By oo@jhu.edu

I came across a most interesting mortgage in my law office today – the result of a recent loan modification. The $500,000 loan was secured by a property worth approximately $300,000. The loan was amortized over 40 years, but terminated after 26 years, with a $300,000 principal balloon repayment at year 26. There was a clause in the loan that stated that, should the borrower miss a payment or make a partial payment, the unpaid amount would be deferred, without penalty or finance charge, to the end of the 26 years. At the end of 26 years, a balloon payment of approximately $300,000 was due, plus all the deferred missed payments from the life of the loan, plus the payments that had been missed prior to the commencement of the loan ($30,000), plus $10,000 in fees. So basically, the owner had no reason to pay anything, ever again. And since he had no other assets and was retired, there was little chance the bank would be collecting anything close to what was owed.

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