[StBernard] demand letter for mortgage

[Westley Annis]

Most of the mortgage companies will be hesitant to grant the infamouts
demand letter to people who used their insurance proceeds to pay off or
reduce their old mortgages.  They do not want all of that low-interest SBA
money out there and available for borrowers.  That would greatly reduce the
amount of money they will be able to lend to us when we rebuild or relocate.
Lenders make their profits based on the amount of money they have out in
mortgages.  Fewer loans mean less profits.

Here's an approach you may want to try to get the SBA to lend you money to
replace what you used to pay down a previous  mortgage.

Many mortgages contain what I call an "economically feasible" clause.  Mine
reads like this:  "If the restoration or repair is not economically feasible
or Lender's security would be lessened, the insurance proceeds shall be
applied to the sums secured by this Security Instrument, whether or not then
due, with the excess, if any, paid to the Borrower."


Layman's translation:  If even after the insurance money is spent on the
repairs, the home would still be valued less than the mortgage you owe, the
lender wants you to pay them off.



The logic for this clause is that if the lender (your old mortgage company)
would still be at risk after the repairs are made, they would prefer you pay
them off with the insurance proceeds vs. put the money into repairs.
Remember that the mortgage company's risk is that the loan they have on a
property is greater than the value of the property.   What the economically
feasible clause says is if the value of your property after repairs will
still be less than the amount of the money you owe the lender, then they
want the money vs. having a lien on a repaired, yet still under-valued
property.  The clause is designed to protect the lender.



Try making a case with the SBA for having to pay off the loan under this
clause.  If you are in the oil spill zone, I think you have a very sound
argument.  Who would want to purchase a house that's been inundated with raw
crude oil?  Now that the oil spill zone has been certified by a federal
judge, it's easily defined.  If you're in this area,  suggest to the SBA
that you paid off the loan to protect the lender under the "economically
feasible" clause.  Raise the question of if it is economically feasible to
pour money into a property that may never be marketable again.



Maybe you will have some success with this approach.  Good Luck.



Paul V. Perez
Certified Financial Planner