Today’s question raises several issues that are often misunderstood…
“The house next to mine has received notice of default. If I pay his note current and add substantial collateral, will his bank consider allowing me to assume his mortgage?”
First let’s define exactly what is happening. Notice of default is received by a homeowner from his lender when he is more than 30 days past due on a mortgage payment. It is the first step toward foreclosure. After this he will receive additional notices over time, detailing his rights to bring the loan current and breaking down the costs that are accruing. The time frame between notice of default and the foreclosure sale is about 5 months in the state of Washington.
Based on your question, it sounds as though your neighbor is somewhere in that 5 month period. Almost up until the date of the foreclosure sale, you could buy your neighbor’s house by paying him enough money to clear everything he owes against it plus his costs to close the transaction (about 2% of the sales price). Obviously, you would want to use an attorney or a real estate agent and an escrow agent to draw up an agreement between the two of you, handle the money and clear the title. DO NOT just give money to your neighbor.
As to whether you can assume his mortgage, the answer is probably no, and there is no advantage to you in doing so. Basically, you are asking them to give you a loan. The foreclosure department and the loan department in a bank are completely separate, and there is no benefit to the bank to modify that loan into a different name. They may give you a loan, but you will have to go through the same process with them that you will with any other lender.
If you really want to buy the house, reach an agreement with your neighbor, put it in writing, turn it in to escrow and go get the best loan deal you can find.
By Lylene Johnson