How can a second mortgage on your house be able to foreclose when you are still current on your first mortgage?

If your second mortgage payments are not paid on time, the second Trust Deed lender can make the decision of foreclosing. But what happens to your first mortgage if you are still current on it?

First its important to understand what is a second mortgage trust deed.

Second mortgages are loans tied to a property that are second or subordinate to the original first loan and will receive pay off only after the original mortgage has been paid off.

It can be a standard fixed payment loan, or a line of credit that you can pull from. Home Equity Lines of Credit (“HELOC”) loans are an example of secondary mortgages if they are subordinate to the first. Being riskier to lenders due to the fact that secondary loans only get paid after the first, the interest rate on a second mortgage is usually higher than the first.

Second mortgages are commonly used to pay for large expenditures such as college tuition fees, home remodeling, or the purchase of a car; there are some cases in which homeowners use a second mortgage to consolidate other debts at a lower rate.

What happens if you stop paying your second mortgage?

After giving you a certain amount of time to catch up on your payments, the second mortgage lender will review the value of your home to see how much equity is in your house.

Since the first mortgage is the original one, it tops the list of priorities and has to be paid first entirely with the money from the foreclosure. Whatever is left pays the second. If there is enough equity to cover the first mortgage and the second mortgage, the second mortgage lender will initiate the foreclosure process. The second lender also has to consider the cost and fees associated with foreclosure.

If there is not enough equity for a foreclosure to cover at least most of the second trust deed loan, the lender will consider other options. One option is to keep the loan in place and accrue the payments with late fees and hope that eventually the property’s value will increase to cover the second mortgage. Another option is the second mortgage lender will sue the homeowner, and place a writ on their income.

The best way to avoid second mortgage foreclosure

The first tip will be not to fall behind with your payments; the second mortgage lenders have higher rates so your attention should be equally distributed to both loans. If you have already fallen behind, the bank representative may give you a chance and discuss a forbearance plan to resolve the missed payment and get back on track. They want to avoid costly legal routes including suing or foreclosure.

Many lenders will do a loan modification program that can help you make your payments more affordable. All these procedures must be done in time because if you receive the 30, 60 or 90-day notice your chances of getting more credit or reprogramming options are lost.

Advertisements

Is it better to take a private third mortgage or refinance your current loan with cash?

Usually, property owners are confused regarding which way is best to use money from the equity of their home if they already have a second mortgage.  Either they can go for private third mortgage, or they can refinance their loan with cash. This article attempts to explore these two aspects so as to help in rational decision making.

Discussing third mortgage loans

A third mortgage loan can be used by the borrowers to add something of value to their home such as swimming pool, speciality kitchen, gym, etc. With regards to debt consolidation, the third mortgage enables borrowers to pay off the short-term debts and still enjoy lower interest rates. Also, it is very easy to obtain third mortgage loans within a period of 2-5 business days. From the viewpoint of lenders and investors, third mortgage loans are an efficient stream to increase their portfolio and spreading the risks across a number of mortgages. 

However, after taking two mortgage loans, it is very difficult to find lenders who would provide third mortgage loans. Also, the interest rates for third mortgage loans are higher than the first and second loans. The lender also charges a lender fee along with the interest rates and this increases the cost of the borrowers. It also includes broker fees, legal fees and other associated costs which lead to an expansion of the loan amount.

Cash refinancing

Here, an existing mortgage loan is refinanced such that the new loan is a higher amount than the previous loan and the borrowers’ pockets the difference between the two loans as cash. The interest rates will be a bit higher, and the cash out is limited to 80-90 percent of the equity of the property. The total amount of cash that can be withdrawn from this process depends on the lender, the value of the property, the program as a whole along with some other relevant factors. After the refinancing is complete, the new loan will comprise of the original balance before the refinance as well as the desired case out money.

Differences between the two

While third mortgage loan is an added burden to the first loan, the cash out refinances simply a replacement of the first mortgage loan. Also, the interest rates are often lower for cash-out refinance that the third mortgage loan. Closing costs are higher  for refinancing of loans while it is not so high for the third mortgage loans. These closing costs can vary from hundreds to a few thousands of dollars and can thus be a liability for refinancing loans. Cash out loans are much riskier than other loans because they take first position, giving them power to foreclose. The freedom to use the cash, in case of cash out refinance, lies at the disposal of the lenders and as many such restrictions are put on the borrowers as to the usage of the loans. However, such issues do no rise for the latter.

So if the current loan is at a lower interest rate, it does not make sense to refinance the loan at a higher interest rate. Also if someone is already in the middle of a long-term mortgage, then he is advised not to go for cash out refinance.

The Benefits of Investing in Land

Most investors choose stocks and rental income to get a return on their money. But what about raw land? What are the benefits of it compared to the other two?

Less Competition

Most investors do not like to purchase land because there is no yield, and to get to have yield you must develop the land in some way, which requires not only more money but time and work. Thus, there is less competition, which is easier for you to acquire land at a more favorable price.

Easier Entitlement Changes

This depends on where the land is located, but it is generally easier to change the zoning of raw land then its is for land with a structure and tenants in place. Though the process may take time, if it changes to a more valuable zoning, your land value goes up instantly.

Creative Control

Unlike investing in stocks, you have more control on what you want the direction of your land investment to go. You have control on what kind of structure is best suited for the area and the best way to design it.  You can also hold off on building or build right away depending on the market conditions. 

Peace of mind

Another great thing about investing in land is you do not have to maintain it. Nothing gets stolen or broken. Land does not wear out. There will be no additional expenses in maintenance costs.

You Don’t Have to Be There

With empty lots, you do not even have to be physically present to purchase it. You do not have to travel all the way to inspect. You can just look up the empty land on google maps and the details within the land’s local municipality and title company. This allows you to purchase in areas outside of where you are located, giving you a bigger market with none of the headache of owning out of town rental income.  

Lenders will loan on it 

As long as you have significant equity or down payment in the land, you can have a loan on it with a relatively low interest rate. This is because lenders understand that most land does not lose value of what it is appraised at, and to them its a strong secure investment as well.

How Restoring Glass-Steagall Act Will Affect Online Lending

Online lending is the new, more efficient way of lending and banking. It has fewer restrictions, it’s more practical, it looks attractive, and it’s far easier than old-fashioned lending. Online lending is affected by laws, though.

Here’s the latest news from the world of finance: the Glass-Steagall Act is about to be put back into action, with the back of influential personalities support it.

The Glass-Steagall Act

The Glass-Steagall Act was created to fix the Great Depression because the Great Depression was caused by people who were borrowing too much money. The Glass-Steagall Act limited the amount of money that can be lent, and the people who were allowed to borrow money. The law fixed the Great Depression. The Glass-Steagall Act was repealed in 1990.

The financial crisis of 2008 caused certain people to say that the Glass-Steagall act should be brought back, though. It will prevent the financial crisis of 2008 from repeating and will help the rich people of the United States to stay rich.

What Happened

Based on the result of the Glass-Steagall act on US economy during the 1980’s, though, this law will potentially hurt online lenders. During the years that the Glass-Steagall Act was in effect, banks were unable to keep up with banks in other countries because banks in other countries did not have this restriction. Some local banks, in their desperation to keep up with foreign competitors, ventured into unknown systems. Fewer investors trusted US-based banks because of this. Other banks lost business and shut down altogether. The Glass-Steagall Act was repealed in 1990 because of this economic dilemma.

What to Expect

For online lenders today, there are two things to expect when the Glass-Steagall Act goes into effect again: fewer investors, and fewer borrowers. As you change your work algorithms to follow the new law, the investors will be less interested in investing through your business. As fewer borrowers are allowed by the law to borrow, and as the ones who are allowed find out there’s less money to be borrowed, your borrowers will go away and find other ways. Restoring the Glass-Steagall Act has a high possibility of hugely affecting online lending.

The Bright Side

Some business analysts argue, though, that the problems we were facing during the Great Depression and the 1980s were different from the problems we are facing now. There is a small number of people who believe that the Glass-Steagall Act will be not as bad for online lenders as we think. For one, it might start a whole new avenue of funding and creative lending which has never been done before. Also, it will help reduce long term volatility in the debt markets. 

Conclusion

The only words of warning to keep in mind are: Be prepared. You have two options. Choose a different field of work, or stay where you are. If you are staying, add new features to your online lending business to bear with the shock that the Glass-Steagall act can possibly bring. On the other hand, you can choose to maintain the same routines and observe how things change. The only thing that we have is time. We can wait and observe how the Glass-Steagall Act will affect our work once it is restored.

How to Approach your Family to Be the First Investors in your new Business

As a new business, your market share within your industry is small, your income is most likely small, and your business transaction history is small. These are all recipes which would most likely reject you from getting a bank loan.

But your business needs capital to grow.

This makes your family the first avenue to approach for finance for your new business. Understand that this is a very common way for new businesses to receive seed funding, and many of the largest companies were first financed by the founder’s circle of friends and family. 

But it is important to approach them correctly; just because they love you does not mean their pockets are open to any business idea you have recently created.

Presenting Yourself

Because you are approaching your family to be the first lender in your business, your confidence level that they are much easier to persuade might allow you to keep things informal. 

However, if you approach them as a relative having a personal chat with them, they might accept your business as a personal topic without much regard to the importance of your business. If you approach the conversation in a professional manner, they will no longer view you as a relative but as a distinct business person with an opportunity for them to make a return on their money.

Some examples is to dress in a business professional attire; having a prepared presentation with business outlines, power points, and financial documents; and having the conversation in a setting outside of your normal gathering with that family member.

Explain The Risks and Rewards

When it comes to asking your family for money for a business investment, you must explain to them clearly the risks and rewards of the business. Be truthful.

This is because creating a rosy picture to be able to get their money and then if the business does not perform as they expect, you now have a very sour relationship with someone you cannot just cancel out of your life.

This is the hardest part. When you fail investors who are not related to you, you can fix the problem and disconnect with them. When you fail investors who are related to you, though, you cannot disconnect with them.

Separate Emotions

It is a given that when dealing with family on any issue, there are always emotions that are involved. This is a given, you have grown up with your family and have a deep sense of love for them. But when it comes to asking your family for money for a business investment, its vital to separate your emotions.

If they say no to loaning or investing, accept it the same as you would with any other investor/lender. If they say yes and do give you the funds, create the necessary paperwork for them to secure their money.

Also, the emotional component goes both ways. Because they are family, they might expect you to go above and beyond for their money, and let them know clearly during the presentation what it is you can and cannot do for them.

Difficult Relatives

Some relatives are easier than others when it comes to wanting to invest their money in your business. But you might have that one relative which not only will reject your business proposal, but also try to persuade other relatives to reject it as well. 

This is not fair for you, because every business opportunity has a relative risk, and what one person finds highly risky, another will determine it as low risk.

To avoid this toxic rejection by that relative, it is important to combat this from the beginning. First, identify which relative(s) could create extra difficulty for you, and approach him/her  independently before speaking to others. Let them know that they are the first person to know about your new business, and this will not only give you a test run for other better potential family members, but also get the surprise out of the way in case that difficult relative speaks to others.

If that difficult relative is the last person to approach, they might create fear on the family members which have already agreed to invest, risking the deal with them. It is a lot easier to close on a deal when a family member feels 100% secure in their decision after hearing all the negatives first.

Give Back in Other Ways

Although there is a fine distinction between a family loan and a bank loan, the most obvious is that the family will see you in times you are not in business. This can create an awkward situation if things don’t go as expected. But allowing yourself to give back in appreciation to your family, as they gave appreciation to listening and possibly giving you money, not only does it help you become a better relative, but also allows you to navigate your relationship with them more confidently during the ups and downs of your business. 

HOW CREDIT FUELS GROWTH IN THE ECONOMY

Credit is one of the most important aspects of economic growth because it multiplies that growth with the addition of extra money from lenders. As an example: if you have $10,000 to spend on an investment, but you have the ability to receive a loan of additional $5,000, the extra cash increase the value of your investment by 50%. And as long as the extra investment yields a higher rate then the cost of the loan, your return is higher than if you did not use the loan, adding to bigger and faster economic growth. 

This is why the increase in debt of an economy ultimately leads to a higher GDP which in turn leads to further productivity growth.

When there is a continuous expansion of credit, there is an upward prosperity. This is the case because when there is an increase in investment and consumption; more jobs are created for the people, and income and profits increase too. 

Also, the price of assets increase, and this includes property and stocks which boost the net worth of people. Eventually, the owners of these assets acquire more wealth which can be used as collateral. This increase in collateral will lead to the ability to borrow more and keep investing more, and the cycle continues.

Credit scores and credit history gives the credit market a balance system to not allow it to get out of control with rising defaults. But there are other risks associated with a credit driven market. Such as formation of bubbles: when credit is in excess, there is the risk of assets overvalued, which leads to a collapse. This could lead to social chaos. 

Also, an increase in national debt could cause a major default if there is an unforeseen economic disaster, running the country and its citizens to bankruptcy.

If you are in the market for a loan, it is important to understand the benefits just as much as the risk so you do not go about it with an anxious mind set that credit is bad. In many ways, a loan will allow you to attain what you want as long you are focused and aware to manage the money.

INVESTMENT PROPERTY INSURANCE – Landlord Policy and Fix and Flip Insurances

When buying an investment property, many things are considered, such as cost, maintenance, and location. But what about the right insurance? 

Investment property insurance, or landlord insurance, can protect you from the many problems you encounter and from the issues unique to an investment property. Your investment can either be as a rental or for resale (“fix and flip”), and this exposes it to different coverage.

The type of insurance that covers for rental properties:

There is the landlord insurance policy. This typically includes building insurance, and it is for any damages that can happen to structures such as garages, fences and swimming pools. Also, it has the general liability coverage for injuries and accidents which may occur on the premise.

Vital to landlord policy is malicious damage cover. This will cover you in the case that your property is vandalized and deliberately trashed. It is important to get malicious cover damage that also INCLUDES anyone that occupies the premise, since there is a chance your tenants or their guests might be responsible for the damage.

Another important feature to have is rental default insurance. In the event there is damage to your rental property that makes it uninhabitable, any loss of rent you would incur would be paid to you by the insurance coverage. This lasts for a specified date or the length of time it takes to make the premise habitable again.

Coverage for legal fees from tenant suits should be included in your Landlord policy. This liability coverage is especially crafted to help cover the cost of any litigation against you as a landlord from tenants or their guests. 

The type of insurance for resale investment properties (“Fix and Flip”)

This type of insurance is unique to remodeled homes which are planned to be sold in the near future. Since there is not much items or personal belongings, the coverage is minimal for personal damage. There are insurance products called “Vacant home Insurance” which caters specifically for this type of property and covers the bare essentials in the case of damage or theft.

What is important is to get coverage that protects you while the remodelling work is being done, as well as coverage that protects the structure itself while it is in your hands. Also, any policy should include the value of the new materials used even though you insured it before the remodeling took place. Keep updating your insurance agent if you replaced new flooring or added more square footage to the property.

It is important to have your property be worked on with a licensed contractor for insuring fixer properties. You don’t want the insurance to have a reason to deny coverage in the case of any loss you incur.

Once you sell the property, these type of insurance policies have an easy cancellation feature. This will allow you to move on to the next project.