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80/20 Mortgage: The 80 is OK, the 20 is a problem

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Anonymous
Not applicable

80/20 Mortgage: The 80 is OK, the 20 is a problem

I made the mistake of purchasing a condo with 100% financing using an 80/20 arrangement with a pretty awful interest rate on both loans.  After a few years of self-induced chaos, I've got the first mortgage on track.  It's been current for 2 years and my scores are improving steadily.   However, the 2nd was charged off about 3 years ago.  Though the loans were originated by NationPoint (First Franklin)  BofA now owns both loans.  The primary loan is serviced by Select Portfolio Servicing.  BofA has made no effort in 3 years to collect on the 2nd loan.  The value of the condo is probably about $175-180k.  I owe $162k on the first mortgage and $36k on the second.   Is a refi absolutely out of the question until I settle or pay off the charged-off loan? Thanks

 

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EQ 647

Goal 680-700

Message 1 of 7
6 REPLIES 6
Walt_K
Senior Contributor

Re: 80/20 Mortgage: The 80 is OK, the 20 is a problem

I think a charged off mortgage counts the same as a foreclosure.  I don't think you can refinance until you've gone three years without a late payment.  I'm learning this lesson right now too.  I didn't have a chargeoff, but I had my mortgage go 120 days late which also counts as a foreclosure.  Since a refinance is like getting another mortgage loan, I am assuming same guidelines apply and you can't do it for at least three years.

 

ETA:  Ignore everything I said.  Just noticed you said the chargeoff was three years ago.  This is why I should just let the mortgage guys answer these questions.  Not sure if there's anything further that has to be done about the chargeoff.


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Message 2 of 7
Lel
Moderator Emeritus

Re: 80/20 Mortgage: The 80 is OK, the 20 is a problem


@Anonymous wrote:

I made the mistake of purchasing a condo with 100% financing using an 80/20 arrangement with a pretty awful interest rate on both loans.  After a few years of self-induced chaos, I've got the first mortgage on track.  It's been current for 2 years and my scores are improving steadily.   However, the 2nd was charged off about 3 years ago.  Though the loans were originated by NationPoint (First Franklin)  BofA now owns both loans.  The primary loan is serviced by Select Portfolio Servicing.  BofA has made no effort in 3 years to collect on the 2nd loan.  The value of the condo is probably about $175-180k.  I owe $162k on the first mortgage and $36k on the second.   Is a refi absolutely out of the question until I settle or pay off the charged-off loan? Thanks

 

TU 625

EQ 647

Goal 680-700


Not sure if this matters, but what are the recourse laws in your state?  In many cases, purchase money loans (like your 2nd) are non-recourse debt.  That is, if you default on a loan that is upside down, the lender's only recourse is taking possession of the home.  For example, if you a mortgage balance of $200,000 but the home sells at auction for $125,000, the lender cannot come after you for the $75,000 shortfall.  The maximum amount that the bank can recover is the present value of the home.

 

Your situation is bit different.  The balance of your first mortgage is $162,000 and the value of your home is about $180,000.  So, if you try to refinance, the 2nd lender may try to recover the difference - $18,000 - since that represents the residual equity after the first loan has been satisfied.  Thus, it would put you in another 100% financing situation.

 

This is all speculation on my part.  You might want to consult with an experienced real estate lawyer in your area that can explain the recourse laws and rights of redemption in your state.  Good luck.

Message 3 of 7
Anonymous
Not applicable

Re: 80/20 Mortgage: The 80 is OK, the 20 is a problem

Good question, I'm in Illinois, which is a recourse state with reagrds to the primary lien but I'm not sure about the 2nd.

Message 4 of 7
Lel
Moderator Emeritus

Re: 80/20 Mortgage: The 80 is OK, the 20 is a problem

I've heard that Illinois recourse laws are kind of consumer-unfriendly.

Message 5 of 7
ShanetheMortgageMan
Super Contributor

Re: 80/20 Mortgage: The 80 is OK, the 20 is a problem

The 2nd mortgage would be considered the same severity as a foreclosure, which has perhaps yet to begin.  I assume it's going to stay on title until you sell, charged off debt doesn't mean reconveyed off the title of your home.  Even though it's charged off, it's probably going to be looked at as a "rolling" 180 day late payment until it's paid in full/caught up/potentially reconveyed.

 

Also, refinancing the 1st mortgage would require BofA subordinating their debt to the new 1st mortgage ... something tells me they aren't too likely to do allow that to happen, given the circumstances.  You appear to be stuck until something more happens with that 2nd mortgage.

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Message 6 of 7
Anonymous
Not applicable

Re: 80/20 Mortgage: The 80 is OK, the 20 is a problem

Thanks, I wasn't exactly optimisitic about the situation so you're answer does not surprise me.  I guess we'll take a stab at settling once we save enough to make a realistic offer.  In the meantime, I'm hoping they leave well enough enough alone.  Since BofA owns both mortgages and I'm current on the primary loan it seems they're not motivated to foreclose on the remaining 20%.

Message 7 of 7
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