If the mutual goal of the lender and homeowner is to apply a strategy for borrowers who are behind in their mortgage and other payments to stay in their homes, and to avoid write-offs of principal by the mortgage holder, the QCD™ may be of use.
The steps in the process:
A. Existing homeowners with mortgages:
With Americans holding little household financial reserves, a loss of job or illness of a home owner or family member as well as the Covid-19 shutdown were usually the cause of late or missed mortgage payments. If financial recovery of the owner takes 6 to 12 months for them to return to work, on a median $350,000 home they will have unpaid estimated interest, property taxes and insurance (often advanced by the lender) of $12,000 to $25,000 for the year, in addition to the loan principal at the time of default, and other costs.
Forbearance agreements and other measures may be replaced or modified if a QCD™ could be used as outlined below:
A homeowner with a re-established job and the restored ability to make monthly payments may be able to avoid the foreclosure process with a cooperating lender:
- When appropriate, the owner could provide the lender with a “deed-in-lieu of foreclosure”, to reduce the lender’s costs and expenses relating to foreclosure legal action.
This act also may improve the internal financial accounting of the lender. We recommend that the owner/debtor should have legal Counsel.
- The lender then can simply add the unpaid interest and advances for the period of non-payment to the principal amount of the loan, and simultaneously with the deed transfer to the lender, both parties can execute a Qualified Contract for Deed (QCD)™ for the full amount of principal and unpaid interest and advances for a new 30 year amortization term, at the prevailing interest rate.
- This allows the home owner to stay in the house. For example, $25,000 of arrearages, when added to the loan principal, will increase the cost to the borrower about $100 per month in the new monthly contract payment at a 4% interest rate.
- After the recommended 2 to 3 years of QCD™ seasoning with timely payments, the homeowner may then be able to refinance and return to a traditional deed/mortgage arrangement.
While not appropriate for all foreclosures, this process could keep the homeowner in their home, and significantly reduce principal losses to lenders, and lengthy and costly legal action.
B. Tenants behind on the rent due to Covid-19 shutdowns.
Again, this possible application assumes the restored ability of the tenant to make timely monthly rent payments by having returned to work. It could address the unpaid rent, which might help bridge the timing gap for any assistance from the Federal Government under the various Covid-19 relief measures, or simply deal with unpaid amounts between the landlord and tenant if assistance is not available.
The process of purchasing a home using the QCD™ legal method is discussed in great detail on the free H.O.M.E.S. website at www.HomeOwnerMakers.com. In its simplest form, the landlord/seller and tenant/buyer could reach agreement on a fair price for the home, using the current rent and other methods as discussed on the website, and then simply add the agreed upon amount of unpaid rent to the home value, and help the landlord recover their losses, with contract interest.
It may be possible for any existing landlord financing commercial financing to recognize the higher home value with an owner-occupant, and provide additional funding to the seller.
Any government aid eventually received could be applied to reduce the unpaid contract balance
