Foreclosing


#1

I’m considering lending money to someone to buy a single family house (non Mobile Home) (1st lien on house). If they for some reason are unable to pay me and I foreclose on them, would their credit be impacted since I’m not a commercial lender? I’m just a private lender. I have never done this so wondering what are the consequences for the buyer (besides losing the house)

I know this isn’t a specific MH question but I figured the same applies to Mobile Homes so maybe someone would know in regards to Lonnie Deals.


#2

Michael, what state is the home in?

Couple of things to keep in mind in lending is how you can foreclose if you need to. In Texas it is FAST, in other states it can take MONTHS.

You can avoid most of the headache by having the borrower sign a Deed in Lieu of Foreclosure. You would simply explain to the borrower that rather than public embarrassment of having their home sold on the court house steps, etc, they can offer a Deed in Lieu and quickly remedy that particular situation. You would keep the DLF in your file for that home and once the party notifies you, or met the agreed upon situation for foreclosure, you would simply file that deed. So, it is public in record only.

Their credit would not be impacted by you in that you post it to the bureaus, rather it would come up on public record searches.

You, I believe are required to issue a 1099 or obtain a judgment for the balance you are unable to recover upon sale of the property to the new owners.

Now, what you could do is take back the house by them signing the deed over to you in the presents of a notary (AFTER you have done due diligence to see if taxes etc were paid and no junior liens are on the property like other judgments) and issue a simple ‘release’ stating the terms of the promisory note have been met. If you were to do that AND you have the deed to the property it would be a non issue credit wise.

Depending on what state you live in you could incur fees or taxes during the process. I would tell a title company what you are doing and have the buyers furnish you with an Owner’s title policy no matter what and have their insurance list you as additionally insured.

And because I am not an attorney, you just might want to see one or discuss this with the attorney of the title company so that the promissory note is done properly and your interests are properly cared for. I wouldn’t do this the first time without a re attorney.


#3

Real property (site built house) is very different than personal property (most mobile homes) and requires very different procedures to keep your interests protected. Usury is serious, so make sure an attorney reviews and drafts your note. You might want first right of refusal in the agreement should they decide to sell. LOTS of things to consider here and again, a Real Estate attorney should advise you so you don’t find yourself in a crunch later on.

You are NOT required to seek a judgement should they default. I believe you are require to issue the 1099 to the IRS IF you don’t recover the amount of the note on resell of the property…again, something you need to clear with your attorney.

Make sure when you talk to the title company that is closing this that you well understand what is and is not covered on their title policy…again, just keeping your backside in the best position.

These are just some things that came to mind.


#4

In addition to the great info Melissa provided, I would add that it is important to check your state lending laws. This does not sound like an owner financed sale of real estate but rather a true loan.

For example, as I understand it in NC it is not technically legal for a non-licensed lender to loan money for someone to buy a property they will owner occupy. It is ok to lend to investors. I guess the banks don’t want the competition and the government doesn’t want the homeowner getting taken by a preditory lender, especially in our current lending environment.

Lastly keep in mind that some states do not allow for you to seek a deficiency judgment for the amount you may lose in the foreclosure/resale process if your loan was a purchase money loan.

Like Melissa I am not an attorney, nor do I lend in this manner so I post this only in the hopes that it may help you in your due diligence (CYA) efforts.

Tony