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Partial-Payment Problems

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Posted On: 05/16/2012

QUESTION:

Why is it OK for mortgage companies to reject partial payments when a borrower is behind? It seems to me that it’s bad business and not too good for the economy.

ANSWER:

Many mortgage servicers (but not all) are reluctant to accept partial payments from delinquent borrowers because they worry that by taking less than the full monthly amount, they may be seen as waiving their right to foreclose and even opening the door to a suit for wrongful foreclosure. Also, loan program rules sometimes prohibit the acceptance of partial payments. For instance, borrowers participating in the Department of Veterans Affairs (VA) Loan Guarantee program can prepay their loans in whole or in part without penalty. The catch is that, according to the VA, the term “in part” means “partial payments may not be less than 1 monthly installment or $100, whichever is less.” If mortgage servicers – the companies that collect payments for mortgage investors – do accept a partial payment, they must credit the oldest missing payments first. They also need to ensure the borrower understands that the lender is not giving up its rights to foreclose. The ability to foreclose varies by state, so a partial payment from a delinquent borrower may be something a mortgage servicer would like to accept but can’t because of investor agreements, mortgage rules and court cases. For details, speak with a local attorney who handles foreclosures.

QUESTION:

If the price is the same, why is a cash offer considered better than an offer with financing?

ANSWER:

An all-cash offer means the transaction is not dependent on lender approval, there’s no waiting to see if financing is available and changes in mortgage rates do not impact the sale. Such issues are important: The National Association of Realtors reports that about one-third of all offers fall through, often because of financing issues. In effect, an all-cash offer means one less barrier to a completed sale.

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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