Help for a friend

I have a coworker who just built a house and has come up against an issue based on guidance from her bank. She and her built the house themselves while living in their previous house which is on the same lot as their new house. They asked the lender (Call it ABC) three separate times if it would be okay to have two houses on the same lot because a different lender (XYZ) had previously told them they couldn't do it with two homes on one lot. ABC told them each time they asked that they'd checked with underwriting and it would be okay when it came time to convert from the construction loan to permanent financing.

Their appraiser came out yesterday to certify completion of the house and told them that it, in fact, won't qualify for secondary market sale, due to it having two dwellings on the same lot. They talked to their Loan Officer yesterday who said he's escalated it to his boss but that it'll be up to him if they can do anything with it. He claims it can be "illegal" for them to keep something like that in house (which I just don't buy). He also said that they could keep it as a construction loan for another year and then convert to permanent after they knock down the old house (which has to be done within a year because of county rules) but they don't want to because they can't pay principal and don't want the increased closing costs associated with that.

Has anyone here dealt with something similar or have any thoughts on what they can do? I told her to 1) wait to see what they say but 2) push back about them keeping it in house. It was the lender's error, so they should have to honor the offer they approved, IMO.

I have not run across a situation like that, but I do know that many banks (and CU's) do loans that are non-conforming that they keep in their own portfolio that might work for your friend as the underwriting can be "different" for these loans. Which is why a lot of private bankers loans get put into the bank's own portfolio. Might work for your friend.

Multiple units are not a problem, but the fact that they have to tear the other structure down might be.


Number of Units

Fannie Mae purchases or securitizes first-lien mortgages that are secured by residential properties when the dwelling consists
of one to four units.

Acceptable Dwelling Types

Dwelling units for security properties may be detached, attached, or semi-detached.
Properties may be located
• on an individual lot,

Has anyone checked into local ordinances in reference to two houses on the same lot and not a lending issue( other than lending for an illegal structure) That would be an issue in my area.

I live in a rural area and this is fairly common. My personal residence was built this same way. I have a secondary market loan through BankMac. No issues. This particular parcel of land is 13 acres with my new house, the old house and several old outbuildings. The buildings are coming down, just slowing because they are all log pin and are being salvaged. I will add, we have no county ordinances to contend with.

I am on 10 acres and was not allowed to leave the home I was living in when I built my new home. But that was strictly county issues, I did not seek permanent financing. They gave me something ridiculous like 60 days to get it gone. I laughed at them, but somehow it actually did work out...I mean what were they really going to do?

Now my neighbor, with same acreage does have a stick built and a MH on same land...not sure what the difference could possibly have been, to be honest! Perhaps they were grandfathered and the rules changed between then and when I built...would be my guess.

For the lender to have assured them it would be no problem from a lending standpoint, I would think the RIGHT thing to do would be to book inhouse.

If it's left as a construction loan until saleable, then I would calculate an amortization myself and make payments as if it were. The above statement sounds as if that's one of their issues, but there is no law against making payments and if you make more than the accrued interest it's going to go to principal.

Also, I'm not sure why there would be more closing costs involved if the original loan was to be converted to perm vs extending the CL portion a year and converting...that's not making much sense to me...other than you are running a risk of market rates rising by doing so.