Nancy was in just that bind. She inherited ½ of her aunt’s house – her brother inherited the other half. She needed to borrow money right away for repairs to the house-– the problem was that her brother was in the middle of a nasty divorce, and couldn’t sign anything. 
This is where a partial ownership loan, a loan secured by one part owner’s interest only, comes into play. (Partial ownership loans are also referred to as partial interest loans, or “partner loans.”) With a partial ownership loan, the lender makes a loan to one of the owners, secured only by their interest in the property. The other owners don’t sign anything, and the only collateral the lender has is the signing borrower’s partial interest in the property. Nancy was able to borrow against her share of the property, without needing the brother’s signature or being impacted by his problems. (This can also be useful in cases where the other owner simply refuses to sign.)
What if the lender forecloses and acquires the partial interest in the property? Do they become partners with the other property owner? Yes. That’s why it’s an unusual program. Partial interest loans are made on any undivided interest in real property, so it could be a one fourth interest, a one fifth interest, or even a smaller percentage of ownership. (Married persons cannot use this program to borrow against community property without the spouse’s signature.)
How can a lender do this? The underwriting criteria that regulates most capital sources like mortgage bankers, insured depository institutions, and credit unions would restrict them from making partial ownership loans. On a similar note, mortgage brokers who use private investor funds are restricted from placing their investor’s funds into these loans. Privately held portfolio lenders are the source for these. These lenders have and loan their own funds and must originate, service and hold the loans until they’re repaid in full.
Last 5 posts by Martin Laura
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