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You are here: Home / Archives for late charges

A short treatise on default interest rates

December 20, 2011 By Jeff Heib

 

 We had a borrowerexpress some concern over the default interest rate provision built into the commercial note we use.

His initial concern was over the time frame & whether or not once incurred, it stayed there forever. I had to call his attntion to the part that said the rate would apply until the default is cured.

 His follow up concern was how many months he could go not making payments until the default rate was invoked. (This sounds like a guy you’d want on your books, rite?)

 I answered as follows:

In theory the loan is in default once the grace period on the payment is passed, 11 days. I don’t know of anyone who will hold him to such a literal time deadline. Our policy is to wait 30 days before accruing the default rate. However if he becomes a consistant payment problem, the 11 day window may apply.

 Addiitionally, there are any number of reasons the loan could be in default over & above the timely payments. For example, not paying the taxes, the insurance, transferring ownership, not maintaining the condition of the property exceeding the maturity date, are some that come readily to mind. Does this mean he automatically goes to the default rate if he’s a week late renewing his insurance coverage? While the technical answer is yes, in the real world he would have to seriously aggravate the lender to cause them to accrue the default rate in this case.

Filed Under: Investors Tagged With: installments, late charges, loan collections, monthly loan payments, private lending, private real estate loans, real estate loans

A few words of caution

October 21, 2011 By Jeff Heib

You may be aware the legal & regulatory landscape has been dramatically altered with the fallout of the “Mortgage Crisis”.

I just had a conversation with a client that wanted my help in drawing up a loan on his friend’s mother’s owner occupied residence. By the end of our conversation he changed his mind.

The property being occupied by the owner brings a bunchof new demons to the party. Mandatory disclosures within 3 days of “application”, 10 business day “cooling off periods”, rate & term ceilings tied to annual percentage rates, no default interest, limit on prepaid payments & no balloon payments sooner than 7 years. Throw in mandatory impound accounts & independent verification of income along with prepayment limitations & you’ll get an idea what you’re up against.

Some of these issues are still in effect if the property is a vacation home & even go so far as to include rental properties if the owner is not “in the business”. What this means is a borrower with 5 rental houses who is actively engaged in a profession not related to real estate has some of these protections afforded to them.

Using my clients scenario as an example, grandma owns her principal residence, she is desirous of a loan to secure $$ for her grandson to open  a business. No problem, right? No It’s not grandma’s business, meaning her support of grandson’s grand plan does not change the face of the loan from a consumer loan, all this hoopla applies.

The penalties for violating these laws are aggregious. In a best case, your looking at recission (read interest free loan) up to the 1st 3 years, with a worse case scenario of you writing a check for $500,000 for damages.

So okay, the borrower is a friend & you are comfortable bending the rules a little, what’s the big deal?  As a matter of practice, the borrower owns you. If you need to foreclose, or even badger them for late payments there’sa whole lot of people running around offering to modify borrower’s loans (for a price) . How much are you gonna bet they don’t know about these restrictions when they start to dissect your loandocs?

The bottom line is be very careful if you decide to do a loan without professional guidance.

Filed Under: Loan Information Tagged With: balloon payments, consumer financial protection bureau, consumer loans, dre regs, foreclosure, installments, interest only, late charges, loan collections, monthly loan payments, private lending, private real estate loans, single family owner occupied

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6700 Indiana Avenue, Suite 220
Riverside, CA 92506
Phone (951) 686-9639
Toll Free (800) 476-5626
Jeff's Direct Line (562) 806-2921
Fax (951) 686-0361
California BRE #01211863

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Standard Mortgage Financial Services, Inc.
6700 Indiana Avenue Suite 220
Riverside, CA 92506-1827
Phone (951) 686-9639
Toll Free (800) 476-5626
Jeff's Direct Line (562) 806-2921
Fax (951) 686-0361
California BRE #01211863

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