How to modify terms of a seller-financed mortgage?

Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes

1y

I would talk to your servicer to see if they can assist you. I am trusting you have it set up with a service. If not I would suggest finding a servicer to collect and manage that note. This is typically for most people not a DIY project. You subject yourself to a lot of risk on DIY. Alternative is to get a board certified real estate attorney to assist you.

1 Reply

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

1y

Quote from @Jennifer Turner:

Has anyone ever sold a property with seller financing then later extended the repayment period or modified the terms of the loan with the buyers? Or even refinanced it to them?

I’ve been searching for a form or contract I could use to recast or modify the terms of a loan that I seller financed a few years ago, with the intention of lowering the monthly payment for the borrowers and extending the repayment timeline. We also need to add in escrowed taxes and insurance to the new terms, as previously the buyers were responsible for paying them, but we’ve recently had to take that over.

Context:

Subject property is a mobile home on land in the state of FL that is owner occupied by the family who purchased it from our LLC. They have had a difficult year and are struggling to make their payments on time each month. We know they're hard working and would like to continue working with them rather than move toward foreclosure, but we know they're in over their heads if we continue under the current terms of the mortgage and don't want to set them up for failure. Our current mortgage terms include a late fee after 5 days, so they're already paying extra each month and have to split the total monthly payment up between 2-3 payments when they get their pay check. The monthly payment is only ~$720 and the interest rate is fixed at 8% fully amortized with no balloon. I know they would be worse off refinancing at today's rates even if they could find an alternative lender able to lend on older mobile homes. And given their recent late payment history, I don't know that they'd qualify with another lender.

We have an upcoming meeting with them to see how we can extend the loan a few more years to make the total monthly payment including installments for the annual property tax bill, which we’ve had to pay for them this year since they were late the last couple years and had to pay interest to the county.

This is the only property we’ve ever seller financed, in case that clears up any questions you have about Dodd-Frank compliance implications. They hold title, and the mortgage and promissory note were attorney drafted and filed at our local county.

I do plan to consult my real estate attorney who handled the closing but this is his busiest week of the year, so I definitely don’t want to bug him with something that isn’t extremely urgent until after the New Year. In the meantime I would love to have some helpful information or ideas to share with the buyers when we meet and ideally an agreement/contract we could fill out together once new terms are agreed to and then share that with the attorney so he could draft up the formal instrument for recording.

If you have experience with this type of scenario, I’d love to hear any recommendations you have or any helpful resources you could point me to for the appropriate paperwork.

you can do a loan modification, which an attorney can draft for you or the loan servicer you are using can also draft it for you and you can give them the terms to review the documents.

Also make sure to check with the requirements as in some states the loan modification will also need to be recorded.

Happy to chat offline about more info on how to do a loan mod, we do them all the time (it does not matter whether its seller financed or an agency loan)

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4 Reply

Ken M.

Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes

1y

Quote from @Jennifer Turner:

Has anyone ever sold a property with seller financing then later extended the repayment period or modified the terms of the loan with the buyers? Or even refinanced it to them?

I’ve been searching for a form or contract I could use to recast or modify the terms of a loan that I seller financed a few years ago, with the intention of lowering the monthly payment for the borrowers and extending the repayment timeline. We also need to add in escrowed taxes and insurance to the new terms, as previously the buyers were responsible for paying them, but we’ve recently had to take that over.

Context:

Subject property is a mobile home on land in the state of FL that is owner occupied by the family who purchased it from our LLC. They have had a difficult year and are struggling to make their payments on time each month. We know they're hard working and would like to continue working with them rather than move toward foreclosure, but we know they're in over their heads if we continue under the current terms of the mortgage and don't want to set them up for failure. Our current mortgage terms include a late fee after 5 days, so they're already paying extra each month and have to split the total monthly payment up between 2-3 payments when they get their pay check. The monthly payment is only ~$720 and the interest rate is fixed at 8% fully amortized with no balloon. I know they would be worse off refinancing at today's rates even if they could find an alternative lender able to lend on older mobile homes. And given their recent late payment history, I don't know that they'd qualify with another lender.

We have an upcoming meeting with them to see how we can extend the loan a few more years to make the total monthly payment including installments for the annual property tax bill, which we’ve had to pay for them this year since they were late the last couple years and had to pay interest to the county.

This is the only property we’ve ever seller financed, in case that clears up any questions you have about Dodd-Frank compliance implications. They hold title, and the mortgage and promissory note were attorney drafted and filed at our local county.

I do plan to consult my real estate attorney who handled the closing but this is his busiest week of the year, so I definitely don’t want to bug him with something that isn’t extremely urgent until after the New Year. In the meantime I would love to have some helpful information or ideas to share with the buyers when we meet and ideally an agreement/contract we could fill out together once new terms are agreed to and then share that with the attorney so he could draft up the formal instrument for recording.

If you have experience with this type of scenario, I’d love to hear any recommendations you have or any helpful resources you could point me to for the appropriate paperwork.

Under foreclosure laws, you have to send appropriate notices and try to work with the borrower and offer a loan mod before foreclosure anyway. That is not a particularly hard thing to do, but you need to put it in writing and execute a new note for the loan mod.

HUD does a non interest bearing 2nd that you might want to consider doing. That is, they take the arrears, the late fees and any legal fees and they create a 2nd. The borrower simple starts remaking payments at a given agreed upon date. You could set the date out a couple of months to give the borrower some breathing room. That way, you can or choose not, to make a change to the original note.

1 Reply

Dan DeppenBusiness Member

Erie, CO · Member since 2017 · 274 posts · 267 votes

1y

Quote from @Ken M.:

Quote from @Jennifer Turner:

Has anyone ever sold a property with seller financing then later extended the repayment period or modified the terms of the loan with the buyers? Or even refinanced it to them?

I’ve been searching for a form or contract I could use to recast or modify the terms of a loan that I seller financed a few years ago, with the intention of lowering the monthly payment for the borrowers and extending the repayment timeline. We also need to add in escrowed taxes and insurance to the new terms, as previously the buyers were responsible for paying them, but we’ve recently had to take that over.

Context:

Subject property is a mobile home on land in the state of FL that is owner occupied by the family who purchased it from our LLC. They have had a difficult year and are struggling to make their payments on time each month. We know they're hard working and would like to continue working with them rather than move toward foreclosure, but we know they're in over their heads if we continue under the current terms of the mortgage and don't want to set them up for failure. Our current mortgage terms include a late fee after 5 days, so they're already paying extra each month and have to split the total monthly payment up between 2-3 payments when they get their pay check. The monthly payment is only ~$720 and the interest rate is fixed at 8% fully amortized with no balloon. I know they would be worse off refinancing at today's rates even if they could find an alternative lender able to lend on older mobile homes. And given their recent late payment history, I don't know that they'd qualify with another lender.

We have an upcoming meeting with them to see how we can extend the loan a few more years to make the total monthly payment including installments for the annual property tax bill, which we’ve had to pay for them this year since they were late the last couple years and had to pay interest to the county.

This is the only property we’ve ever seller financed, in case that clears up any questions you have about Dodd-Frank compliance implications. They hold title, and the mortgage and promissory note were attorney drafted and filed at our local county.

I do plan to consult my real estate attorney who handled the closing but this is his busiest week of the year, so I definitely don’t want to bug him with something that isn’t extremely urgent until after the New Year. In the meantime I would love to have some helpful information or ideas to share with the buyers when we meet and ideally an agreement/contract we could fill out together once new terms are agreed to and then share that with the attorney so he could draft up the formal instrument for recording.

If you have experience with this type of scenario, I’d love to hear any recommendations you have or any helpful resources you could point me to for the appropriate paperwork.

Under foreclosure laws, you have to send appropriate notices and try to work with the borrower and offer a loan mod before foreclosure anyway. That is not a particularly hard thing to do, but you need to put it in writing and execute a new note for the loan mod.

HUD does a non interest bearing 2nd that you might want to consider doing. That is, they take the arrears, the late fees and any legal fees and they create a 2nd. The borrower simple starts remaking payments at a given agreed upon date. You could set the date out a couple of months to give the borrower some breathing room. That way, you can or choose not, to make a change to the original note.

You aren't required to offer a loan mod prior to foreclosure. Is there a particular state or scenario that calls for this? I know PA has a process to go through before you start a foreclosure, but have never seen a requirement to offer a mod.

2 Reply

Patrick Roberts

Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes

1y

Ive never heard of a loan mod being required for foreclosure as a blanket rule. Govt loans will typically offer loan mods, forbearance, and other workout/loss mitigation options if requested, but that is a feature of the loan, not law. I know each state has its own foreclosure rescue laws, so maybe this is a requirement in some states.

I'm curious to see where this thread goes. Might learn something new.

2 Reply

Jennifer TurnerPro Member

OP

Realtor · Gainesville, FL · Member since 2019 · 57 posts · 49 votes

1y

Thank you @Chris Seveney! I’d love a brief chat if you have time.

0 Reply

Ken M.

Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes

1y

Quote from @Dan Deppen:

Quote from @Ken M.:

Quote from @Jennifer Turner:

Has anyone ever sold a property with seller financing then later extended the repayment period or modified the terms of the loan with the buyers? Or even refinanced it to them?

I’ve been searching for a form or contract I could use to recast or modify the terms of a loan that I seller financed a few years ago, with the intention of lowering the monthly payment for the borrowers and extending the repayment timeline. We also need to add in escrowed taxes and insurance to the new terms, as previously the buyers were responsible for paying them, but we’ve recently had to take that over.

Context:

Subject property is a mobile home on land in the state of FL that is owner occupied by the family who purchased it from our LLC. They have had a difficult year and are struggling to make their payments on time each month. We know they're hard working and would like to continue working with them rather than move toward foreclosure, but we know they're in over their heads if we continue under the current terms of the mortgage and don't want to set them up for failure. Our current mortgage terms include a late fee after 5 days, so they're already paying extra each month and have to split the total monthly payment up between 2-3 payments when they get their pay check. The monthly payment is only ~$720 and the interest rate is fixed at 8% fully amortized with no balloon. I know they would be worse off refinancing at today's rates even if they could find an alternative lender able to lend on older mobile homes. And given their recent late payment history, I don't know that they'd qualify with another lender.

We have an upcoming meeting with them to see how we can extend the loan a few more years to make the total monthly payment including installments for the annual property tax bill, which we’ve had to pay for them this year since they were late the last couple years and had to pay interest to the county.

This is the only property we’ve ever seller financed, in case that clears up any questions you have about Dodd-Frank compliance implications. They hold title, and the mortgage and promissory note were attorney drafted and filed at our local county.

I do plan to consult my real estate attorney who handled the closing but this is his busiest week of the year, so I definitely don’t want to bug him with something that isn’t extremely urgent until after the New Year. In the meantime I would love to have some helpful information or ideas to share with the buyers when we meet and ideally an agreement/contract we could fill out together once new terms are agreed to and then share that with the attorney so he could draft up the formal instrument for recording.

If you have experience with this type of scenario, I’d love to hear any recommendations you have or any helpful resources you could point me to for the appropriate paperwork.

Under foreclosure laws, you have to send appropriate notices and try to work with the borrower and offer a loan mod before foreclosure anyway. That is not a particularly hard thing to do, but you need to put it in writing and execute a new note for the loan mod.

HUD does a non interest bearing 2nd that you might want to consider doing. That is, they take the arrears, the late fees and any legal fees and they create a 2nd. The borrower simple starts remaking payments at a given agreed upon date. You could set the date out a couple of months to give the borrower some breathing room. That way, you can or choose not, to make a change to the original note.

You aren't required to offer a loan mod prior to foreclosure. Is there a particular state or scenario that calls for this? I know PA has a process to go through before you start a foreclosure, but have never seen a requirement to offer a mod.

Sure, https://legal-info.lawyers.com/bankruptcy/foreclosures/delay...
Under the Dodd-Frank Act, the bank must first wait until the payment is more than 120 days overdue.

"Once a complete loss mitigation application is received, the servicer must review that application before starting the foreclosure process."

"during the 120-day waiting period. If the owner submits a completed application before the servicer starts the state foreclosure process, the servicer can't foreclose until the following occurs:

the borrower doesn’t qualify for, or rejects, the lender’s loss mitigation options, or
the borrower accepts a loss mitigation offer but fails to fulfill its requirements."

Okay, let me reword what I posted ;-) IF a borrower submits an application, the bank must review. My experience is though, that any fed backed loan, automatically is offered a chance to do a loan mod.