Other ways to offer home as collateral besides mortgage lien?

Question

I'm currently communicating with a local large bank, hoping to get a loan to payoff a current terrible mortgage on my house, rehab, and probably flip.  What I like about this bank is that once I got on the phone with someone in the Business Development department, I felt like it was an exciting brainstorm sessions in this exact section of bigger pockets.  We were both bouncing ideas back and forth on ways to make my situation work.

So the ARV absolutely got their attention.  But I have close to nothing to offer as collateral, and no liquidity for a down payment.

I would search for an answer to this question if I could think of the right way to phrase it in a search string, it's probably a stupid question, but here goes:

Would it be possible to offer something MORE secure, thus making lending to me less risky, than merely allowing them to become the 1st position lien holder?

For example:  Allow them, or some sort of escrow or land trust, to hold the deed as collateral?  Like one would do when buying a car?

Or what about some super binding contract like a P&S or Mortgage Note, but one where I wave the right to dispute anything.

I would have a lot of hesitation offering this to a private hard money lender.  But this is a large bank that operates under all of the large bank regulations.  Thanks in advance.

Wayne Brooks · Answer

@Greg K. Yeah, after I posted that I realized you be getting a short payoff.  They may still have some of the billions to spend in the big Fed settlement years ago.  It has been much more common to get a deep discount on the second mtg, since being underwater the bank realized that money is likely gone forever, so no harm in discounting it now.

Wayne Brooks · Answer

No, none of that will work. Do you not have enough equity?  Income/DTI issues?

Greg K. · Answer

@ Kathie Riedel this current mortgage was taken out in 2006.  Seems to me like the big players have learned from previous mistakes

@Wayne Brooks

Bingo.  When I would bring up the settlement directly , they would deflect and make excuses.  But under the framework of this esoteric short pay program, the results seem to be identical.  One can only speculate...

Kathie Riedel · Answer

@Greg K. Have you ever read "Chain of Title"? It sounds like we are back in that world. The slicing and dicing creates these situations. It seems like a small thing to major movers and shakers but we will again have a reset or worse, crash, from a thousand little pricks. I'll sit at my little desk and make my little loans smiling and having fun every day.

Thanks for the explanation.

Greg K. · Answer

it's neither.  they call it a short pay off.  Similar in many ways to a short sale.  But rather than a third party grabbing the house at a discount, the borrower can, and must obtain the funds and show they are on the borrowers account, and then the mortgage is simply settled.  No P&S, no HUD-1.  They are still open to it being a short sale, and the steps required to qualify are almost the same.  Like a short sale. it begins with a hardship affidavit.

Wayne Brooks · Answer

Okay, your “negotiated payoff” since this an institutional loan, will Only happen though a short sale, Not through a refinance.

Greg K. · Answer

@Kathie Riedel  I think others reading this will chuckle a bit, as I will of course answer your very reasonable question.  I remember when I went down that road.

The note, or actually 2 notes, as this was an 80/20 mortgage where one note provided 80% of the cost, and the other note covered what normally would be a down payment.  Then these notes were assigned, or re-assigned, or appointed servicers, and all the while actually becoming part of Residential Mortgage Backed Securities package deals.  I'm a little green on my understanding of the nuances and legalities here, but no one entity owns the note.  A trust owns the note.  Maybe.  The only thing I know is that HSBC bank has been appointed trustee of the trust that this note, or some of this note belongs to.

Some people claim you can get lenders to sell a note.  Some people claim note investing is better than real estate investing.  Most agree that this type of note is next to impossible to purchase, as a note.

The servicer, who speaks for all of the owners, etc., is willing to negotiate a reduced payoff however.  So in effect, yes. Lol.

But technically, no.

Kathie Riedel · Answer

@Greg K. Would the holder of the  note on the "terrible current mortgage" be willing to sell the note at a discount?

Greg K. · Answer

@Wayne Brooks

You are the first person to actually openly warn me, on bigger pockets and mostly in my real life trial by fire study of REI, that I had mixed up the correct usage of terminology or slang.  I know this is one of the quickest ways to be pegged as a target.  Thank you.

Yes I considered that these creative solutions would fall under the vast limitations that large banks must adhere to.

@Mike Cumbie

Yes this is basically what I'm learning in this third day of preliminary negotiations with this one particular bank.  It's very different from talking to independent RE professionals.  It's actually an amazing relief, after some paranoid litmus testing, to find myself discussing the specifics of my deal with no concern for being taken advantage of, or having to lie just to protect myself from other lies. etc.  There are still some obvious omissions that are totally understandable in any negotiation.

This particular bank has devoted several hours of their VP of Business Developments time.  And he has been enthusiastically trying to craft a solution.  True, he also referred me to a lawyer.  I calmed down after hearing some more details and thinking it through.   I'm actually going to try to hire the lawyer that me 'negotiation opponent' recommended.  A true paradigm shift.

Thanks, I'm not sure if I'll be able to procure enough skin in the game to win them over, but it's been enlightening so far.

Mike Cumbie · Answer

Established banks also have processes and procedures to follow when things go sideways. In this case if you failed to pay they would need to have someone come up with a whole new process that may or may not fit within their business model. So they would most likely have to get legal involved and all sorts of people for some one off property condition.

Good luck in finding a solution that works.

Other ways to offer home as collateral besides mortgage lien?

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