There’s a foreclosed home for sale down the road that is in my and Mrs. Homie’s price range. I asked the realtor about taking over the old owner’s payments, and the realtor said that banks don’t do that.
Why not? I see it as a win-win-win situation.
[ul]
[li]The old homeowner walks away free and clear from the property, and doesn’t have the bank come after him for the difference if the house sells for less than what he owes on it.[/li][li]The bank gets a customer to pay the payments and doesn’t have to go after the old homeowner if the house sells for less than what is owed on it.[/li][li]A new customer gets the house without having to put down a downpayment OR go through all the hassle of applying for a mortgage.[/li][/ul]
In short: less pain, less risk, less hassle, and less paperwork.
Or do banks thrive on pain, risk, hassle and paperwork?
The banks are changing the way they do things now. In fact, one new idea is to let the old forclosed family continue to live in the house as long as they pay rent. Rent being much less that the ballooning payments, as rent would be based upon current FMV of the house, not the FMV 5 years ago.
Mathematically, this does not make sense to me. If they could find a buyer that was willing to buy the house for a price that covered what was still owed there wouldn’t be a problem, right? Put the house on the market, sell it for an amount that covers the outstanding loan, and everyone is happy (well, sort of happy anyway, I’m sure the old owner didn’t exactly make a profit).
But this isn’t the case. The owner is in a bad place because no buyer can be found that is willing to pay enough to cover the remaining balance. The house is now worth a whole lot less on the open market than what would cover the remaining loan. And in that case, why would the buyer be willing to take over the payments? This is the equivalent of paying more than current market value for the house! If it wasn’t then I am not sure how this is different to just a regular sale, with buyer financing having nothing to do with the seller.
Mortgage contracts spell out pretty clearly the terms for defaults. The house needs to be sold on the open market to establish the current value so that the lender and borrower can settle up the difference (either way) between that and the outstanding loan balance.
The idea is to prevent the banker from giving his brother-in-law a great deal on a forclosed property, then going after the borrower for the difference. And to provide transparency so that the borrower can’t falsely claim that this was done.
Years ago i bought a house and assumed the mortgage of the seller. I foget the numbers but suppose I bought the house for 100 and the seller owed 65. So I gave the seller 35 and assumed the mortgage. Note that (1) the seller was not in default, (2) the house was worth more than he owed on it, (3) the lender had to agree to my assuming the mortgage and, very important, (4) the seller was on the hook if I defaulted. This last point is why most sellers do not want to transfer the mortgage but would rather the buyer get a new one and them liquidate their own.
This would be a sticking point. Why would a new buyer want to finance a home for MORE (and in some cases substantially more) than what he is paying? Also, what about these option ARMS with balloon payments? Should the new buyer get stuck with those terms as well?
My dad died in 1996 and at the time (for very complicated reasons) he did not have a valid will, the mortgage for the house he and my mum shared was in his name only, and there was no life assurance covering the mortgage.
We took legal advice, but the bottom line remained the same: the bank would not accept even my mum taking over his mortgage. They held strictly to the letter of the law and insisted that their contract was with my dad alone and my mum could not stay in the house. She was evicted, the house was sold but the profit after the mortgage was cleared did go to my dad’s estate, which effectively was her.
This was some time ago, and in the UK, but I suspect the reasoning given to us is what’s behind this issue: the mortgage formed a contract between the bank and a named person. Our solicitor said that we could have pursued action to force a testing of this position, but we chose to walk away instead.
If it was that easy people wouldn’t foreclose their homes in the first place, they’d just sell them and walk away.
The problem is they owe more on them than what they’re worth. Why would you want to take over a mortgage that exceeds the value of the house you’re buying?
Sure, that’s great for you, but it stinks for the other two parties. You get all of the equity the original owners had for free, and the bank has a mortgage holder with even less vetting than the people who defaulted.
It does depend on the mortgage. I did exactly the same thing as describes in the OP – taking over the payments from the seller. I got the deed. It’s was pretty common – having a “fully assumable” mortgage was a good selling point for the bank.
The original buyer kept the promissory note, so if I had defaulted, he would have been the one responsible. That may be the sticking point. The bank would have had to track him down for payment, and that could be difficult (finding me would have been easy, since they knew my address).
I imagine it would be like those ‘take over the car payment’ car-sales place deals…where any car with positive equity or even near zero but negative equity is not to be found…only ones with very negative equity.
So…homes with equity the banks wouldn’t do but would sell it and take the equity. The ones where the house/mortgage are very upside down…sure - I bet a bank would consider that if you approached them. However, why would you do it?
Why would the buyer take over the payments for a mortgage that is under water? If the mortgage is not under water the current owner would sell the house and keep the difference.
A mortgage is a legal document, a contract between lender and home buyer. A new buyer would require a new credit check, documents, etc, not to mention all the fees associated with that. I’m sure that due to liberal fees, new loans are somewhat of a moneymaker even before the first payment is sent.
In addition to the fact that either the old or the new homeowner would be losing out on this (depending on whether the current market value of the house is more or less than what is owed),
But for the bank to agree to the new customer taking over the mortgage, the bank would want proof that the customer was a good credit risk and could make the payments. In other words, the new customer would still have to go through all the hassle of applying for a mortgage. And a smart bank would still want a downpayment as further evidence that a) the new customer is financially capable enough to save, and b) the new customer is financially invested in the house.
You are not getting any equity. If there was equity then the owners could sell it and clear their loan.
Example.
house bought for $580,000 two years ago. 20% down, $117,000 down and #468,000 Loan. Let’s say the owner paid more than the mim payment. Assume he has drop the loan ballance by $200,000, loan ballance now $268,000.
If the house value is only $250,000 are you going to want to assume a $268,000 loan? The free equity you will be recieving is -$18,000. How are you coming out ahead.
By the way I doubt that the loan was paid down by $200,000 or any amount close to that. But I know of a house that sold for those prices. And on top of the price the bank put in a forced air system at their cost $5,200. And gave the buyer a $5000 credit on closing costs.
Refinanced my house 6 years ago. Right now I am upside down on my loan. Is anyone going to want to take over my payments to get a house with more owed than what the house is worth, there is no equity, nada.
I also know of a way that it was done in the near past. If the home had some edquity but the owners could not find a buyer. Use a quit claim deed. The present owner quit claim the property to the new owner. The new owner brings the loan up to date and keeps paying it off. There is also an agreement that the new owner will refi or sell the property in some time frame. Sometimes 5 years.
Advantage to seller. Gets out from under a loan he can not pay. Also if he is behind in payments he gets his credit rating cleared up.
Disadvantage to seller. Needs a new home. If he has much equity he will lose it. And for 5 years there is a home loan out there with his name on it so he may have trouble purchasing a home in that time. And if not written up right and he is dealing with a dishonest person he could lose his little equity and still have a forclosure on his record.