Need Some Insight
My mother owns a rental property that has 30k worth of equity in it that my sister is trying to get. She has had the deed transfered to her...she does not have a land trust or any other entity backing this up...the payments are current...but questions is how concerned should I be about DOS and if so what can be done after the fact to lessen that risk? Number two , now that she has the deed transfered can she legally refi or do an HELOC?
There is a low risk of the bank calling DOS. Most banks don't mind as long as they are getting regular payments. The biggest exposure here is to a lawsuit resulting from something happening on the property.
She can refi or HELOC. I would recommend refi. A HELOC would wave a big red flag saying ownership changed hands. Still probably not a huge problem, but the refi would eliminate the DOS issue completely.
Thanks bnorton
What is a heloc?
Home Equity Line of Credit
bnorton,
I just read some on that said that a bank can perform a DOS but not on transferring to a spouse or children. If this is true then she should be able to do a HELOC with no problem right? We want to refi so there is only one loan at a low rate but most people says there is a n seasoning issue because she just got added to the deed last week. Let me know what you think. Any lenders you know that operate like this in South Carolina?
I will have to check on the transfer to children. That is a possibility. The rationale behind the spouse is if one spouse dies, the other one won't lose the house because the lender calls DOS. As I said before, in general, the risk is low as long as the bank is getting paid. But, all the same, I would prefer the HELOC. With regard to seasoning, there are many lenders who don't have seasoning requirements.
You might be mixing apples w/ oranges.
Did your sister get added to the Deed or is it in her name only?
Is the Loan still in your Mom's name only?
Seasoning is on the loan, not on the ownership. Does your sister want to assume (take over, pay) the current loan? If so, the lender could send out a packet with details.
You are sounding like your sister wants a new loan in her name w/a better rate. Is that right? And Mom will be off the loan and the deed, right?
You aew correct ceinvests...My mom still has a loan on the property and my sister was added to the deed. She wants to refi this and get rid of my moms loan for a new loan with better rates and one where she is able to pull out the 30k in equity...
Then she should be able to apply for a loan. What rate does your Mom have now? Is she going to stay on the deed. Rates are higher w/rentals, and the closer to 100% LTV that you get, the higher the rate. Post the specifics of the FMV, the rate, the amount , the rate that your sister thinks she can get. The Heloc might be the better way, after all.
OOPs, it is the refi I would prefer, not the HELOC in your case. Actually, seasoning refers to the amount of time on title. However, since she was added, instead of being on title as the result of a sale, seasoning should not be an issue. Even so, again, there are many lenders who have no seasoning requirement.
corey and others,
shall not, prior to July 1, 1983, implement the change in its policy announced on July 2,1982, with respect to enforcement of due-on- sale clauses in real property loans which are owned in whole or in part by the Corporation.
This might help.
The law regarding DOS clauses etc.
DUE-ON SALE CLAUSES
Sec. 341. // 12 USC 1701j-3. // (a) For the purpose of this section--,
(1) the term "due-on-sale clause" means a contract provision which authorizes a lender, at its option, to declare due and payable sums secured by the lender's security instrument if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender's prior written consent;
(2) the term "lender" means a person or government agency making a real property loan or any assignee or transferee, in whole or in part, of such a person or agency;
(3) the term "real property loan" means a loan, mortgage, advance, or credit sale secured by a lien on real property, the stock allocated to a dwelling unit in a cooperative housing corporation, or a residential manufactured home, whether real or personal property; and
(4) the term"residential manufactured home" means a manufactured home as defined in section 603(6) of the National Manufactured Home Construction and Safety Standards Act of 1974
// 42 USC 5402. // which is used as a residence; and
(5) the term "State" means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, American Samoa, and the Trust Territory of the Pacific Islands.
(b)(1) Notwithstanding any provision of the constitution or laws (including the judicial decisions) of any State to the contrary, a lender may, subject to subsection (c), enter into or enforce a contract containing a due-on-sale clause with respect to a real property loan.
(2) Except as otherwise provided in subsection (d), the exercise by the lender of its option pursuant to such a clause shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the lender and the borrower shall be fixed and governed by the contract.
(3) In the exercise of its option under a due-on-sale clause, a lender is encouraged to permit an assumption of a real property loan at the existing contract rate or at a rate which is at or below the average between the contract and market rates, and nothing in this section shall be interpreted to prohibit any such assumption.
(c)(1) In the case of a contract involving a real property loan which was made or assumed, including a transfer of the liened property subject to the real property loan, during the period beginning on the date a State adopted a constitutional provision or statute prohibiting the exercise of due-on-sale clauses, or the date on which the highest court of such State has rendered a decision (or if the highest court has not so decided, the date on which the next highest appellate court has rendered a decision resulting in a final judgment if such decision applies State-wide) prohibiting such exercise, and ending on the date of enactment of this section, the provisions of subsection (b) shall apply only in the case of a transfer which occurs on or after the expiration of 3 years after the date of enactment of this Act, except that--,
(A) a State, by a State law enacted by the State legislature prior to the close of such 3-year period, with respect to real property loans originated in the State by lenders other than national banks, Federal savings and loan associations, Federal savings banks, and Federal credit unions, may otherwise regulate such contracts, in which case subsection (b) shall apply only if such State law so provides; and
(B) the Comptroller of the Currency with respect to real property loans originated by national banks or the National Credit Union Administration Board with respect to real property loans originated by Federal credit unions may, by regulation prescribed prior to the close of such period, otherwise regulate such contracts, in which case subsection (b) shall apply only if such regulation so provides.
(2)(A) For any contract to which subsection (b) does not apply pursuant to this subsection, a lender may require any successor or transferee of the borrower to meet customary credit standards applied to loans secured by similar property, and the lender may declare the loan due and payable pursuant to the terms of the contract upon transfer to any successor or transferee of the borrower who fails to meet such customary credit standards.
(B) A lender may not exercise its option pursuant to a due-on-sale clause in the case of a transfer of a real property loan which is subject to this subsection where the transfer occurred prior to the date of enactment of this Act. (C) This subsection does not apply to a loan which was originated
by a Federal savings and loan association or Federal savings bank.
(d) A lender may not exercise its option pursuant to a due-on-sale clause upon--,
(1) the creation of a lien or other encumbrance subordinate to the lender's security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or
(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.
(e)(1) The Federal Home Loan Bank Board, in consultation with the Comptroller of the Currency and the National Credit Union Administration Board, is authorized to issue rules and regulations and to publish interpretations governing the implementation of this section.
(2) Notwithstanding the provisions of subsection (d), the rules and regulations prescribed under this section may permit a lender to exercise its option pursuant to a due-on-sale clause with respect to a real property loan and any related agreement pursuant to which a borrower obtains the right to receive future income.
(f) The Federal Home Loan Mortgage Corporation (hereinafter referred to as the "Corporation"
(g) Federal Home Loan Bank Board regulations restricting the use of a balloon payment shall not apply to a loan, mortgage, advance, or credit sale to which section applies.
Part D-Miscellaneous ATTORNEYS FEES
Sec. 351. The last sentence of section 5(d)(8)(A) of the Home Owners' Loan Act of 1933 (12 U.S.C. 1464(d)(8)(A)) is amended by inserting ", which prevails," after "party".
For your onw reading, reference this:
http://www.phil.frb.org/src/Garn.html
And please note, where it states that you CAN transfer property to a spouse or child and the DOS clause DOES NOT APPLY.
So, don't worry about this issue, it is not one.
With the sister on title, the seasoning will be for as long as she was on title.
A refi is possible, and if mom is still on title, unless you want her on the new loan, a quit claim from her would be a good idea.
This way sister owns the house alone, and the refi will be hers alone.
HTH,
Jim FL
[addsig]
Very Educational.
And I have some research to do per seasoning; sorry!
Maybe this helps me understand the assumption packette I just got from WAMU concerning the potential assumption of my cofi loan. Thank you.
Now this is making me wonder what the tax implications will be for both Mom and Sis per this transfer. Any thoughts? :-D
I spoke with a lender about this and they said in this situation they would basically do a purchase transaction instead o f a refi. My mother would basically sell the house for the amount she owes on the first mortgage, cancelling that one and my sister would take out a new loan which includes the equity...totalling 60k. Bascially my mother would be gifting my sister the equity and i read somewhere that the limit annually is 11k anything over that counts against the lifetime untaxable max of 1,000,000. A m I right about that? The current tenants in this property have only been there for like 3 months...do lenders care how long a tenant has been in the property just as long as we have a signed lease?
Corey,
Yes you are correct about the gifting, but we are only 6 weeks away from the new year. So one could effectively gift 22K without going into the lifetime.