state prison system.
My experience with this has been primarily from the position of a second mortgage holder. I have acquired various properties through foreclosure and then later have brought the first current. There have been no cases where the first mortgage holder has accelerated. However, my belief would be as Michael?s is below, that they have the legal right. I would also say that in the case of second mortgage holders that there is a ?gentlemen?s agreement? that one lender does not foreclose on another.
Having said the above, a lien for HOA fees is not exactly the same position?and that may be part of the problem here.
My temptation if I were in your shoes would be to ?belatedly? send a request to the lender asking for their assumption package so that you could formally assume the loan. Once I received the assumption package I probably would not fill it out. I would WAIT for further follow up from the lender regarding the package. IF I got further follow-up, I might then send a letter stating that perhaps the assumption package had been lost, and requesting an additional package. You get the point?.I?d be dragging my feet and giving the institution EVERY chance to lose this deal in the shuffle. Institutions are famous for their slowness and lack of follow-thru.
At the same time I would continue to send my payment. Hopefully they will cash the check. Each time a check is cashed would strengthen your position in my eyes. And they just might cash the check if an assumption was ?in the process?.
An FHA loan can be formally assumed. However, my belief is that for a non-owner occupant to assume the loan must NOT exceed 75% LTV as established by an appraisal. You don?t mention the details of your deal?.but I?m guessing that this condition may not be satisfied for your situation, and therefore in the end you may not be able to assume. VERIFY my statement though with the lender. You may also want to call HUD for conditions on a non-owner occupant assumption.
By the way, the Garn St. Germaine Act which sets forth the exemptions to the due on sale provisions officially encourages lenders to facilitate an assumption?.it just doesn?t require it. But you may be able to use this encourage as a means to get around an equity conditions for non-owner occupants.