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socrateaser
socrateaser, Lawyer
Category: Legal
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Experience:  Retired (mostly)
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Subject: Residential mortgage for Foreign NationalsThis

Resolved Question:

This question is intended for an expert in banking and real estate.


I need a fundamental and verifiable answer please!!


 


Assume the absence of the following problems:


a.   The loan request meets all criteria applicable in the country of the lender.


b.   Foreclosure procedures in the country of the foreign national is acceptable to the lender.


c.   The lender can easily see from its bank statements and the loan contract that the loan is being repaid.


d.   The foreign national can get permission from its central bank.                                       


 


Why is it so hard for a foreign national to obtain a residential mortgage from a lender in the USA or Europe, without having collateral in the country of the lender?

Submitted: 1 year ago.
Category: Legal
Expert:  socrateaser replied 1 year ago.
Hello,

When you say "collateral in the foreign country," are you suggesting that you want to borrow from a lender located in a nation where the real estate is not located?

Thanks in advance
Customer: replied 1 year ago.

Yes, that is what I am clearly asking.


Lender is in the USA or Europe.


Borrower and collateral are for instance in the Caribbean.

Expert:  socrateaser replied 1 year ago.
Okay, thanks!

Fannie Mae and Freddie Mac, which are the two secondary lending corporations which ultimately purchase most of the loans made on residential properties in the USA -- and which by force of size, set the rules for all loan underwriting -- won't purchase a foreign property mortgage -- because there is no means of confidently foreclosing on the foreign property without engaging foreign legal counsel and operating in the courts of a foreign jurisdiction.

Additionally, foreign jurisdictions, may have legal systems in which jurists are highly susceptible to bribery and corruption, insuring legal title, obtaining private mortgage insurance, and obtaining a valid appraisal are all extremely challenging. There's simply no good reason for a U.S. Bank to entertain a loan in a foreign jurisdiction, unless the profit margin is enormous. And, that sort of profit is never available with a single family residence -- not even with a very large estate -- because if the borrower defaults, a new buyer may take several years to find, and during that time, the lender is losing money, because there is no loan revenue.

The Fannie Mae Selling Guide does not directly discuss foreign property. But, it does discuss foreign borrowers, and the rules for such transactions are equally onerous. The borrower must have verifiable income, via a U.S. personal income tax return -- which many foreign purchasers do not have, because their income is all from foreign sources.

The point here is that while there are many operations who claim to provide lending facilities in foreign jurisdictions, those claims always fail to produce a loan, except where the borrower has assets that can be pledged which are within the reach of a U.S. court.

I won't belabor the issue. If you need money for foreign real estate, you will either have to find a lender in the jurisdiction where the real estate is located, or pledge other collateral for the loan which is located in the USA.

Please let me know if I can be of further assistance.
Customer: replied 1 year ago.

What you describe in your first and second paragraph reveals a lot of prejudice and might explain why it seems so hard to get what I and several others on the internet have been looking for.


 


However, can you refer to any academic research to back up your claims? Remember I asked for a verifiable answer.


 


Your reference to the Fannie Mae Selling Guide only deals with the symptoms of the problem (= my question). I am looking for the cause.


 


 

Expert:  socrateaser replied 1 year ago.

Academic references are "secondary sources" of persuasive legal authority. Where "primary sources" of authority exist, the use of a secondary sources is inapposite.

The primary authority for Fannie Mae (FM), mortgage purchasing power is found at 12 U.S.C. 1717. Under that authority, the U.S. Federal Reserve has issued regulations to implement the statutory power. 12 C.F.R. 1282.1 provides the definition of a "mortgage:"

  • Mortgage means a member of such classes of liens, including subordinate liens, as are commonly given or are legally effective to secure advances on, or the unpaid purchase price of, real estate under the laws of the State in which the real estate is located, together with the credit instruments, if any, secured thereby, and includes interests in mortgages. “Mortgage” includes a mortgage, lien, including a subordinate lien, or other security interest on the stock or membership certificate issued to a tenant-stockholder or resident-member by a cooperative housing corporation, as defined in section 216 of the Internal Revenue Code of 1986, and on the proprietary lease, occupancy agreement, or right of tenancy in the dwelling unit of the tenant-stockholder or resident-member in such cooperative housing corporation.

 

 

As can be readily observed in the regulation, a mortgage must be secured by property located in a U.S. state jurisdiction ("real estate under the laws of the State in which the real estate is located"). Consequently, FM cannot purchase a foreign mortgage, and since every U.S. financial institution which is insured by the Federal Deposit Insurance Corporation (FDIC) uses the FM guidelines to underwrite real estate loans, therefore no such institution may make a loan secured by a property located in a foreign jurisdiction -- if the institution wants to be able to later sell the loan to FM.

 

Calling all of the above "prejudice," does not make it "illegal." Illegal prejudice/discrimination must be based upon race, color, nationality, religion, family status, age or disability. The foreign location of real estate does not transform a loan denial unlawful discrimination.

 

Hope this helps.

Customer: replied 1 year ago.

I must say this is an excellent answer!


Now, are there similar regulations or other factors in Europe that make it so difficult for a foreign national to obtain a residential mortgage from a lender in Europe, without having collateral in the country of the lender (part of my original question)?


 


I noticed that your elucidation left room for those lenders who do not use the FM guidelines to give the type of loan that I am looking for.


Can you provide a list of lenders where it is very likely that I can find what I am searching for?


 


For the sake of clarification I used the term prejudice defined as follows "Preconceived opinion not based on reason or experience". It can be found https://www.google.com/search?hl=en&q=prejudice&tbs=dfn:1&tbo=u&sa=X&ei=qUyGUbThApD89gT9Lg&sqi=2&ved=0CCwQkQ4&biw=1366&bih=611



If lenders in the USA do not look beyond the FM guidelines because they simply want to be able to sell the mortgage in a readily available secondary market, then the problem I am experiencing is primarily the result of an economic consideration. This of course still leaves room for the 12 U.S.C. 1717 and other relevant regulations to be prejudiced if the considerations you first mentioned underpins them. I hope that this discussion lead to an evaluation of those regulations in favor of globalization.

Expert:  socrateaser replied 1 year ago.
I must say this is an excellent answer!

A: Thank you for your kind words.

Now, are there similar regulations or other factors in Europe that make it so difficult for a foreign national to obtain a residential mortgage from a lender in Europe, without having collateral in the country of the lender (part of my original question)?

 

A: I am not sufficiently competent on the lending guidelines of the two dozen plus European jurisdictions to answer this question.


I noticed that your elucidation left room for those lenders who do not use the FM guidelines to give the type of loan that I am looking for. Can you provide a list of lenders where it is very likely that I can find what I am searching for?

 

A: In my experience, there is no such lender. You will either have to borrow money in the jurisdiction where the property is located, or colateralize your loan with assets located in the USA.


For the sake of clarification I used the term prejudice defined as follows "Preconceived opinion not based on reason or experience". It can be found https://www.google.com/search?hl=en&q=prejudice&tbs=dfn:1&tbo=u&sa=X&ei=qUyGUbThApD89gT9Lg&sqi=2&ved=0CCwQkQ4&biw=1366&bih=611


A: The U.S. Constitution permits private persons, organizations and the government itself, to discriminate against individuals in economic matters, as long as there is any rational basis for the discrimination. The U.S. Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending based race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act.

 

The term, "prejudice" has no meaning in the application of U.S. lending law. Other than through the above-described ECOA protections, a lender can discriminate or prejudice a decision "at will:" at any time, for any reason, or for no reason at all.


If lenders in the USA do not look beyond the FM guidelines because they simply want to be able to sell the mortgage in a readily available secondary market, then the problem I am experiencing is primarily the result of an economic consideration. This of course still leaves room for the 12 U.S.C. 1717 and other relevant regulations to be prejudiced if the considerations you first mentioned underpins them. I hope that this discussion lead to an evaluation of those regulations in favor of globalization.

 

A: I understand your desire for this conversation to somehow "take flight" and produce favorable results in the lending industry. However, this website is not youtube, twitter or any sort of media outlet from which such ideas generally spring forth. I suppose it's possible that someone will read this and say, "Hey, we need to make foreign real property lending available from U.S. sources." But, I tend to doubt that this issue has much political interest on the U.S. or world "stage" at the moment.


That said, I've really done all I can do here. I realize that you are looking for a lending solution. However, you posted your question in a legal Q&A forum, and the best that I can do here is to recite and interpret the law as it currently exists. I can't loan you money, or influence anyone else to do so. The law generally makes what you seek to accomplish from a U.S.-based lending institution, impossible -- or at least extremely difficult and probably not worth the cost to any lender, unless the amount in play is in the hundreds of millions of dollars (e.g., commercial development money).

So, I think you will have to find a different avenue for your loan procurement -- because what you are seeking to accomplish is likely a "dead end."

Hope this helps.
socrateaser, Lawyer
Category: Legal
Satisfied Customers: 34068
Experience: Retired (mostly)
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