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#507882 - 03/03/06 06:34 PM AAN--reason
jap Offline
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jap
Joined: Mar 2004
Posts: 600
IN
Situation: Applicant applying for a loan to purchase property in rural county. The applicant has told us that there is not a true septic system with this property. Rather, the seller has installed a 55 gallon drum into the ground with a line running into it (I am not kidding). This is their "septic system". The inspector of that county has stated that this system did meet the health code of that county at the time it was installed. Regardless of what they've told us, we still do not wish to make a loan on such a property, believing that if the bank had to foreclose, selling the property would be difficult. My question is...what reason should we list on the AAN? The appraisal shows adequate value.

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#507883 - 03/03/06 08:59 PM Re: AAN--reason
Rocky P Offline
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Joined: Jun 2003
Posts: 7,650
Florida
IMHO, - The collateral is insufficient - the property does not meet current county code. (Should be sufficient.) This should have been brought up in the appraisal too.
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#507884 - 03/03/06 11:46 PM Re: AAN--reason
Marty McKay Offline
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Joined: Oct 2004
Posts: 95
I agree.
Insufficient collateral.

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#507885 - 03/04/06 12:14 AM Re: AAN--reason
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
Perhaps I am being picky, but I would term this "unacceptable collateral". That way they can't argue the value stated in the appraisal.

By any chance, does this county grandfather this type of property? I agree with the bank's reluctance, but I wondered if that is why it got by the inspector and appraiser - it may be allowed as a pre-existing condition.
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#507886 - 03/05/06 04:54 PM Re: AAN--reason
Andy_Z Offline
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I think I'd ask some questions about "at the time" and will it meet code now? I can't imagine that it would. So if a proper system is put in, what would the costs be and what does that do to the LTV? Is the loan request modifiable and salvageable?

It may be that a "unacceptable" is the reason I'd agree with and a counter-offer is more appropriate than a straight denial.
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#507887 - 03/05/06 06:26 PM Re: AAN--reason
Richard Insley Offline
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Richard Insley
Joined: Oct 2000
Posts: 10,179
Toano, VA
If you make unsecured loans, you can't get away with simply stating "inadequate collateral." The collateral is not your primary source of repayment. Does this applicant have sufficient cash flow to make the proposed payments? If not, your AAN reasons are really "income" related. If the borrower does have sufficient income to service the debt, then why don't you counteroffer an unsecured loan?
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