1 last refinancing question....for now!!

airforceguyOctober 13, 2009

Ok, wife talked to the Suntrust mortgage officer today! We thought everything was pretty much settled on Friday,then a big hiccup today: On Suntrusts refinancing paperwork, it states that one must keep the refinanced home for a period of one year! Well that doesn't really work for us as 1 plan calls for us to refinance the condo (in VA) and then buy a house in MD sometime in early 2010. The Suntrust loan guy stated we could just "ignore" that clause. it would NOT be striked off the contract, but he stated how would they (suntrust) know as long as we juts paid the mortgage on time each month? yes, sounds a bit sketchy,lol And is it common that when one refinances that they put those terms (of residence for a period of time) in the contract???

Thanks again, and yes we are considering just selling the condo, BUT if we could refinance the condo to a 5/1 arm we would break even or even make a tiny bit of $$$$ (and yes that includes prop taxes, condo fees) So we are considering all options. thanks

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We ran into this one on our 2nd mortgage when buying our house. We had plans to pay off the 2nd as soon as we sold our other house.

I posted the question here and my understanding of the clause was so they actually make some money off you too. I mean they aren't in the business to be charitable and make it easy and convenient just for us. They want to make money too and I guess that is the term they've decided they'll make money for.

We ended up going with somebody else that didn't have that term, but only due to a reason with the original one didn't like that none of the comps were within a 5 mile radius. Hard to do when you're rural.

    Bookmark   October 14, 2009 at 10:06AM
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They sure dont make refinancing easy,lol Everyone seesm to have different "terms' "words" so it is hard to compare apples to apples! then have the Suntrust guy say to just ignore the residency clause! Should have asked if he would put his name on the contract stating that,lol

    Bookmark   October 14, 2009 at 11:04AM
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I've seen most mortgages has residence clauses to avoid them being used for investment property and rentals. I think you'll have a hard time finding one that doesn't have that part at least.

    Bookmark   October 14, 2009 at 11:07AM
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On Suntrusts refinancing paperwork, it states that one must keep the refinanced home for a period of one year!

I am not familiar with SunTrust's documentation... and I would *LIKE* to say that I would be surprised if it was substantially different than all the other conforming documentation (since everything goes to one of 3 government mortgage agencies anymore,).... that is, again, I would LIKE to be able to say I would be surprised.....

... but in the current state of the industry's affairs, NOTHING surprises me right now.... ;~(

THAT SAID; Virtally all the conforming documentation I've reviewed throughout my 12 year career has required you to certify your INTENT to occupy as you primary residence. I have yet to see any contractual language binding a primary occupancy for a full year.

I have done (non-exhaustive) research of case law in regards to claims of mortgage fraud by borrowers taking primary loans and then converting the property to a rental. In most cases the courts have found in favor of the claimant (usually a lender or insurer) *ONLY* when the conversion occured earlier than 3 months into the loan, and I have only seen one case where the courts found for the claimants as late as 6 months into the loan. In *ALL* cases the claimants only brought suit due to losses and damages due to payment default or under-insured tenant damages.

SO.... if you were my client (and in full awareness tha you are not,) I would probably advise as follows;

A) re-secure a loan with a lender with less onerous, more traditional, conforming loan documentation... so that you are held to your intent (as that gives you much more latitude in the law.)

B) have a very sincere internal conference ABOUT YOUR INTENT! It is different than a "hope" and/or a "dream." An "intent" is a amorphous gray-area ill-defined idea that is built or supported by your consistent actions. Talking about a 'dream' is one level of support toward intent... writing about a dream (on message boards, anonymously) is another level... non-anonymously would certainly be a heavier level... interviewing for jobs in another area PRIOR to closing on the local area primary loan would be a much steeper level... advertising your home as a rental immediately (or very shortly) after closing on primary residence is a tipping-point level... etc.

The bank's primary concern is protecting their investment, #1, and getting a fair return for the risks they are taking, #2. Generally speaking, if you give them those 2 concerns, they'll be content.

I AM NOT AN ATTORNEY... and it is always wise to consult with legal counsel.

Dave Donhoff
Leverage Planner

    Bookmark   October 14, 2009 at 1:17PM
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Does it really make sense financially to refinance now if you are going to sell in a year?
Or maybe I missed something in this conversation.

    Bookmark   October 14, 2009 at 3:34PM
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The thinking (nothing is for certain)is that we "may" rent out the condo. We "may" buy a house closer to my wifes work in MD, as she is sick of the long commute. As a RN, I only have to work 3 days a week, vice 5 days for her. If we were to sell the condo now, we would take a big hit on the condo! Of course if we keep it and rent it out, could still loose a bit of $$$$ Have to sit down and $$$$ crunch. We may not move to MD for awhile, hard to say. Just trying to see what all our options are.

    Bookmark   October 14, 2009 at 3:47PM
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For those who didn't follow the other thread, you aren't just trying for a traditional refinancing. You are trying to take advantage of one of the government programs. The program is specifically designed to help homeowners refinance on more favorable terms so they can stay in the home. Rental properties are strictly prohibited in the program. You are trying to skirt the law and take advantage of some "free" money from the government and are speculating that you will be able to make money as the condo market improves.

Frankly, oversight of most of these government initiatives is virtually non-existent, so you probably would be able to get away with cheating the system. However, you are still trying to cheat the system. You know that your intent is not to use this is a primary residence. Whether the state could prove that in a trial is a question best left to a lawyer, but you know darn well what your plan is.

It sounds like you still have a bit of the same mentality that got us into this housing mess to start with - and the bank sounds like it didn't learn a darn thing. The bank should not encourage you to lie on mortgage documents. You should not lie even if a dishonest banker says it is ok. Even more, you should not speculate in the condo market unless you have some serious money to do so. (Planning to own/rent property on small timescale is speculating!) Lots of people just tried this plan and are now facing foreclosure. Count yourself lucky that you are in a position to get out of this place with your shirt still on.

    Bookmark   October 14, 2009 at 4:11PM
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"On Suntrusts refinancing paperwork, it states that one must keep the refinanced home for a period of one year!"

They are trying to recover initial costs.

Some states do not allow pre-payment penalties on principal residence mortgages.
They may be trying to intimidate you.

What is the penalty for paying off before a year?

They call the mortgage? You just pay them off anyway.

If you rent the place out you still OWN it.

    Bookmark   October 14, 2009 at 4:15PM
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Well for one I'm not trying to cheat the system!! I'm just asking questions. I have NEVER in my whole life walked away without paying what I am suppose to. And lumping me with the "same mentality as what got us into this banking mess" is total crap! I for one would never walk away from a house simply because its worth less than what I owe (which our condo isnt) Personally I don't blame the banks,they don't force anyone to take out that much of a loan. You take out the loan, you pay it off! I'm just trying to understand everything and know what the options are. And as I stated before we really have no time table on moving! The distance is around 45 miles,so we could still be here 5 yrs from now. So does one NOT refinance,just because we may move, OR does one take advantage of refinancing. Would be different if we already had a house lined up, but we honestly do not. Just like to be prepared. Cheers

    Bookmark   October 14, 2009 at 4:50PM
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For what it's worth, when we bought a house and rented out our old condo, the mortgage company treated 100% of the condo mortgage, taxes and related as expenses, yet only recognized 75% of the condo rental revenue as income. You may want to see if they still do that, and if so, how that could impact your houseing budget.

    Bookmark   October 14, 2009 at 7:00PM
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Sweeby, most of the banks we have talked to about the rental scenario, have stated to get any "credit" of renting it out, would have to have it rented continously for a years perdiod. in other words they are much more picky now than in the past. Oh well, were happy in our condo, neighbors are nice, just the commute is getting to my wife.

    Bookmark   October 15, 2009 at 4:30AM
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"Well for one I'm not trying to cheat the system!!"

But the bank is trying hard to cheat you.

Banks have worked long and hard to try and get around the 'no pre-payment penalty' laws.

Before I got married (and did not mind moving as much) I purchased houses, lived in them while renovating, then sold or rented them.
Multiple houses.

Each house was my principal residence while I lived there and renovated.

    Bookmark   October 15, 2009 at 9:31AM
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We kept our town house when we bought our current home as an investment for our retirement. It has been a hassle from time to time, but I still think it was a good decision. I have heard that when crunching the numbers one should only count on 11 months rent per year. In our experience that has been about right. Sometimes we have had tenants that have stayed for years and some haven't. There is inevitably some period of time in between renters when you'll have no income. We had one person break a lease and leave the place damaged, but that was not at all typical. Just keep in mind that it can happen. (Our place rents for $1500 a month and the person who screwed us over made about 90K a year.)

    Bookmark   October 15, 2009 at 3:16PM
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We locked into a 5/1 arm today! We were very upfront to the mortgage broker, explained our whole situation (and more,lol) and they were happy with everything. So one can sleep peacefully at night. Thanks for all ur help

    Bookmark   October 15, 2009 at 4:27PM
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