Who Can Foreclose on a Piggyback Mortgage?

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Who can foreclose a piggyback mortgage?  Well, first let’s talk about a piggyback mortgage.  Piggyback mortgages were used to avoid having to obtain mortgage insurance whenever you acquired a home.  The purchaser would borrow 80 percent loan to value for a first mortgage, which would not require any mortgage insurance.

They would then see about getting a second mortgage, which was a home equity loan (for either 10, 15, or whatever amount they could obtain over and above the 80 percent) so they would have a very small down payment.  Home equity loans do not require mortgage insurance, so they would avoid the mortgage insurance premium that would have to be paid if they obtained, let’s say, a 95 percent loan to value.

So the question then becomes, “Well, who can foreclose?” If you don’t make the payments under the first mortgage, they have the ability to foreclose and take the property away from you.  If you don’t make the payments on the second mortgage, well, they can foreclose also.  In this day and time, though, value of property has decreased so much that there’s usually no, or very little equity in the property – so the second mortgage is basically unsecured.

The second mortgage holder (if you didn’t pay them) can sue the borrower on the promissory note and probably just avoid the foreclosure process.  The first mortgage holder could foreclose its first mortgage and include the second mortgage holder in the foreclosure action and wipe out any lien that the second mortgage holder would have.

Sometimes this is a little bit problematic when the first mortgage holder and the second mortgage holder are the same lending institution.  In this case, the question becomes, “Can they sue themselves?”  Many times they don’t, which then raises another question in the event of a foreclosure where the second mortgage is not included – whether or not you’ll have a problem if you buy the home at a foreclosure sale and be required to pay the second mortgage holder.

So an answer to the question “Who can foreclose a piggyback mortgage?” – either party can, if you default under either mortgage.

If you have any questions about foreclosures (whether it be piggyback or otherwise), give me a call at (727) 847-2288.  Thank you.

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What Is A Life Estate?

 

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“What is a life estate?”  Usually, it has to do with real property, or when the time period in which you own something is measured by a life.  So, therefore, it’s for an indefinite period of time.  We usually encounter life estates when you’re dealing with real property, particularly with a homestead.  (Under our Florida constitution, homestead means where you reside.)  If you die married, then a life estate passes to your spouse with the remainder interest passing to your children.

So, the life estate is measured by the life of the widow, and she gets to use the property during her lifetime.  And then, upon her death, the decedents’ children receive the remainder interest, and they’re called remainder men and she’s called a life tenant, and so that is whenever you usually encounter a life estate.  The homestead statute has recently changed and now the widow does have an election to take a half-interest instead of a life estate.  That is one of the areas where life estates are created– through our Florida constitutional homestead – when the decedent dies, survived by a spouse and children.

The other time that you see a lot of life-estate deeds is in estate planning or elder law planning.  When a person owns real property and they want to see that it passes to any particular individual, (as long as they’re not married) they can deed the property to an individual and reserve a life estate.  And that has been expanded upon by what we call Lady Bird Deeds or enhanced life-estate deeds, and this came about as a result of an elder law lawyer preparing these deeds so that they would not disqualify his clients from obtaining Medicaid.  So, if you have a regular life-estate deed, it’s a completed gift of you convey the remainder interest.

A Lady Bird Deed, however, says that not only does the life tenant reserve the right to use the property during their lifetime, they also reserve the right to sell the property, transfer the property to anyone they would like and they don’t have to account for the remainder men for any monies that they receive from the sale of it, or if they mortgage the property.  The origin of the word “Lady Bird” comes from the author naming the various deeds he had in his publication after famous persons.  The Lady Bird Deed is named after Lady Bird Johnson.  So, that dates how long it’s been around and the author of the Lady Bird Deed, or the enhanced life-estate deed.

So, a life estate is measured by the life of a particular person and is usually created by someone conveying property to their children and reserving a life estate, or through our constitutional homestead, where the surviving widow receives a life estate and then the balance or the remainder goes to the decedent’s children.  So, if you have any other questions or would like a Lady Bird Deed or to do some estate planning to avoid probate, give me a call at 727-847-2288.  Thank you.

 

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Should I Get Mortgage Insurance?

 

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“Should I get mortgage insurance?”  Well, in order to answer the question, I believe that you’re really asking, “Should I get insurance to pay off my mortgage in the event that I pass away?”  And that is really what I call ‘credit life insurance’ or simply an insurance policy that insures your life and names a beneficiary so that the loan would be paid off at your death.  Many credit card companies offer this for a small fee that your loan would be paid off or your balance would be paid off if you pass away.

Sometimes, the mortgage companies will also offer this feature.  My suggestion is simply to go online or contact your insurance agent and ask him about a mortgage-term insurance that is guaranteed renewable, say, for a ten-year period.  That way, the amount of insurance that would be paid to your beneficiary would be for a level amount.  The premiums for term insurance are very small, particularly if you’re under the age of 60,   and I would suggest that you check with your insurance agent.

Mortgage insurance is usually what I consider as the mortgage insurance that a lender obtains to insure any amount above 80 percent of the loan devalue.  Whenever you obtain a loan and you’re borrowing more than 80 percent of the appraised value, the lender usually requires that you obtain mortgage insurance, which they provide for you, and you have to pay a premium until such time as your loan decreases to 80 percent, at which time the mortgage insurance will drop off.  So, that’s about mortgage insurance.  I believe that most people, when they think of mortgage insurance, mean that that’s whenever your loan’s going to be paid off in the event someone passes away.

The mortgage insurance the lender obtains does not pay your loan off.  It’s only for your lender’s benefit in the event that there is a default under the provisions of your loan.  So, if you have any questions, give me a call at (727) 847-2288.  I’d be glad to talk to you about it.  Thank you.

 

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What Is A Non-Qualifying Assumable Mortgage?

 

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“What is a non-qualifying assumable mortgage?”  Well, let’s first talk about what we usually have from institutional lenders and a mortgage.  They are not non-qualifying assumable mortgages.  They have a clause in the mortgage that says, “In the event that you transfer the property, the loan becomes due and payable.”  That’s called a due-on-sale clause.  So, you will violate the terms of the mortgage if you convey the property to a third party and have them take over your mortgage.

Now, some Veterans’ mortgages are qualified assumable mortgages, meaning that if another veteran is assuming it, he can apply to the Veterans’ Administration and see if they will allow him to assume it.  With regular institutional lenders it’s very difficult and they’ll probably refinance you rather than try to have you assume a mortgage.  So, when do you have an assumable mortgage?  It’s usually with a private investor.  Whenever an individual holds the mortgage and it does not have the language in there that, “This mortgage becomes due and payable at such time as you transfer the property,” or words to that effect.

So, if it doesn’t have language that it is not assumable, then the mortgage can be assumable.  A non-qualifying assumable mortgage would be one that did not contain a due-on-sale clause or a prohibition against someone assuming the mortgage.  You don’t find those very often, and I guess probably 20 or 30 years ago the old FHA mortgages used to be a non-qualifying assumable.  (But I’m afraid that my age is telling on me and at this point there’s not too many of those around to assume or they’re so small that it wouldn’t make any sense to do it.)

99.9 percent of your mortgages out there do have a clause that makes them non-assumable and must be paid in the amount they’re transferred.  However, if you choose to go ahead and just take over the payments for someone, I must say that most institutional lenders have not been exercising their right to call the loan due and payable, and they’re just happy to get their payments regularly.  There are some problems with taking over a mortgage that is not assumable, so if you have any questions or would like to work out some creative financing, give me a call at (727) 847-2288.

 

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What Is A Piggy Back Mortgage?

 

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“What is a ‘piggy back’ mortgage?” A piggyback mortgage is one where you get a first mortgage, which is an 80-percent loan devalue on the property. The reason we use 80 percent is because you don’t have to pay mortgage insurance if you have an 80-percent loan devalue. Well, you say, “ I don’t have enough money. I want to borrow 90 percent or try to borrow 100 percent.” Depending on the length of the lending climate (Which is not too good right now; five or six years ago it was terrific.), you turn around and get a home-equity loan or a second mortgage for the additional ten to 20 percent of the loan, and that’s the piggy back portion. In this way, you avoid having to pay mortgage insurance on it.

 

It’s particularly helpful if you can do this if you’re in transition; what they used to call “bridge loans” (but you can’t find bridge loans anymore) where you’re going to acquire property and then later sell your other property and pay off your home-equity loan, or even pay down your first mortgage. So, the piggy back portion comes into play whenever you obtain a second mortgage at the same time as you get your first mortgage, and the purpose of it is to avoid having to pay mortgage insurance on a high loan devalue if you borrow more than 80 percent.

 

Back when the economy was red-hot we were doing any number of closings. We’d get an 80-percent loan and turn around and get a second mortgage or a piggy back loan for another 20 percent and provide 100 percent financing, or very close to 100 percent financing. So, if you have any questions about piggy back mortgages or a real-estate transaction, give me a call at 847-2288. Thank you.

 

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