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Not Paid As Agreed

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Posted On: 07/31/2013

Question:

We are unable to refinance our home because it shows that we had a “deed in lieu of foreclosure” on our credit report. In fact, no such thing occurred.

We bought six investment condos in Phoenix. As part of the transaction, we borrowed $400,000 with a five-year loan and put in $250,000 through a tax-deferred exchange.

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In total, the properties cost about $110,000 a piece. We could not get the loan refinanced, but the lender said we could pay off the financing with a $100,000 discount – in other words, we could refinance with about $300,000.

Meanwhile, the value of the properties had dropped to $16,000 apiece, so no lender would offer a $300,000 mortgage for properties worth a total of $96,000. To get the bank to negotiate, an attorney advised us to miss a few payments, which we did.

Finally we were able to make a deal with the bank to pay off the loan for $200,000, money we got by refinancing our home and another rental property.

Now, with rates lower, we want to refinance our home but no lender will provide a new loan. What can we do?

Answer:

From the lender's point of view, here's what happened: You got a $400,000 loan. You paid back $200,000. You missed several loan payments.

Foreclosures, short sales and deeds in lieu of foreclosure are all the same for credit-reporting purposes – they show up as "not paid as agreed," according to credit score developer Fair Isaac (FICO).

Lenders will look at your situation and ask: If the value of the six condo units had increased, would we have gotten back more than the $400,000 that we loaned? If we are not getting any additional benefit from the upside risk, then why should we have to swallow a $200,000 loss on the downside?

That is why “not paid as agreed” is a black mark on a credit report.

As for your current refinance, residential and investment properties possibly qualify for assistance under the government's HAMP program.

In addition, state attorney general offices may be able to point you to specialized refinancing programs.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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