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The Ledger - EST. 1978 - Nashville Edition
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VOL. 42 | NO. 51 | Friday, December 21, 2018

Every house has a story; this one might be a novel

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There is a property in Nashville that will go unnamed, a house rife with every type of mortgage loan imaginable over the past 25 years. The loan history is more interesting than the property itself and has a trail that would leave Sherlock Holmes scratching his deerstalker.

Follow along as this procession is by no means elementary and it is more fun than Clue. The owner’s name is being withheld to protect the innocent. One clue that I will provide is that the house sold recently.

The property, deeds on file at the courthouse reveal, was bought by the owner and her husband – hereafter referred to as Husband No. 1 – in 1964 for an undisclosed amount via a $10 quitclaim deed.

Twenty-one years later, in 1985, she quitclaimed the property to her new husband, aka Husband No. 2 and herself for “One dollar and Love and Affection.” That Deed refers to a divorce from Husband No. 1.

Perhaps the deed transferring ownership from Husband No. 1 to his ex-wife was not deemed valid when Husband No.3 entered the picture in 2009, so there is a deed filed that transfers the property from Husband No.1 to the owner and then to the owner and Husband No. 3.

Since the original deed was invalid, the transfer to Husband No. 2 did not happen in the eyes of the court.

The loans – $10,000, $9,000 and $4,000, all on the same day – started in 1996, with all three coming from the Metropolitan Development and Housing Agency. The two larger notes were on a five-year amortization schedule, while the $4,000 note was spread over 20 years.

Such terms run contrary to conventional financial loans. In most cases, the loans with the larger amounts would be amortized over the longer periods. Twenty years is a long time to pay interest on $4,000.

The borrower, who apparently was quite familiar with refinance opportunities, was, as you will soon see, not afraid to use them.

In 1997, four months after the 1996 loans, the owner – now referred to as “an unmarried person,” having not yet married Husband No. 3 – refinanced, taking loans of $10,000 and $9,000 on the five-year loan and borrowing only $3,100 on the 20-year loan.

A source familiar with the workings at MDHA said the organization was working hard to revive both commercial and residential properties in the sector. While unfamiliar with this particular case, he felt that the loans may have been for specific purposes as “there were little pots of money” set aside for different programs such as energy efficiency and the broader category of “revitalization.”

The results have been “very fruitful,” he explains, adding “the area has been revitalized with very little public money. The house in this case study is proof of his claim. In 2000, three years after the MDHA loans, she secured a mortgage for $45,000 that paid off the MDHA loans and put a little money in her pocket.

Four years later she again caught the refi fever – as many did when properties began to appreciate – and received a mortgage loan of $75,000 to replace the $45,000 loan. Many in the real estate investment community recommend this practice since the equity in the property is realized without paying taxes.

For example. If the property was worth $75,000 and she sold it, she would be taxed on the gain from the time she acquired the property. As interest rates are traditionally lower than tax rates, taking the equity as the property appreciates results in savings, especially if the person is wise and/or lucky with other investments that exceed the interest rate paid on the loan on the property.

With the cash-infused adrenaline flowing, the next year, she did the same thing and borrowed $88,700 against the property, paying off the $75,000. Of course, there are fees with refinancing as the mortgages must be recorded and an attorney paid. There also are some lender fees associated with the procedure.

A mere one year later, she is headed back to the bank. Worth noting is that none of these loans were with the same lender, the first few with companies that are not as popular as some.

Perhaps some of this was the result of mailers or telemarketers, but the borrower seems to be performing in a manner many would recommend as long as she was investing the money or using it in a practical manner.

Keeping her one streak alive and extending it to three straight years, she borrowed $116,000 to repay the $88,700, thereby netting over $25,000 for her use.

During the next three years, she borrowed no money but married Husband No. 3 in 2009 and promptly took another $27,000 or so for their use when she borrowed $145,000.

It is not known what happened to him, but the next year in 2010, she obtained a reverse mortgage for $427,500. There are those that argue that reverse mortgages are not the wisest move, but in this case, it was.

Hart Weatherford, executive vice-president at Capstar Bank, says reverse mortgages are a good plan for older people who have no savings or money designated for retirement. They can take the equity from the house, and there is no repayment for the money, not even interest.

Weatherford, a veteran of 20-plus years in mortgage lending, says reverse mortgages can be bad when people have, for example, a $100,000 house, receive $70,000 and then go through the money in a few years, leaving no funds and no equity.

The borrower must be retired, he adds, and most in that category are unable to begin a career at retirement years when the cash evaporates.

The term noted in the tax records for the deed filed on the homeowners second mortgage was 73 years. I suppose they had to be safe, but remember, she bought the house in 1964, 54 years ago. She would have to have been 18, which would put her at 72 years old, minimum.

Perhaps the Department of Housing and Urban Development, the group that provides second mortgages, views life expectancy at 127 years. It would be nice if the lawmakers got that one right.

Richard Courtney is a licensed real estate broker with Fridrich and Clark Realty and can be reached at richard@richardcourtney.com.

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