Lender asking me to sign mortgage, not title due to their mistake

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Lender asking me to sign mortgage, not title due to their mistake

Sean Walker
Cleveland, OH · Member since 2015 · 7 posts · 1 vote

Buying a multi-family with my brother (both of us married).  Lender has been a mess from the start.  Long story short, it's in the 11th hour and the lender realized my wife (Korean) can not sign/notarize the dower rights in Korea (we live in Korea, brother lives in the US) due to the fact that the only US recognized notary is in the US embassy, which she can not access.  Their solution was for me to only sign the mortgage and not the title (and thus bypass the need for her to sign any documentation).  This is obviously insane, however after a lengthy email outlining my complaints they have agreed to waive the closing costs if we proceed.  

Assuming my brother is trustworthy, what other scenarios could this come back to bite me in the ***?  The plan is simply for him to transfer half ownership to me after we buy the property.  The title company (lawyer) said there is no reason for the lender to care who the title is transferred to after the deal is complete, but that they do in fact have the power to stop the transfer.   I was advised to inform the lender of our plans, which I did stating this is a condition that must be met if I am going to proceed with closing.  They predictably did not respond to this portion of the request so I have nothing in writing.  

This deal was a slam dunk and now I feel in a bit over my head.  I'm prepared to walk from the deal (even after five months of dealing with this nonsense), but obviously this is not ideal.  I'm happy they waived the closing costs, but these people seem evil and I'm almost certain they will do anything after the closing to make my life miserable lol.  Any advice from more experienced investors?  

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
9y

@Russell Brazil It's common to have the closing doc.s fedexed to an out of country buyer/seller.  They simply have to go to the American embassy in that country to have them notarized, and Fedex back.  I did have one seller who had to take an eight hour bus ride to get it done in Mexico though.  Some also require an appointment, a week or so in advance.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    When ever I have had out of the country clients they have had to fly in for the closing. Out of state clients were able to hire a closing agent in their state and overnight documents to the title company for closing. I'm not sure if there is any workaround.

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  • John Van UytvenPro Member
    Property Manager · Oconee, IL · Member since 2014 · 536 posts · 202 votes
    9y

    @Sean Walker that is a mess

    I am sorry to hear that

    I recommend refinancing with a different lender, if you can't get an extension with seller to look for a different lender now.

    I have moved on from my bank I have had for 15 years because they became very difficult to work with recently. I felt my business was no longer wanted or appreciated.

    When I was living in Korea they kept coming up with new things I needed to do for a mortgage. Then eventually rejected me because I was out of the country.

    Are you a member of the Seoul REI group on Meetup?
    Maybe @Daniel Ryu or Jean Luc could be able to help.

    1Reply
  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    9y

    @Sean Walker I feel your pain. I was closing on a loan (as lender) and the title company asked me the day before if the buyers were married. What the heck!!! Did they not bother connecting with the buyers to setup their portion of the underwriting. They should have know this months in advance and advised the buyers and me for the need of a POA.

    Of course the buyers were not related, so had to do the crap shoot related to dower rights for the spouses of each buyer. Thankfully the buyers were in the US.

    A possible solution I can think of is to have the title company do a mail away closing for you. They will mail you the closing package. You take it to the US Embassy to sign & notarize. The hope being that your wife will be allowed to accompany you into the Embassy for the purposes of the transaction.

    If that is not an option, then your only option is to be removed from the title. Execute an independent/outside agreement with your brother and then hope that it all works out.

    Hope this helps.

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  • Sean Walker
    OP
    Cleveland, OH · Member since 2015 · 7 posts · 1 vote
    9y
    Originally posted by @John Van Uytven:

    @Sean Walker that is a mess

    I am sorry to hear that

    I recommend refinancing with a different lender, if you can't get an extension with seller to look for a different lender now.

    I have moved on from my bank I have had for 15 years because they became very difficult to work with recently. I felt my business was no longer wanted or appreciated.

    When I was living in Korea they kept coming up with new things I needed to do for a mortgage. Then eventually rejected me because I was out of the country.

    Are you a member of the Seoul REI group on Meetup?
    Maybe @Daniel Ryu or Jean Luc could be able to help.

    Hey good to see another fellow (former) Korean resident! I definitely know Dan and Jean-Luc and am an active member of the Seoul REI group. That group was sort of what planted the seed to look for an investment stateside :)

    Anyway hoping to salvage this deal, but yeah it's turned into a mess and the lender has made one mistake after another.  It's already dragging on into month five and we're still a week or two away (minimum) from closing.  The seller has had enough so if this deal falls through we have to walk away.  This latest curve ball in the 11th hour has altered the deal in what I consider a pretty drastic way so just trying to make sure I don't get burned.  I have to admit I laughed when they suggested leaving me off the title as a solution to fix their (major) oversight.  I have zero trust in this lender trying to be cautious.  Learned many valuable lessons in the last few months!

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  • Sean Walker
    OP
    Cleveland, OH · Member since 2015 · 7 posts · 1 vote
    9y
    Originally posted by @Upen Patel:

    @Sean Walker I feel your pain. I was closing on a loan (as lender) and the title company asked me the day before if the buyers were married. What the heck!!! Did they not bother connecting with the buyers to setup their portion of the underwriting. They should have know this months in advance and advised the buyers and me for the need of a POA.

    Of course the buyers were not related, so had to do the crap shoot related to dower rights for the spouses of each buyer. Thankfully the buyers were in the US.

    A possible solution I can think of is to have the title company do a mail away closing for you. They will mail you the closing package. You take it to the US Embassy to sign & notarize. The hope being that your wife will be allowed to accompany you into the Embassy for the purposes of the transaction.

    If that is not an option, then your only option is to be removed from the title. Execute an independent/outside agreement with your brother and then hope that it all works out.

    Hope this helps.

     Hi Upen, thanks for the reply.  My wife can not get in the US embassy to use the notary service so that won't work unfortunately.  

    But the lenders also suggested removing me from the title as a solution...I feel this puts me at unnecessary risk so am hesitant to accept this offer.  My brother and I also plan, as you suggested, to execute an independent deal to get me back on the title after the deal in complete, but I was told the lender will have the power to stop this from happening if they feel so inclined...is it likely the lender would interfere?  Would the lender care who ends up on the title after the deal is complete?  I don't trust this lender (hasn't been a good experience) so I would hate to go through all of this and then get burned in the end.  

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  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    9y

    Hi @Sean Walker

    I would think they could call the note due the minute you tried to get added to it (Will they?? Up to you to decide that risk). Another thing to consider though is if your seller is "fed up" at this point you may have a tough time getting your EMD back if you walk away. If it was my client I would make a play for the EMD at a minimum because you are not being denied a loan. They are more than willing to give you the mortgage so your "mortgage contingency" would most likely not get you out of it.

    I may be missing something but just something to consider.

    Best of luck in finding a reasonable resolution and wish I had something more to offer.

    1Reply
  • Sean Walker
    OP
    Cleveland, OH · Member since 2015 · 7 posts · 1 vote
    9y
    Originally posted by @Mike Cumbie:

    Hi @Sean Walker

    I would think they could call the note due the minute you tried to get added to it (Will they?? Up to you to decide that risk). Another thing to consider though is if your seller is "fed up" at this point you may have a tough time getting your EMD back if you walk away. If it was my client I would make a play for the EMD at a minimum because you are not being denied a loan. They are more than willing to give you the mortgage so your "mortgage contingency" would most likely not get you out of it.

    I may be missing something but just something to consider.

    Best of luck in finding a reasonable resolution and wish I had something more to offer.

    Hi Mike, great advice.  We're on good terms with the seller as he is aware the constant delays have nothing to do with us.  But that's not to say he'd give us another shot at buying the place!  I'm much more worried about your first point...if they call the note due when/if I'm added it would be a worst case scenario for me.  I can't imagine they would do this, but they don't seem to be playing by the rules so this is the part of the equation that has me tempted to walk from the deal.  

    1Reply
  • Daniel Ryu
    Investor · Suwanee, GA · Member since 2014 · 579 posts · 347 votes
    9y

    @John Van Uytven

    @Sean Walker

    Hi Sean, I don't have any advice in particular but here are some thoughts:

    1. The bank might not want to put in writing that they are waiving their right to acceleration (due on sale) b/c of regulatory issues. Maybe calling and asking for a verbal confirmation might be something they're willing to do.

    2. Could your wife fly to Guam / US to get the document notarized?

    3. As far as the acceleration clause: If you signaled your intent to the lender via a phone call that you were going to place title into an LLC that you and your brother owned (or a trust in your brother's name that named both he and you as trustees via a quit claim deed) and the lender went forward, even without agreeing not to call the note due, my guess is that the lender would not try and stop that from happening. It would be a headache for them and they might be inviting a legal battle which they'd want to avoid too. I don't have experience doing this - it's just something I've heard other investors talk about when trying to use conventional financing to buy a property but also wanting to involve partners in the transaction.

    Although it's been a huge pain in the *** up til now, I think there's a lot to gain from this experience if you're able to close it!

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  • Sean Walker
    OP
    Cleveland, OH · Member since 2015 · 7 posts · 1 vote
    9y
    Originally posted by @Daniel Ryu:

    @John Van Uytven

    @Sean Walker

    Hi Sean, I don't have any advice in particular but here are some thoughts:

    1. The bank might not want to put in writing that they are waiving their right to acceleration (due on sale) b/c of regulatory issues. Maybe calling and asking for a verbal confirmation might be something they're willing to do.

    2. Could your wife fly to Guam / US to get the document notarized?

    3. As far as the acceleration clause: If you signaled your intent to the lender via a phone call that you were going to place title into an LLC that you and your brother owned (or a trust in your brother's name that named both he and you as trustees via a quit claim deed) and the lender went forward, even without agreeing not to call the note due, my guess is that the lender would not try and stop that from happening. It would be a headache for them and they might be inviting a legal battle which they'd want to avoid too. I don't have experience doing this - it's just something I've heard other investors talk about when trying to use conventional financing to buy a property but also wanting to involve partners in the transaction.

    Although it's been a huge pain in the *** up til now, I think there's a lot to gain from this experience if you're able to close it!

    Hey Dan, as always, I appreciate the insight!  The Guam angle is an interesting one to consider.  Hopefully it doesn't come to that, but that might work.  

    We're still working out the details, but they have confirmed adding someone to the title would in fact likely trigger the "due on sale" clause.  Unfortunately we're at the point where I have to get everything in writing because there is zero trust at this point.  They have backed me into a position where if I agree to their terms I'd be assuming a huge amount of risk, which I'm simply not going to do.  A phone call in this situation is probably would have been more appropriate though if things weren't so tense.  Noted for future reference.  Anyway It would be soul crushing to walk away after five months of hoop jumping, but....

    So yeah, lots to learn.  Hope it's been more smooth sailing for you so far in 2017!

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  • Daniel Ryu
    Investor · Suwanee, GA · Member since 2014 · 579 posts · 347 votes
    9y

    @Sean Walker Here's an interesting BP thread on the topic. https://www.biggerpockets.com/forums/311/topics/18...

    The bank issue might have to do more with credit rating of the loan and the ability of the bank to package your loan w others to sell. Sounds like insurance changes is where the banks find out. 

    1Reply
  • Sean Walker
    OP
    Cleveland, OH · Member since 2015 · 7 posts · 1 vote
    9y
    Originally posted by @Daniel Ryu:

    @Sean Walker Here's an interesting BP thread on the topic. https://www.biggerpockets.com/forums/311/topics/18...

    The bank issue might have to do more with credit rating of the loan and the ability of the bank to package your loan w others to sell. Sounds like insurance changes is where the banks find out. 

    Dan this is great thank you. The lender did also recently mention they do not allow the title to be held in an LLC. I can almost guarantee the reason is due to being packaged with others to sell. Food for thought. I will have to hold my ground and find a way to be included on the title or walk. Appreciate the thread...I'll definitely have to look more into this.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    9y

    @Russell Brazil It's common to have the closing doc.s fedexed to an out of country buyer/seller.  They simply have to go to the American embassy in that country to have them notarized, and Fedex back.  I did have one seller who had to take an eight hour bus ride to get it done in Mexico though.  Some also require an appointment, a week or so in advance.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    9y

    @Sean Walker As for the due on sale issue, in the small likelihood the lender does this, you and  your brother would the "right to cure", which would be simply qcd'ing your half interest back to them.....worst case scenario.

    1Reply
  • Sean Walker
    OP
    Cleveland, OH · Member since 2015 · 7 posts · 1 vote
    9y
    Originally posted by @Wayne Brooks:

    @Sean Walker As for the due on sale issue, in the small likelihood the lender does this, you and  your brother would the "right to cure", which would be simply qcd'ing your half interest back to them.....worst case scenario.

     That small likelihood is my biggest fear though!  Not being on the title would present complications for any future investments and other plans I have lined up.  "right to cure" is a good call....I did not know about that.  Appreciate the advice.  Seems I have a lot to learn!

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  • Frank Chin
    Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
    9y

    One other option is for one party to hold the title, and the other to hold a long term lease, which could be up to 99 years, with an option to renew.

    I learn this work around when I took real estate courses at the NYU school, and the Professor of my course, a pro in the business, served on the local real estate board etc., was also the leasing guy at his family owned real estate company. His take is you can either own real estate outright, fee simple ownership, or control it via the use of triple net leases. A long term lease of over 30 years is considered real estate, has value, and can be bought and sold.

    So one work around is one of you has fee simple ownership, has name on the title, the other controlling it via a leasehold.

    The primary example of it is Rockefeller Center in NYC. Columbia University has the fee simple ownership, but received it via a gift years back, the terms of the gift prohibiting its sale. Since they can't sell it, they leased it via a long term leasehold to the Rockefellers.

    This instructor used long term leaseholds to solve a variety of problems, chief among them folks who owned properties for a long time, for a variety of reasons not advantageous or able to sell, so they create a long term leasehold to transfer control to others. His take is most real estate investors only think of fee simple ownership, name on the title, as the only way of owning real estate.

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  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    9y

    Nice @Frank Chin!

    Nice tool to keep in the box for those odd situations.

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