Articles

THE WELLENKAMP CASE

In California, it used to be very difficult (if not impossible) for a borrower to assume an existing mortgage. In a straight purchase or in a takeover, most lenders insisted on writing a new loan at higher interest rates, higher monthly payments, and with substantial closing costs. This all changed with the Wellenkamp case, on August 25, 1978, when the state Supreme Court ruled that lenders no longer could raise interest rates on property loans when the property is sold, unless the lender can demonstrate that the lenderís security will be placed in jeopardy by the sale. Buyers can oppose any attempt by lenders (in any state) to enforce due-on-sale clauses. New cases are settled monthly, and the case law varies from state to state. The best source of information on this subject is probably a local attorney knowledgeable in real estate. The advent of the Wellenkamp decision created a growing public awareness that people can take over property subject to existing loans. You can prevent a bank from taking over a threatened foreclosure with nothing more than a little up-front money to make the loan current (except in the case of a federal lender).

BALLOON PAYMENT MORTGAGE

In the recent year, there has been an avalanche of housing foreclosure. One of the various reasons is the balloon payment mortgage. A balloon payment can trigger a foreclosure when they come due if the owner does not have the ability to refinance the property or pay off the debt. The value of the property may have deteriorated; interest rates might be too high for the owner to qualify for another loan; the owner might not be able to afford it. If the property has not appreciated as expected, the owner must sell or face foreclosure. Most prospective sellers wait until the last possible date, when it is too late, and they are foreclosed upon.