Submitted By
Tammie Grossman, Director of Development Customer Services
Reviewed By
LKS
Agenda Item Title
Title
A Resolution Authorizing Subordination of a Lien for the Property Located at 1026 South Harvey Avenue (BPIP-056)
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Overview
Overview
The loan recipient is requesting a subordination of their Barrie Park Investment Program Loan to a new first mortgage. The Village remains secure in 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 September 6, 2005, the Board of Trustees approved a $15,000 loan to the owner of 1026 South Harvey Avenue. The loan is supported by a mortgage which was recorded against the property. The mortgage was recorded as a third 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 their current primary mortgage, but is seeking to payoff and replace their secondary mortgage that is currently in a repayment phase. The current secondary mortgage, which carries a 5.50% interest rate, will be replaced with a new secondary mortgage at 5.25% interest rate. This new loan will provide a Variable Rate Interest, 15 year mortgage. The amount of the new loan will be $50,000.00. The new loan is more advantageous than the existing loan as the existing loan is at a lower rate and will be taken out of a repayment phase only.
The issuing lender will not make the loan unless that mortgage is the second mortgage lien against the property. The lender is 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 in a junior position.
According to bank appraisal, the property has an estimated value of $375,432. The balance on the first mortgage of $161,449.75, and the Village’s $15,000.00 mortgage and the line of credit at $50,000 equal total debt of $226,449.75, leaving 39.7% equity. Staff believes that there is sufficient equity to protect the Village’s investment and is recommending the subordination.
The request complies with the Village guidelines requirements.
Alternatives
The alternative would be to deny the subordination request
Previous Board Action
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Citizen Advisory Commission Action
N/A
Anticipated Future Actions/Commitments
N/A
Intergovernmental Cooperation Opportunities
N/A