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I know someone who owned a ton of different houses. Let's say they bought 20 of them for $500k each on avg and put $80k down as deposits. Once the recession hi

I know someone who owned a ton of different houses. Let's say they bought 20 of them for $500k each on avg and put $80k down as deposits. Once the recession hit, the market value of these homes dropped like crazy. Instead of being worth $500k each, they were valued at $300k. This meant that the loan on the homes were more than the market value of the homes and apparently there was a clause in the bank contract that allows them to call the entire amount of the loan if the loan amount is more than the market value of the house. That is exactly what they did, which seems crazy to me as he had really good tenants in each of the homes and they all continued paying on time so he was actually making ALL his payments on time for all houses. This is one way that a bank could forclose on a house even if non-payment isn't an issue. Contract details are crucial.

michaelcampbell 16y ago
Wow, thanks; I have never heard of such a contractual clause.
- dhimes 16y ago
  My understanding is that those clauses (or similar ones) are standard. We have one on our house. The point is, the bank doesn't gain anything, usually, by foreclosing. They are (at least in theory) better off receiving the payments they are certain to get rather than trying to find someone new to make them (for probably a smaller loan amount- because the property wouldn't sell for as much).
  - anamax 16y ago
    > My understanding is that those clauses (or similar ones) are standard. We have one on our house. Really? Where and what originating financial institution? I read my notes and I don't remember anything like that. (I found a lot of other things that I wasn't happy about.)
    - dhimes 16y ago
      They call it "acceleration." It's applicable as a "remedy" for certain acts the lender doesn't like. My latest was with GMAC, FWIW. For example, his friend may not have, by law, owned the houses, but may have transfered rights to his business. If the lender somehow knew this and didn't like it (not a "natural person), it may have triggered an "acceleration." Don't know his contract details, just a possible scenario.
  - michaelcampbell 16y ago
    Exactly, so what is the point of such a clause? Just to give them a reason to take away the property whenever they want to if such a condition exists?
    - stcredzero 16y ago
      Yes. Not only are you working for the bank, they can fire you whenever they want for no reason.
    - melvinram 16y ago
      I honestly couldn't believe that my friend, who is a very street-smart, intelligent man who built literally an empire in the construction business, would agree to crazy conditions like this. He said that it never seemed like a possibility for him as he was paying down the loans much faster than loan required. I'm really not sure why the banks would do something this stupid to loans that were getting paid on-schedule. My friends theory (just a theory) is that were going to be able to write-off the loan and get part of it back through TARP funds. This way, they'd be able to cash-out faster without loosing much and build up a cash-reserve for uncertain times. I'm not sure what the real story is on why they would pull this kind of nutty behavior.
phlux 16y ago
Something similar happened to me: I had a house that I bought for $490K had put 80K down and had equity of something like 70K. I made all my payments on time - had a credit rating of 750 was never late or missed a payment. One day - I went to make my payment online and the payment button was missing of the page. Everything else was the same on the sie - just the make payment button was gone. I called the bank and inquired. They stated very matter-of-fact "Oh, that's because we sold your loan. Your loan is no longer with us - you need to call your new lender" WTF?! I had no indication, no notice, no letter. I said "Who did you sell it to?" They claimed they had no idea - that it was sold "with a whole bunch of other loans - they have no idea who has it now, the new lender should have contacted me." They hadn't. For more than 6 months this went on - no notice from my lender, no contact from the supposed new lender. At first - I was calling my lender every day - then every week - continually asking. No info. Then after six months - I got a notice of foreclosure and a statement saying I needed to pay $30K I didn't have $30K - and other situations had changed as well (change of job, divorce, change of income level). The new lender refused to work with me on the delinquency stating "I did not make enough money to qualify for a refinance" They ended up taking my home and ruining my credit - I still haven't recovered financially, and emotionally form the experience. My credit rating is now poor - and I cant seem to fix this. As I mentioned, I had a great credit rating of 750 - and had zero debt (I have made it a choice to not carry credit cards) and after this incident I could not get a credit card now that I would need one. It has totally fucked over my life and I dont see how I can fix this part.
- shii 16y ago
  Curious when this happened. My parents just bought our first home in fall of 2010 and I'm scared to death that Wells Fargo will try to pull this sort of thing. It seems the only recourse in this type of situation is to contact your local representatives in Congress for help and to bring attention to your situation, because of the bureaucratic nightmare these mortgage backed securities that your house was rolled into are.
  - phlux 16y ago
    This happened in 2008

michaelcampbell 16y ago

Wow, thanks; I have never heard of such a contractual clause.

dhimes 16y ago
My understanding is that those clauses (or similar ones) are standard. We have one on our house. The point is, the bank doesn't gain anything, usually, by foreclosing. They are (at least in theory) better off receiving the payments they are certain to get rather than trying to find someone new to make them (for probably a smaller loan amount- because the property wouldn't sell for as much).
- anamax 16y ago
  > My understanding is that those clauses (or similar ones) are standard. We have one on our house. Really? Where and what originating financial institution? I read my notes and I don't remember anything like that. (I found a lot of other things that I wasn't happy about.)
  - dhimes 16y ago
    They call it "acceleration." It's applicable as a "remedy" for certain acts the lender doesn't like. My latest was with GMAC, FWIW. For example, his friend may not have, by law, owned the houses, but may have transfered rights to his business. If the lender somehow knew this and didn't like it (not a "natural person), it may have triggered an "acceleration." Don't know his contract details, just a possible scenario.
- michaelcampbell 16y ago
  Exactly, so what is the point of such a clause? Just to give them a reason to take away the property whenever they want to if such a condition exists?
  - stcredzero 16y ago
    Yes. Not only are you working for the bank, they can fire you whenever they want for no reason.
  - melvinram 16y ago
    I honestly couldn't believe that my friend, who is a very street-smart, intelligent man who built literally an empire in the construction business, would agree to crazy conditions like this. He said that it never seemed like a possibility for him as he was paying down the loans much faster than loan required. I'm really not sure why the banks would do something this stupid to loans that were getting paid on-schedule. My friends theory (just a theory) is that were going to be able to write-off the loan and get part of it back through TARP funds. This way, they'd be able to cash-out faster without loosing much and build up a cash-reserve for uncertain times. I'm not sure what the real story is on why they would pull this kind of nutty behavior.

phlux 16y ago

Something similar happened to me: I had a house that I bought for $490K had put 80K down and had equity of something like 70K. I made all my payments on time - had a credit rating of 750 was never late or missed a payment. One day - I went to make my payment online and the payment button was missing of the page. Everything else was the same on the sie - just the make payment button was gone. I called the bank and inquired. They stated very matter-of-fact "Oh, that's because we sold your loan. Your loan is no longer with us - you need to call your new lender" WTF?! I had no indication, no notice, no letter. I said "Who did you sell it to?" They claimed they had no idea - that it was sold "with a whole bunch of other loans - they have no idea who has it now, the new lender should have contacted me." They hadn't. For more than 6 months this went on - no notice from my lender, no contact from the supposed new lender. At first - I was calling my lender every day - then every week - continually asking. No info. Then after six months - I got a notice of foreclosure and a statement saying I needed to pay $30K I didn't have $30K - and other situations had changed as well (change of job, divorce, change of income level). The new lender refused to work with me on the delinquency stating "I did not make enough money to qualify for a refinance" They ended up taking my home and ruining my credit - I still haven't recovered financially, and emotionally form the experience. My credit rating is now poor - and I cant seem to fix this. As I mentioned, I had a great credit rating of 750 - and had zero debt (I have made it a choice to not carry credit cards) and after this incident I could not get a credit card now that I would need one. It has totally fucked over my life and I dont see how I can fix this part.

shii 16y ago
Curious when this happened. My parents just bought our first home in fall of 2010 and I'm scared to death that Wells Fargo will try to pull this sort of thing. It seems the only recourse in this type of situation is to contact your local representatives in Congress for help and to bring attention to your situation, because of the bureaucratic nightmare these mortgage backed securities that your house was rolled into are.
- phlux 16y ago
  This happened in 2008