Forebearance Agreement?
Is a forebearance agreement really necessary to obtain from the lender when buying "subject to"?...especially when you know the lender is likely to accept the back payments during the early stages of foreclosure?
Granted, the "subject to" concession is much easier to obtain than an assumption. However, I've had just as much luck getting an option to purchase from the seller. The option grants the Optionor a legal, beneficial interest in the property, thus allowing them to "step in" and take over the payments and bring the arrears current because they've intervened to "protect their interests," and not that of the borrower. I've also found this strategy to be one of the biggest defenses against invoking the due-on sale (when ownership has been conveyed), because again, you're protecting the legal interest you received in exchange for valuable consideration.
I've used this method several times, though I've never negotiated a forebearance agreement and taken a property "subject to."
Any opinions as to what method is easier?
The comments on this board have really piqued my interest.
Thanks,
Steve
My understanding of a forbearance agreement is that it is a plan of scheduled payments larger than the regular payments for the specific purpose of bringing the loan curent within a few months.
If you plan to bring the loan current over time, it would be necessary to have this, as the lending institution is not obligated to accept partial payments, or installments on the amount that is in arrears.
That being said, if you intend to make up the arrearages at the time of acquisition of the properyty all you should need is the amount of money it will take to reinstate the loan.[ Edited by jeff12002 on Date 01/07/2004 ]
This is a new one on me. I know that a forebearance agreement can often be worked out with a delinguent owner of record. I didn't know that the lender would do the same thing for a subject-2 purchaser.
It certainly violates the due-on-sale clause and so does the sale/change of any beneficary interest in the trust.
I presume that the lender does not know that you're taking the property ,subject 2 or having a beneficiary interest- -Right?
My response assumed that the bank doesn't know there is another party involved.
Thanks for your responses! However, you both addressed a point I failed to consider, that being the "subject to" issue, and exactly how one should posture when negotiating the forebearance agreement. It appears it would be more difficult to negotiate "your" interests with the lender. On the same token, the seller would also lack experience in negotiating said agreement.
So how does one approach the lender?
What dialogue is used? You would probably have to obtain some type of consent from the seller to negotiate their interests...but how do you define your role when speaking to the lender?
Thanks in advance.
Steve
have the seller execute a limited power or attorney granting you the right to negotiate with the lender on their behalff, and get an authorization to release information form signed. When you call the lender, you willl very likely need to fax them copies of the forms before they will talk to you.
Be warned, The lender is going to want to know what has changed in their situation since they got behind, and will want reasurance that the forbearance agreement af any can be worked out will be met per the agreed upon terms. They will be asking for a breakdown of income, and expenses of the owner, etc. They will want to be sure that the expenses column isn't larger than the income colum.
I have used a couple roles. Management company and Realtor and nonprofit company granting gift funds. I am not sure you have to tell them who you are anyway. Just say a friend trying to help a friend. I just had a bill collecter calling for my daughter and he would not say who he worked for or what it was related to only that he was trying to help her. He thought he was really slick. I wish I could have slaped him over the phone.
Good LUCK and Thank You
Hope this helps some
Ted Jr
Per the NJ Fair Foreclosure Act, a mortgagee is not required to facilitate more than one reinstatement within an 18 month period. I usually recommend to those that play the Sub2 game that they scrutinize the loan payment history well in advance of sending the mortgagee a nickel.
Thanks for answering my questions in such great detail!
Question for All Star:
The NJ Fair Foreclosure Act has special considerations to mortgages originated prior to Dec 5th 1995, thus would the 18 month reinstatement period still apply?
Thanks,
Steve
Steve,
Your initial message had something in it that piqued my curiousity.
You said that you get a Purchase Option on the property and then step in as someone with an interest and cure the default.
Firstly, please explain a little bit more just how you pull this off.
Secondly, the existance of the Option more than likely triggers the DOS so how do you approach the lenders? Or do they even care about the Option?
Tom,
I got the option idea from another RE investor.
Its great because by establishing an interest in the property allows me to contact the lender without the owner's consent to ask what's going on?
In a subtle way, it also provides me a "right of first refusal" to negotiate a payoff with any other lienholders, because again, I'm looking out for MY intersts as they relate to the property.
It appears that you need a power of attorney along with a authorization of release to negotiate the Sellers' interests in a "subject to" deal. The option doesn't grant me that power. However, it provides me with enough leverage to contact any interested parties and get the scoop on what's happening. And in every instance where I've used it, the lender has ALWAYS offered more information than I requested.
I just have the seller sign a 1 page option to purchase agreement in front of a notary and I then call the bank. The bank then asks me to fax over a copy of the option and we proceed from there.
The first time I used this technique I faxed a copy of the option to the bank and the VP called me back within the hour. I told him that I have a vested interest in the property and wanted to do everything I could to prevent it from going into foreclosure. He responded by saying "well, you can start off by making up the payments." Good luck!