Posted by JohnBoy on July 12, 2001 at 16:02:52:
Yes and No.
If the seller later filed BK, could the lender foreclose? Sure, but so???
First of all, if the payments are being made then it will be unlikely that the lender would foreclose. That would get pretty costly for them to take a perfectly good performing loan and screw it all up just to foreclose because the borrower filed BK. It doesn’t mean they won’t, but it doesn’t mean they will either.
If the seller was to file BK you could try to get them to not file against the lender since you will be making the payments on the loan anyway. I think this is more of wishful thinking though than reality. Since the seller no longer owns the property they would be a fool not to list the lender and have that debt discharged in the BK if they’re going to file one. Even if you were to get the seller to go along with this their BK attorney would strongly advise against it, unless their attorney is a real idiot!
Next it would be up to the lender as to what they will do when push comes to shove. What if they call the loan and you tell them to get lost and you will only continue to make the payments every month. If they try to foreclose you will stop making the payments and they will end up with a bad loan on their books, tie up $800k of their money to be lended out to other borrowers for every $100k of their money that is tied up in this loan, have to wait for 9 - 12 months or longer before getting the property back through a foreclosure, then have to pay a realtor commission to list it and resell it for them, risk taking a major loss on their money depending on how bad of condition they get the property back, and all for what??? Because they didn’t like the idea that the payments were being made on time every month by someone else other than the original borrower that filed BK???
You claim you would rather refinance the property now to avoid the lender from being able to foreclose on the property because on what may happen or what the seller may do later?
Since refinancing isn’t an issue for you since you feel getting qualified isn’t a problem, then why worry about any of this now? Understand something here, the lender may elect to call the loan due, and you may refuse to pay them off right now, just because they proceed with the foreclosure process doesn’t mean you automatically lose the property! They still have to go through the process and you can still pay them off at anytime before the sheriff’s sale, which could be 9 - 12 months down the road depending on the state you live in pertaining to their foreclosure laws.
If you could qualify to refinance the property now, then couldn’t you still qualify 6 months, a year, or 5 years from now??? You’re the one in control here that has all the options to choose from, not the lender. THe lender has two options. Let it go and take the payments every month or screw up a perfectly good performing loan and cost themselves a whole sack full of money just to show off their power in being able to get the property back so they can reloan that money again! They would probably never make up for the loss they end up taking if they did that! So it would be better to just leave the thing alone as long as the payments are still being made on time every month!
Assuming the lender was to exercise their authority to show how stupid they can be, you have the option of refinancing to pay them off at that time, or you can put the property on the market and sell it out right, or you can try to get your tenant/buyer financed at that time. You have options to deal with this if it were to even become an issue! So why rush into refinancing now and taking loans out in your name when you don’t have to??? Why limit your borrowing power by taking out unnecessary loans and exposing yourself to more liability???
As far as the seller filing a BK is concerned, the lender is the least of your worries…especially if you’re getting the property with a lot of equity. If the seller files BK the court could rescind the sale and take the property back so they can have it sold and use the equity to pay towards the seller’s debts owed to his creditors. I think its up to a year that the court could go back and rescind the sale on property from the date the debtor files BK. It could be longer in some states since there are state BK laws in addition to federal BK laws.
The more equity you get in a property the higher the risk you have of the BK court rescinding the sale depending on how much time has passed from the sale date and the debtor’s filing date for the BK.
As far as the lender is concerned, since getting financed isn’t much of an issue for you, and since you could always sell the property, or maybe get your tenant/buyer financed to buy the property, then worrying about the lender is the least of anything to worry about!