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.
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).
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.
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.
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.
I admit to being out of my depth here, so this really is just a question and not an assertion. But wouldn't the right thing to have done there would be to continue putting the entirety of your mortgage payment, every month, into an escrow account with your local clerk of court? I know this is the proper thing for a renter to do when there's a grevience with a landlord that could result in him filing eviction. I'd imagine a judge seeing this, when they file foreclosure, would look favorably upon your good-faith efforts to pay a debt you obviously owe.
I did keep the money that I was paying on my mortgage - until I lost my job and was going through a divorce.
My circumstances were farked in multiple ways... The amount I was making on my income was less than required for all my bills - as we had joint income of around ~250K.
After we split, and then later I lost my job - I had to make decisions on what to pay: utilities/food/gas etc.. which took away from what I had saved for the mortgage - when I was finally contacted, via the foreclosure notice - which was the first and only communication from the new lender - I didn't have the total amount and was farked.
Well, for one - I would have paid until I lost my job and split - and I would likely have had a better "relationship" with the bank as I had never missed a mortgage payment or made it late in the 4 years i had the place.
However - I was obviously just some number to the bank given that they heartlessly sold my loan as some lump sum group of loans out without notification or explanation - so I can only speculate....
Yes, I offered them everything I had, asked to refinance - filled out all their forms for refi - got a re-appraisal - sent them new employment info once I got a new job and they refused to work with me.
They said, quote:
"You make too much money for us to help you" - but with divorce, bills, child-support - I couldnt affor the 3600 a month mortgage any longer.... Now I can only afford about 1400 a month.
Yes, I offered them everything I had, asked to refinance - filled out all their forms for refi - got a re-appraisal - sent them new employment info once I got a new job and they refused to work with me.
They said, quote:
"You make too much money for us to help you" - but with divorce, bills, child-support - I couldnt affor the 3600 a month mortgage any longer.... Now I can only afford about 1400 a month.
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.
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.