Private Lending to get our of a sticky situation??

Question

Hello all,

Well, this is quite a personal dilemma I find myself in.  Me and my girlfriend are both new to REI, me as a contractor with a few potential business partners, and her a working mother taking real estate classes.  We both work very hard but have had our fair share of ups and downs.  The latest came when we thought we were doing everything right, so looking for some advice and help.

The short story is my girlfriend relies on child support for making ends meet.  We were looking to cut a few bills and went to trade in her suburban for something more practical and cheaper.   The credit app came back with a huge shocker.  She was behind on her mortgage.  Her x has not been making mortgage payments for the last several months.  We had been planning to fix up her home over the next year and do a cash out refi and take him off the mortgage and get him out of the picture.  Well, we all know what this does, and it really hurts our plans.  And as long as he is in the picture of owning the home, and being on the mortgage, we are really at his mercy.

What I'm wondering is if looking for private financing would be a better use of our resources.  Instead of using our money to catch up and be in the same situation, would it not be better to use the cash we can save to help attain private financing.  Something I envision would be finding private lending to pay off the entirety of the mortgage, use what we can to put towards the cost of that make payments directly to the private lender and refi later, because with the recent payment history, there is no way her mortgage company will do a refi with her only, and a new mortgage is impossible at this point because of what has happened to her credit with this.

Any advice is greatly appreciated.

Notes, her current mortgage is a 15 year conventional at 4.9%.  It would not be too hard to catch up, but if we went private lender route at a higher % rate for a longer term, with refi @12-18 months, I think we would be money ahead and that would get him off the mortgage as well as the title.  That to me is worth paying a premium for.  If the interest went up to 7.9 plus 1 point, the payments would still be less than current, there is equity in the home (not much) and over the next year, we will be doing some major value adding remodeling that I do myself, such as cabinetry, flooring, granite, landscaping, finish work.  It seems logical to me that this would be a good deal to us and the lender, and it's too bad most banks cant see that.

Am I crazy or is this something possible with a private lender.

Ed Caldwell · Answer

Divorce is always a costly recipe for disaster, especially if they are both still on the title and mortgage. It is always better to sever financial ties as quickly as possible. As part of the divorce, is the ex required to pay the mortgage? If so, I would go after him and have the court garnish his wages to catch up the payments that you should make so you don't lose the house. Private money is expensive and they do not like to be in second position with a first mortgage. Second, if I was lending there is a lot of risk with the ex still on the title to the house as you and the girlfriend don't have total control of the asset? I would figure out how to cut ties with the ex, even if you have to outright sell the current house if possible.

Hard choices and I hope it works out for you.

Justin Tahilramani · Answer

@James Pearson

@Ed Caldwell - makes a great point - what does the divorce state? Is he required to make payments? It might have been a good idea to quit claim the property as a part of the divorce. Now that he is behind, he probably won't want to be the only one on the hook to catch up on payments...

Account Closed · Answer

@James Pearson i would see what legal remedies you have to remove them from the deed. Once you have confirmation it can be done I would contact bank again. You stated bank would release him of liability if you caught ups payments and you have the funds to do that. Now that he is off both continue to make on time payments. You should be a le to r refi in no time. I'm in hard money and if you can find 7.9 with 1 point good luck. All of my deals are 10-12% 3-4 points which are very common rates

Charlie Fitzgerald · Answer

If the ex-husband has violated the order of the court, by not keeping current with his court ordered payments on the mortgage, the judge can order the lender to do a "name only" refinance.  Ask your Attorney about it.

Andrew Sterling · Answer

@James Pearson,

I think your question was, "what route you should take in order to save your girlfriends credit". You have several options but only one I think would save you money and the headache of dealing with private money / hard money investors.

1.) Private money investors mostly look to lend on safe and secure investments hence an equity spread and a higher interest rate. The reason why an investor looks for an equity spread is mostly to protect his investment incase of foreclosure. The fees involved with such a procedure requires an investment on the part of the beneficiary. That investment cuts into the profits and returns. A reasonable investors will not lend on a property with a 15% equity unless you can show that your rehab will significantly increase the equity in the collateral. Those loans are called fix and flip loans or rehab loans.

2.) You can crowd fund your loan from friends and family. Crowd funding is asking your friends and family to contribute small amounts to lend you the money at a low interest rate. You can ask for the loan until you fix your credit and refinance with a traditional lender. Since everyone is pitching in small amounts those people will be more opt to taking a higher risk for a small reward. What you're doing is spreading the risk amongst lots of people.

3.) This is your best and most cost effective way to secure your investment and save your girlfriends credit. Pay the missed payments on the current mortgage and bring the loan current. Once you start paying the mortgage on time  and you consistently pay it for the next 12 months your girlfriends credit will improve and you can go to a traditional lender and refinance your loan. The reason why I'm stressing that this is your best option is because your current interest rate is a low 4.9% and your savings over 12 months will be significant. Also by refinancing the lender in the payoff will ask for the missed payments and fees.

I'm not sure if this helped you. If you have any other question please send me a private message @ sterlingwhg@gmail.com or call 888-221-6663.

Thank you,

Andrew Sterling

NorthStreet Lending

James Pearson · Answer

Please forgive my ignorance, but is hard money the same as private lending??  I was under the assumption there is a little difference.  I knew "hard money" had an effective interest rate near 15%, but I was under the assumption private lending was significantly lower.  Basically looking for people that want better rates than bank CD and take a slight risk.  I wouldn't consider this high risk as the payment history from her is good and there is roughly 15-20% equity in the home.  My goal over the next year is to build over 30% equity to get a cash out refi so we can have funds to flip a house.  Thanks for the replies.  They do help give me info that I am in the grey area on.

James Pearson · Answer

We are already working with an attorney, and the mortgage company.  It just doesn't seem the mortgage company is willing to release him from his liability.  Not until the note is caught up.   I am also talking with the local bank, but going that route is quite expensive as well, if even possible.  We are either looking at paying all new closing costs, reassignment fees, etc and likely higher interest through conventional means, sell the house (which is not an option at this time), private lender, or keep paying with him on the lease.  What sucks is we have been planning on some updates because I'm moving in before the year ends, and this hanging over our head is not something I'm looking forward to.

John Thedford · Answer

A quit claim deed won't remove your liability on the mortgage. As far as private money, it is usually expensive and unless you have a clear and workable strategy you might end up paying a LOT more. Are you prepared to sell (and will the other person cooperate) in the event you can't refi within 24 months or less? I suggest your first call Monday morning is to your attorney. You need to make sure that both parties stay in compliance with court orders. While speaking with the attorney, see what legal remedies you may have to remove them from the deed (though the lender may not be willing to remove them from the mortgage note).  Then your second obstacle will be to get the lender to remove them from the mortgage and it's associated liability. It is complicated when a divorce is involved. Get legal advice and help. See if there is a way to resolve this without taking on high interest rate debt. Good luck.

James Pearson · Answer

I completely agree about the divorce part.  She hired an attorney for the divorce and paid him a decent amount, I'm kinda shocked and upset that he didn't get him off the lease.  It is part of the divorce agreement and custody that he makes half the payments.  Which with his income he got off cheap.  He also managed to get in the agreement that he get half the house should it sell.  Again, great deal for him.  She is now going through an attorney and courts to get the child support, and we are in the process of getting him off the note and title.  It's a major process, and the private mortgage is completely for sole purpose to help that happen.  She is looking to get her payments direct from him and not made to the mortgage.  But my fear is that now with this hurting her credit, she may not be able to find conventional financing.  Thus the reason I'm asking about private lending.  It would be her alone on the title and note.  Will take a month or more.  I'm just looking for options here.

With that said, do you think private lending, for a period of 18-24 months is an option?

Private Lending to get our of a sticky situation??

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