Mortgages
WHAT IS AN OWNER-HOLDING MORTGAGE?
Virtually un-heard of in the UK, Owner-Holding mortgages are not uncommon in the USA and operate as the name suggests – the current owner of the property being put up for sale (either an individual or a property developer) decides that they could possibly sell the property more quickly if they were to offer finance on it.
There is no bank or finance company involvement, but there is a formal Mortgage Document, with the Owner’s name as the Mortgage Holder, filed in the County Clerk’s office. The terms (mortgage term, interest rate and payments) are clearly stated in the document.
The Buyer purchases the property outright, Freehold, and the (now previous) owner has no interest (financial or otherwise) in the property. However, should the Buyer default on payments, the owner is able to foreclose on the mortgage and take back the property.
WHAT ARE THE BENEFITS TO THE BUYER/INVESTOR?
Not only does the current Credit Crunch make it impossible for a Foreign National to obtain a conventional mortgage through a US bank (though we expect a return at some point in the future) there are specific advantages of O-HMs. There are no credit checks as the mortgage payment is covered by the rental. The mortgage holder can NOT call in the loan during the first 10 years (or specified term) BUT you can generally settle the loan at any time (should for example, you find a lower cost mortgage option), with NO early settlement penalties. Additionally, you can sell the property at any time and simply pay off the mortgage balance.
WHAT DOES “Mortgage 30-Year Term, 50% LTV, & full payment due 10 years” MEAN?
You will probably be aware that long-term fixed rate mortgages are common in the USA.
In this case the term is 30 years which means that the Mortgage Payments are spread over 30 years, minimising the amount. LTV is short for Loan-to-Value and refers to the percentage of the purchase price of the property that will be funded by the mortgage.
It is likely that the Mortgage Holder may want to realise the mortgage funds before the end of the full term and 10 years is the normal period. At this time, the Buyer will need to find a new mortgage provider, or pay off the full amount; it is possible that the Mortgage Holder may continue for a further term. The mortgages are Repayment Mortgages.
WHO WILL HELP ME THROUGH THIS PROCESS?
Brennan Property Investment Ltd provides trustworthy professional help through their USA Partners. The Attorney we recommend is extremely efficient in the Purchase Transaction and will ensure that your interests are fully protected in the Mortgage Arrangement Process.
There are options for the formal arrangement of finance for foreign nationals:
- The US Attorney we recommend would scan and e-mail the mortgage and “note” to you the Buyer and you would have to sign them (with proof of your identity) witnessed by a US Notary, normally at the US embassy. You would then send the documents by overnight mail to the Attorney to complete (close) the purchase.
- There is a network of about 50 UK Notaries around the country, who will notarise and legalise the documents in a process which involves them presenting the documents to the Foreign and Commonwealth Office who affix an “Apostille” (a small piece of paper and seal) to the document. This process takes about 4-5 days and costs about £160 (but not a lot more for a second purchase).
- There are different arrangements for the Isle of Man and maybe other “off-shore” territories.
Further information is available about the actual payment processes of the mortgage amounts – normally (but not in all cases) your Property Manager will deduct mortgage payments from the net rental due and remit funds to the Mortgage Holder ($10 handling fee).
