Granny Dumping 2.0

Rich - I'm surprised.  Maybe there's zoning issues?  They are all over the place here.  They might have a zoning variance making them legal from the cities point of view but the issue is that they were financed with a home loan and they are not a home, anymore.

Tom - the banks made the loan originally because it was a SFR.  They never would have funded had they known they'd be foreclosing on elderly people.  That's bad PR.  That's why some commercial lenders will not finance churches.  Who wants to throw God out?

Chris - I honestly think that many of these are not business people.  hence the "Investor" in quotes.  The few I've actually talked to are retired or semi retired hospital workers.  They know the LVN business and how to work with Elderly.  Do they know much about mortgages?  Not really.  Does that let them off the hook?  Not in my book.

Jeanean - I'm giving them the benefit of the doubt.  If anything I'd blame the professionals they trusted to buy this property in the first place. (that would be the loan officer and Agent)

Lenn - I thought the Torpedo was a good metaphor.  I was thinking silent, unknown, yet devastating.    Yes the 203-k plan would help with the remodeling but we're going to have valuation issues.  And still that get's the building back to being a residence - but what about the patients?  Where did they go?

Joan - They won't be.  They can plead ignorance of the law.  

Maggie - Absolutely!  Since you've talked to some of these people, would you say they were financially knowledgeable?  

Michael - the Elderly are going to be the victims here.  The Investors might lose some bucks.

Jeff - Nice to see you back and active again.  The original appraiser went out and did an URAR on a 3 bdrm / 2 bath with a nice garage.  It was a home when he was there.  He can't be to blame.  He had no knowledge what they were planning on doing.

On a 203-K as Lenns mentioned, the max loan is somewhat based on the refurbished value - right?  

Margaret - Dramatic might be the right thing to get you to read and understand.  Zoning has little or nothing to do with it.  It's the refinance, the sale, or the holding.  They have painted themselves into a corner and I see no way out.  

Rebecca - see, no issues with Zoning.  It's all about the financing.  Cash is safe in this instance.  

Judi - thanks for visiting but shouldn't you be doing something else?  Like HONEYMOONING?  

Mike - Not sure what you mean by that. 

Missy - It's probably happening in your backyard too.

Monika - That's a big 10-4!

Sharon- That's a little different but tragic all the same.

Karl - Imagine my surprise to see that you were not in AK but UT.  I'll bet it happens in Utah as well.

Lisa - I'm with you.  Maybe not for a much longer time than most expect it to.

Maureen - Yes they do (probably) .  I grabbed a quick snip of guidelines for a typical lender below.  While they do not specifically mention a business

Paul - I'll hazard to guess that many of them are in jepeordy.

Catherine - Yup!  It's still a business.  If I bought a house and converted it to a restaurant (as some people do) would you expect to finance that with a home loan?  Just because people are sleeping there doesn't make it permissible.

The key to all this is that when they bought a couple of years ago they were financing a regular home.  The guidelines were lax, the lending was lax.  They even had a certain amount of equity.  Today, none of that remains the same.   

Here's Fanni Mae's guideline section on Investment Housing criteria: 

A 1 to 4 unit residential property, other than a Primary Residence or
Second Home that is suitable for year-round rental and occupancy. 

What about Mixed Use? 

And here is something on the definition of Mixed Use:

Mixed Use properties are defined as residential properties which are also
being used for commercial purposes.

All of the following must be met:
• Must be a one-unit, Primary Residence
• Borrower must be both the owner and operator of the business.
• The mixed use of the property represents a legal, permissible use of
the property under local zoning requirements.
• Property must be primarily residential in nature.
• Market value of the property must be primarily a function of its
residential characteristics, rather than the business or any special
business modifications that were made.
• The mixed use of the property should have a minimal affect on the
value and marketability of the property.
• There must be no significant structural changes to the home and the
footprint of the home must be typical for the neighborhood.
• Careful review of the mixed use neighborhoods must be done to
determine the influence investor properties have on the property
values and marketability in the neighborhood.
• The appraisal must reflect the “highest & best use” as residential
property.

That first line "Primary Residence" is going knock most every one of these out and into Commercial.  The rest of this guideline is somewhat subjective.  I've talked to a couple of Underwriters now and all say it falls under the same as a Bed and Breakfast.  (Those are commercial loans)

Cynthia  - If it's not in your area I'd be interested to know why not?  What is your area doing that is different from the rest of the country?

Karen - That's a great idea but unfortunately impractical from a Lenders standpoint.  They don't have the manpower and I would even argue that they don't care.  Especially if it's a currently performing asset and they have securitized the loan.  If the loan recasts and the owners default - the numbers are small compared to the bigger picture.  We have plenty of regular homeowners going under already.  This is such a small segment of the problem.  But other than that - Great Idea!