Extension on 3 Year Balloon-Require New Note?

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Question:

We have a customer with a 3 Year balloon note on their primary residence (2nd Mortgage) that is coming due. The maturity date is approaching and they will not be able to pay the balance in full. They are asking for a 90 day extension. Can we do an extension/modification on the current 3 Year Balloon note without extra disclosures or do we need to set up a new note?

Answer:

You will have to check your state laws as they will dictate what you can or cannot do with payment deferments.

You will also want to check to see if balloon notes are mandatory refinancing under state law. In Indiana, if you grant a closed-end balloon note that is not secured by a first lien on real property you must refinance the balloon when it comes due at terms no less favorable than the original terms; this includes rate, payments, term, etc.

First published on BankersOnline.com 8/22/11