Curious request in deed-in-lieu of foreclosure

Pay PMI provider $1K to fast-track approval?

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Apr. 4, 2011

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Pay PMI provider $1K to fast-track approval?

Benny Kass
Inman News™

DEAR BENNY: In a recent column you mentioned that the government in some cases is offering $1,500 to homeowners who turn over their keys and accept a deed-in-lieu instead of going through foreclosure. I can see where this is advantageous to all parties involved. How does one find out about this program?

We are getting ready to sign our deed back but of course no mention was made of giving us any monies. We left the place sparkling, with new paint, new carpet, and bought a new washer and dryer. The mortgage servicer has asked us also to sign a promissory note to the private mortgage insurance (PMI) provider for $1,000 at no interest over 18 months.

We paid PMI $60 each and every month for seven years. Is this an unusual practice? He said it would help with the lender accepting our deed-in-lieu offer, so I said OK. But now, after some thought, I think it is not wise or needed. --J.A.

DEAR J.A.: I did a website search, and found some information about the federal Home Affordable Foreclosure Alternatives (HAFA) program. Under this program, borrowers can receive $3,000 in relocation assistance when they successfully close on a short sale or a deed-in-lieu of foreclosure.

A short sale is where your lender allows you to sell your house for less than you own on the mortgage. Some lenders will release you completely from any deficiency; others will insist that you make some sort of payment to the lender, over and above what the lender receives from the sales proceeds.

In a deed-in-lieu, you give up your house to the lender, and no foreclosure is necessary.

Under the HAFA program, there are several requirements, such as (1) you have to live in the house (or have lived there) in the last 12 months; (2) you have a documented financial hardship; (3) your first mortgage is less than $729,750; and (4) you obtained your loan on or before Jan. 1, 2009.

For more information, go to makinghomeaffordable.gov.

As to your question about having to pay an additional $1,000 for private mortgage insurance premiums (PMI), I also question the necessity of this. However, if you have already signed a written agreement, I am afraid it may be too late to back out of the deal.

DEAR BENNY: I inherited my father's duplex in 1970 upon his death, my mother having died much earlier. I have not always lived in this duplex since my father first bought it in 1949, but have lived in it since 1970.

I had planned to sell the building and move to a retirement building, so I took one of those five-year mortgages, about eight years ago, and then realized it was not such a good time to sell, so I renewed the mortgage for another five. Recently, when it appeared that it was a good time to refinance, I applied for a 30-year fixed-rate loan. However, I was rejected because my house is designated "single-family" by the county assessor's office.

This house is exactly the same as it was in 1949, except for some cosmetic remodeling and repairs over the years I have owned it. It has two units, two entrances, and two of everything. The mortgage has been refinanced several times, and the title brought up every time never showed this problem before.

I contacted the assessor's office, and they say the value of the house has no bearing on the classification by the assessor, and that it will take about 18 months to make any change. There is no other house like it on this block or anywhere close by in the neighborhood. Naturally, I need the money from the rental of the second floor in order to qualify and to be eligible for the mortgage.

The bank that currently holds the mortgage, and which I was dealing with for the refinance, took several months before it notified me I was declined. The only reason is the problem with the assessor's office. Can you give me some suggestions as to what I can do?

I have not tried to apply with anyone else, I was simply too aggravated. The current mortgage has a conversion at the end of the five-year period to a 30-year mortgage, of course, at a much higher interest rate. I have done nothing since the rejection of my application. --Brenda

DEAR BRENDA: I am not an appraiser, but would think that a two-unit building would be more valuable than a single-family house. I welcome comments on this from appraiser readers.

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