Construction to perm loan

[paragonrea]

Did an appraisal in January 2007 and got the order to do the final inspection last week. Did the final inspection and they stated that an update was also required. Ok, did the update with declining value checked (of course) and they now say need a new full appraisal. When I did the original report they maxed the LTV to 80% with the draws available and the cap of the final loan. They did max out the draws and now they are possibly upside down on the house they were moving into today. The problem is the bank will NOT fund the perm loan due being upside down. This guy is a doctor with a credit score over 800 and he is going to be homeless and out of pocket 200k. Spoke with the president of the construction lending department (large bank) and he told me that this is a major issue for the whole country, they have had to foreclose on many homes before people moved in for this reason. This business really sucks right now.

 

[Richard Carlsen]

Tough situation but it sounds to me like you may be getting too involved with the problems of financing. If you are the appraiser, appraise and leave the lending decisions to the lenders as well as the problems of being upside down to the HO.

The more the appraiser gets involved or familiar with a problem situation, the more likely he will at some point have pressure put on him to do something that he should not. I hear appraisers who can repeat the whole story line about why someone can or cannot refi their house along with detailed explanations of who is involved and who is screwing someone over. Cert 17 says that you are essentially not involved and have no bias one way or another. Best keep it that way. Listen to the tales if you must and then forget them.

 

[paragonrea]

I understand what you are saying and the good thing is the mortgage broker in this deal is NOT pressuring me to hit a value, I love this client for that reason. Wish I had many more like him. He says if it cannot be done it cannot be done. Just trying to share what is going on in the different market areas.

 

[Richard Carlsen]

Gotcha and understand.

 

[Marcia Langley]

I agree with all of the above. I am curious, though, about who is left holding which bag.

Among the buyer, the builder, and the lender, how is each one impacted financially?

 

[Carnivore]

I understand what you are saying and the good thing is the mortgage broker in this deal is NOT pressuring me to hit a value, I love this client for that reason. Wish I had many more like him. He says if it cannot be done it cannot be done. Just trying to share what is going on in the different market areas.

I did not understand the point of your iniitial post. Your second post cleared that up. None the less I am disturbed by the fact the bank(probably a firrea institution) would reveal so much to you about there position and the borrowers position.

This was suttle pressure on you for future assignments wether you realized it or not.

I will bet, dollars to donuts that they have another appraisal in the file to replace your update(ptut!). I mean to say your NEW Appraisal.


Word of advice. Stop using terms like "update"!! It makes you look unprofessional at this forum. Apparently you dont know that a so-called Update(stupid banker term) is actually a FULL(your words) appraisal!

Am I a cranky old bast_rd. Yes! I dont apologize for it either.

 

[Carnivore]

I agree with all of the above. I am curious, though, about who is left holding which bag.

Among the buyer, the builder, and the lender, how is each one impacted financially?

The buyer.

He is responsible, PERIOD! If he walks on the builder he will be sued. If he defaults on the loan his credit is in the tank and hte bank might sue for recovery by forcing him to liquidate assets.

I have little to no sympathy for the doctor or any similar professional in this situation. Give me an example of a blue collar family with a HS education and I will at least understand how slick bankers, builders and corrupt appraisers pulled the wool over there eyes.

 

[Richard Carlsen]

I agree with all of the above. I am curious, though, about who is left holding which bag.

Nobody is left holding any bag. Values are what they are. The participants went into this construction knowing full well that value could go down as well as up. And if they did not know this, they should have because they are big people spending a lot of money. They cannot blame this possibility on anyone but themselves.

As to the assertion that the good doctor is going to be out of a home because the bank will not loan on the property, I say poppy cock. No bank is going to deny a loan to a doctor (employment outlook just might be very good) with a credit score of 800+. They may not loan as much as the doctor wants to borrow using the house as collateral for the loan but they will make a loan. What the doctor has to do is to come up with a little additional down. Perhaps an additional 5 to 10% but the bank will fund a loan on this house with this owner. The doctor can even borrow the money to make up the shortfall. Or, heaven forbid, might the doctor consider a PMI loan?

So there is nobody holding the bag or out in the cold. There is a problem with the value of the collateral for this loan but believe me, this one is easily fixed based on the reality of the situation. Some folks have to just bit the bullet and have a little flexibility.

This is not one for Oprah.

 

[Marcia Langley]

I hate to keep showing the depth of my ignorance but ...

I don't understand the financial transition from the construction loan to the permanent loan.

Say it is the case that the borrower really can't come up with the money difference.

Hasn't the bank already disbursed the funds on the construction loan? Does this mean that the contractor has already been paid?

If the permanent loan is never closed who owes the payments on the construction loan? The borrower?

 

[Joyce Potts]

I hate to keep showing the depth of my ignorance but ...

I don't understand the financial transition from the construction loan to the permanent loan.

Say it is the case that the borrower really can't come up with the money difference.

Hasn't the bank already disbursed the funds on the construction loan? Does this mean that the contractor has already been paid?

If the permanent loan is never closed who owes the payments on the construction loan? The borrower?

Yes, generally the bank has already dispursed all the funds. Now they're left with a piece of collateral that's worth less than their outstanding loan.

For legal purposes the loan is CLOSED. The note, mortgage and all the other loan papers were signed at the beginning of the project. The interest on the loan during the construction phase as calculated only the funds drawn up to that point. The periodic inspections as construction progresses is to insure the lender there's enough of a structure there that they remain 'covered' if they had to take the property back in foreclosure prior to completion.

Upon doing the final inspection to verify that all construction is complete per the plans and specs, another title search is generally done to clear up any lien issues, etc., and the construction loan is then automatically converted to the permanent one just like any other.