Liberty Savings Bank Balloon Mortgage Problems

[segal25]

Here's one I guarantee nobody has ever heard about. Bear with me as it can be a bit confusing.

My primary residence has a balloon mortgage due in two years. I wanted to hurry up and refinance now because of low rates. Unfortunately I had to walk away from a land investment six months ago as it had lost so much in value and costing me too much that I just couldn't afford it. Now because of that delinquency on my credit and the lower credit score that accompanies it, the lender on my primary, Liberty Savings Bank, refuses to either refinance or modify my balloon mortgage. The land investment has not yet shown up as a foreclosure, just 180 days past due. But it's only a matter of time before they do, with a possible lien against my primary residence. It's the lien that I'm concerned about, as the lender on my primary says no way will they convert the balloon mortage to any other type of loan if there is an adverse lien against it.

I'm not asking for a lower rate on my primary residence, nor a principle reduction, no special treatment at all. I just want to continue to make payments on a loan that I've never been delinquent on. Certainly there are options, but all lenders I've talked to can't help because of the delinquency. Just six months ago I had nearly an 800 credit score. I've made one mistake on my credit over my entire life and now because of that I stand to possibly lose my house - a house I've never been late in paying! Something is seriously wrong here. Any help or suggestions are greatly appreciated.

Lender: Liberty Savings Bank (main office in Ohio)
First mortgage currently: 161,000
There is a second of 95,000 (HELOC)
House is worth around 250-280,000

I simply can't believe that the lender may possibly choose to foreclose when I'm actually paying the mortgage and have not been late.

[The Professor]

The problem centers upon the reality that this economic downturn has caused lenders to return to the "good old days" in terms of loan qualification. That process now properly includes both borrower and collateral qualification. There lies the rub for you. Your refinance, if borrower qualification were not as important as it is today would be a relatively easy task. All that would be necessary is for you to obtain a subordination agreement from the holder of the second loan. Since their position would improve with the reduction in your first loan's interest rate, my sense is you wouldn't have a problem.

But you do have a problem and what appears to be a "catch-22" situation. Where I would start is by seeking the end to the uncertainty through a modification of the first loan by extending its term. That will not trigger a change in priority of the first loan. You may need to hire a lawyer to help convince the lender that there wouldn't be a problem in this approach.

Take care,

Daniel