Assumption; Non-qualifying liability

[Ksue]

Hi Home Guru

Got a question and I probably have a nightmare on my hands..On 2/25/92 I bought a house in San Antonio, TX from Owen Barnes. The note was an FHA; fully assumable; non-qualifying.

On 10/13/95, I sold the house to Andre Sheppard. They assumed the note.

I know that on FHA, after 5 years you can obtain a release of liability from the mortgage company. Today, I contacted Atlantic Mortgage for the form. They informed me that Sheppards have not made a payment since 6/2000 and that this house is in foreclosure..

I left a message with the foreclosure specialist..I am waiting for a call back...Will this impact my credit if the house is repossessed; sold on the auction block, etc.?? Also, if I don't receive a letter from the mortgage company about the status of this loan what other liability do I have?? The principal balance on the house is $60,970...For example, if the house sells on the auction block for $45,000 what liability do I have with regards to the deficit??

Bexar County appraisal district has the house appraised at $70,800...

Any advice, I sure do welcome...Thanks and have a great day!!

 

[HomeGuru]

If Sheepherder assumed the note and mortgage, you were supposed to be off the hook with FHA and have no further liability for the loan or property. Please explain.

 

[Ksue]

fully assumable non-qualifying FHA

Barnes orginated the note with Victoria Mortgage Co. in 1987. In 1989 the note was sold to Atlantic Mortgage. I purchased house on assumption from Barnes in 1992; I sold house to Sheppards in 1995 on assumption.

In the sale of the house, I did not sign a release of liability, because Sheppards would not have qualified since they defaulted on student loans a couple of years before purchasing my home...I waited until they were in the house for 5 years and requested to sign a release of liability form..

According to Atlantic Mortgage, the Sheppards would have to be current on their loan...Since the last payment made was June 2000, it puts this about 4 months short of the 5 year period...At this point my credit is fine...

Will FHA let me of the hook since Atlantic Mortgage refuses to send me a release of liability letter??? I sent an email to Atlantic Mortgage to request the liability form and also wanted to know the status of this loan..Also, I gave them my current address and phone number...

Can the Barnes be held responsible as well if there's not a release of liability...It is my understanding that a release of liability is not an automatic thing...

It seems foolish for Atlantic Mtge. and FHA to hold me accountable 5 years down the road, but I'm not underestimating them this time...Also, I'm faulting Atlantic Mtge for not contacting me within the last couple of months because I did contact them in June for a letter of explanation to my mortgage loan officer when I was trying to buy a house...In this letter it stated that I was not remitting payments because I sold the house to the Sheppards..

I've also heard about pre-1989 non-qualifying assumable loans, is there a difference on those vs. when I bought the house in 1992?? Barnes did get this note in 1987 thru another mortgage co., only for it to be sold to Atlantic in 1989...Does it matter if the loan gets sold to another mortgage company??

Thanks for your previous reply and valuable info..

 

[TimC]

The way my freely assumable loans work is that the seller (in this case, you) can be pursued for satisfaction of the loan for a period of five years after your transfer to the current owner. This is the "catch" behind a freely assumable loan.

Since the default began occuring prior to the five year anniversarry, you have some liability.

However, I think it would be up to the mortgage company as to what they do next. They could foreclose on the house, auction it off, and THEN go after you for the balance, or they could simply go after you right now. That is up to the bank.

As someone who has gone through this, however, you might have another option. Are you in a position to simply re-assume the loan and basically "buy" the house back from the current owner? You could wind up with a house with a fair amount of equity, help save what is left of the Sheppard's credit, and rent the house back to the Sheppard's. (Although if they could afford the rent they would not be in this situation...would they??)

The FHA is probably the reason why you have not received a release of liability. The bank really does not care, because the FHA has insured the loan to the bank. The bank will get their money one way or the other, which is why the loan is freely assumable. The bank does not care who assumes the loan because the FHA will pay for the house if the owner does not.

Contacting the FHA is probably the answer.

 

[Ksue]

I wish I were in the position to assume the house back...The Sheppards are probably close to 6 months behind on payments which basically means I'd have to cough up around $5,000, unfortunately, I don't have this type of cash flow as I'm busy trying to get a roof put on the house I'm in now...

Yeah, I'm less than thrilled this thing could hit my credit report...Also, if the house is auctioned off, the bank/FHA can't auction it off for a low amount...I do have the county appraisal on this house, so if it's auctioned off for $45,000 the bank/FHA will have some serious problems with me...

Thanks for your response...hopefully I'll get lucky and this won't hit my credit, I dread the thought of a foreclosure hitting my credit report because the next 7 years will be sheer hell getting credit..

 

[David J. Miller]

If there is equity in the home, encourage the owners to list the property for sale to avoid foreclosure. The mortgage company will likely keep the home and try and get fair market value if they cannot get a bid for the amount owed plus attorney fees. They could come after you if there are any deficiencies.

 

[Ksue]

Liability on Assumption

Hi David & Home Guru,

Thank you so much for your replies..I contacted Atlantic Mortgage Co., the house actually went into foreclosure status on 10/16/00..It was "auctioned" off on January 2, 2001...The mortgage company would not disclose the amount..From my understanding, it was their way of taking the house back, and now, I guess they get reimbursed from HUD (if I am understanding it correctly)...

Not once, did I receive any notices that this was in foreclosure status..I asked the mortgage company where they sent the notices and certified mail to, they replied 9223 Ridge Wind (San Antonio)...That was the property I sold to the Sheppards on 10/95..The mortgage company made NO attempt to contact me..

Actually, since i'm not the original person, Owen Barnes was the first buyer and I assumed it from him without qualifying (I did not do a release of liability), doesn't the house really go back to him, unless he at some point tried to obtain a release of liability??? In a way, it's like I'm the middleman...

I think the mortgage company/HUD will have a very difficult time coming after me since I received NO notice regarding the foreclosure...That will be my sticking point to them!!!I did contact them in June to get a release of liability, and at that point everything seemed fine, they told me I'd have to wait until 10/13/2000, which would put it at 5 years...

I hope to luck out and this thing won't show on my credit report...

Let me know your thoughts!!!

Thanks and have a good day!