Foreclosure involving multiple loans and two lenders.

Anonymous — Wed, 14 Aug 2013 09:21:43 GMT

Eight years ago, my brother and his wife purchased a home using a total of 4 loans (yes, four oans) from two different state finance agencies. This was part of a massive neighborhood revival initiative and these loans were made to low and medium income families at decent interest rates. To sweeten the pie even more, three of the four loans were deemed "silent loans" and did not require payments for the next 15 years. Only one loan was being reported to the credit bureaus.

Fast forward to today, brother & sister-in-law are facing foreclosure. Their scores were in the high 700s, but that will not be the case much longer, I presume.

My questions are as follows :

1. Can a lender report the additional three silent loans now to the credit agencies, eight years post origination ?

2. The four loans in default all involve one property. However, there are two lenders in the mix. When they report all these loans as being in default, would it be considered as four different delinquent accounts or would it count as the one foreclosure ?

3. Even worse, can this be considered a case of two foreclosures (due to existence of two lenders) ?

We are confused because we just haven't seen any similar cases and don't know how all these delinquencies will affect my brother's financial future. Four accounts in default, and possible post - foreclosure collections activities, will probably completely & thoroughly destroy his credit for a good few years at least. I almost feel his score will go all the way down to the 300s because of the number of loans involved, even though he only owned the one property.

BTW, our mother paid for my brother & his wife to see a lawyer, who confirmed that these are all purchase money loans and considered "non recourse" per state law. So, while he probably does not have to worry about being sued for the deficiency, we do worry about his credit worthiness and his financial future. Any advise that you could give us in this regard is deeply appreciated.

Thank you !

Re: Foreclosure involving multiple loans and two lenders.

Anonymous — Thu, 15 Aug 2013 03:17:01 GMT

First: do they want to try to save their home? If so, they should apply for a loan modification. If they simply cannot afford it (keeping in mind their payments could possibly be lowered via a modification), they should at least TALK to their lender to try to settle the account via a Deed-in-Lieu or perhaps try to Short Sale the property. Although these 2 options still affect your FICO score about the same as a foreclosure, the amount of time AFTER a foreclosure before another lender will lend you money is much longer (than if you do a Deed in Lieu or Short Sale). Based on the types of loans you are describing, I sounds like the loans are not handled by a big-time lender meaning they might not be prepared to quickly foreclose - they might not be set up to handle taking a property to foreclosure sale (whcih usually results in the property reverting back to the lender) if this is a small time lender that does the grant programs (usually these are City/Town Special Home Program Grant-type of things) and those types of lenders are equiped to become owners of the property and all the management that goes along with that. So if you are indeed dealing with small-time entities like that, they will probably look favorably upon doing a Short Sale or something like that. Heck, even big time lenders prefer short sales (a lender isnt in the business of OWNING real estate). I highly suggest he talk to his lender about alternatives to foreclosure.............................

to answer your questions 1) I am not sure...sorry. If you can confirm they will not report, that takes care of the rest of your questions actually. I suspect the answer is NO they will not suddenly start reporting the accounts, but its hard to say. Those special home grant programs are pretty unique to each jurisdiction that gives them out so it will really be hard for anyone to answer this question since they are so unique.

2) if each loan has a separate Note, they are considered 4 separate accounts and IF they are reported, 4 accounts will be reported (regardless of how many lenders there are)

3) an actual foreclosure proceeding has to be started on each separate account in order for it to be reported as 'in foreclosure'. I dont know what state you are in but the process to start a foreclosure is different depending on the state you are in. Some states require a court case to be filed. It is very unlikely foreclosure proceedings will be started on all 4 loans. Especially considering 3 of the accounts do not have a monthly payment due - so there are no payments on those loans to fall behind on. It is possible that those 3 loans have special terms within the loan docs outlining what would cause those 3 loans to be considered 'in default' (specifically, I am curious whether they have any terms stating that a foreclosure proceeding on another account would trigger a default on the 3 loans with no monthly payment due - something along those lines). Those 3 loans have to have certain language within the documents that describe what would cause the loan to become in default. The terms should be outlined on the Note and/or Mortgage/Deed of Trust. Until we know more about what the terms state, it seems likely the only foreclosure that would be reported would be the 1 account with monthly payments that are not being paid. Even if the 3 other loans describe the terms of default along the lines of 'if you stop paying Mortgage A, this loan B will also be considered in default", it is still somewhat unlikely the lender will initiate foreclosure on the 2nd loan - and if they never initiate foreclosure, they cannot report the 2nd account as 'in foreclosure'.

As an aside, I deal with foreclosures all day long and although i do not necessarily review credit scores daily, i do see them frequently and the scores are rarely below 500.

topic Foreclosure involving multiple loans and two lenders. in Mortgage Loans

Foreclosure involving multiple loans and two lenders.

Re: Foreclosure involving multiple loans and two lenders.