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A Resolution Authorizing Subordination of a Lien for the Property Located at 1026 South Harvey Avenue (BPIP-056)
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Introduction
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The loan recipient at 1026 South Harvey Avenue is requesting a subordination of their Barrie Park Investment Program mortgage to a home equity line of credit. The Village remains secure in a junior position on the title.
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Recommended Action
Approve the resolution.
Prior Board Action
On September 6, 2005, the Village Board adopted a resolution awarding a loan in the amount of Fifteen Thousand Dollars ($15,000) to Joanne Corwin and Richard Corwin for the premise at 1026 South Harvey Avenue pursuant to the Barrie Park Investment Program.
Background
On September 6, 2005, the Board of Trustees approved a $15,000 loan to the owner of 1026 South Harvey Avenue. The loan was supported by a mortgage which was recorded against the property. The mortgage was recorded as a second mortgage on the property with the purchase mortgage being first.
Loans made under the Barrie Park program are deferred for repayment until the 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 a 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, the 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 the current primary mortgage but is seeking to renew and maintain an expired home equity line of credit in the amount of $50,000, which will be used for home emergencies or future home improvements. The new home equity line of credit has a 240-month term with a ten-year draw and a ten-year repayment and carries a variable rate of 3.99% for 12 months then Prime minus .50% through the maturity date of December 20, 2044. The current balance on this line of credit is at zero balance.
The issuing lender will not provide 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 the 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 $399,612. The balance on the first mortgage of $76,642.64, the Village’s $15,000 mortgage, and the line of credit at $50,000 equal a total debt of $141,642.64, leaving 64.5% equity. Staff believes that there is sufficient equity to protect the Village’s investment and is recommending the subordination.
Timing Considerations
There are no specific timing considerations associated with this item as there is no closing date.
Budget Impact
There is no budget impact associated with this item. 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.
Staffing Impact
There is no staffing impact associated with this item.
DEI Impact
There is no DEI impact associated with this item.
Community Input
There has been no community input in relation to this item.
Staff Recommendation
Approve the request from the homeowner to subordinate the loan from the Barrie Park Investment Program to a home equity line of credit.
Advantages:
• The homeowner is able to maintain a home equity line of credit.
• The subordination request aligns with the original terms of the program.
Disadvantages:
• There are no disadvantages to this recommendation.
Alternatives
Not approve the resolution.
Alternative 1:
The alternative would be to deny the subordination request.
Advantages:
• There are no advantages to this alternative.
Disadvantages:
• The homeowner’s request for a home equity loan could be denied.
Anticipated Future Actions
There are no anticipated future actions in relation to this item.
Prepared By: Jeffrey Prior, Neighborhood Services Program Manager
Reviewed By: Jonathan Burch, Assistant Village Manager/Neighborhood Services Director
Approved By: Kevin J. Jackson, Village Manager
Attachment(s):
1. Resolution BPIP-056 Subordination of Lien
2. Mortgage BPIP-056 Subordination of Lien
3. Endorsed Note BPIP-056 Subordination of Lien
4. Homeowner’s Statement