Submitted By
Tammie Grossman, Director of Development Customer Services
Reviewed By
A.M. Zayyad
Agenda Item Title
Title
A Resolution Authorizing Subordination of a Lien for the Property Located at 1016 South Harvey Avenue (BPIP-026)
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Overview
Overview
The loan recipient is requesting a subordination of their Barrie Park Investment Program loan mortgage to a home equity line of credit. The Village remains secure in a junior position on the title.
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Recommendation
Recommendation
Approve the resolution.
Fiscal Impact
The subordination is not a direct cost to the General Fund. Staff time in document preparation, which is a regular part of loan portfolio management, is the only cost.
Background
On November 15, 2004, the Board of Trustees approved a $15,000 loan to the owner of 1016 South Harvey Avenue. The loan is supported by a mortgage which was recorded against the property. The mortgage was recorded as a second mortgage on the property with the purchase loan mortgage being first.
Loans made under the Barrie Park program are deferred for repayment until conveyance or transfer of any interest in the property. The guidelines were amended in September 2008 to clarify under what circumstances requests for subordination will be granted. The guidelines provide that in cases where former loan recipients wish to refinance mortgage(s), other than the Village's, and request that the Village maintain its subordinate position, the Village will agree to maintain its junior position if:
a. The terms of new first mortgage are more advantageous to the homeowner and are reasonable under current market conditions; and
b. There is adequate equity in the property to support the total proposed encumbrance, at least 15% equity (if necessary, homeowner(s) will submit an appraisal as proof of equity); and
c. The cost of the refinance is the only allowable equity taken out of the property.
In cases of extreme hardship, staff may recommend that the Board consider subordination when the homeowner is requesting cash back from the refinancing and the equity taken out is being used for emergency home repairs. The homeowner shall provide a written statement describing the emergency.
The homeowner is not seeking to replace his current primary mortgage, but is seeking to increase an existing home equity line of credit from $6,000 to $15,000, which will be used for home improvements, specifically tuckpointing, roofing and fencing. The existing home equity line of credit has a 10 year term and carries a variable rate of Prime + .50%. The current balance on this line of credit is at a zero balance.
The issuing lender will not increase the line of credit unless that mortgage is the second mortgage lien against the property. When the home equity line of credit was originally opened there wasn’t a request to subordinate and the Village remained in the second position. The lender is now requesting that the Village subordinate its mortgage to their new secondary mortgage. The Village’s mortgage was created as a junior mortgage. By agreeing to subordinate, the Village is agreeing to remain junior position.
According to bank appraisal, the property has an estimated value of $316,000. The balance on the first mortgage of $95,197, the Village’s $15,000 mortgage and the line of credit at $15,000 equal total debt of $125,197, leaving 60.4% equity. Staff believes that there is sufficient equity to protect the Village’s investment and is recommending the subordination.
Alternatives
The alternative would be to deny the subordination request
Previous Board Action
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Citizen Advisory Commission Action
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Anticipated Future Actions/Commitments
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Intergovernmental Cooperation Opportunities
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