reserve account placed on hold without knowing

3 Replies

ok im not quite sure if anyone other than an attorney can answer this question but Ill give it a shot and see what responses I get.

I have been doing business with a local credit union in my area for a couple years now. I have reached a point with my portfolio that has required me (as of my last refi in July) to put monies in a reserve account. Now my first issue with this is that the bank had me put 2 months worth of mortgage payments in the bank for not only the last deal, but all previous deals that the bank had already approved, now I don't have a problem with that, but they also made me put in reserves 2 months worth of payments for loans that are not even held with this particular institution. Why should they have to protect themselves from potential "loss" for loans that arent theirs? I wasnt too concerned at the time because I wanted to get the last deal done so I met their request and put this money that they requested into a reserve account. 

They expressed to me that this would be an account that shouldn't be touched (used) or it could jeopardize future loans being approved, ok no worries lets get the deal done!!!! Well unbeknownst to me I later found out that the bank actually put a hold on this particular account so I have no access to the funds if need be. I feel like this was sneaky and left unclear. I emailed several parties that were involved with this "reserve account" fiasco including the banks portfolio manager, the vp of commercial lending dept, as well as the "member business relationship officer" and no one responded to my emails except the last party which is the least important person on the list. He was basically the middle man for the conversation relaying.

My question is, is it standard procedure for banks to put a "hold" on a reserve account so that you have no access to those funds and Is it legal for them to do it without any singed documents agreeing to the terms? Its not a lot of money, but I do not wish to do business with this institution anymore for a number of reasons and would like to close out my accounts and this particular account has money in it that I do not have access to. 

Can anyone shed some light on this? Thanks in advance

If I were in your situation, I would request copies of everything that I signed or initialed between me and the bank. Then, I would carefully read all these documents. After that I would demanded explanations of the hold based on the documents. Or else, if they place a hold under some statute, rule, or regulation, the bank should explain this action citing the applicable authority.

In commercial lending there are certain situations where the loan arrangement may include an account demand of some sort depending on the arrangement.  Typically only for the subject loan or portfolio held by that lender.  It is a little unorthodox to ask for reserves on a loan not held by that lender.  It could be done but would need to carry disbursement terms to it.  Such as, those funds can only be paid toward that account not held at that bank, etc.  The funds should be general purpose.  

Typically as a borrower you would have wanted to make a better arrangement where that account accrues interest while sitting at the bank.  Not uncommon to convert that cash in to an alternate asset like a CD or something similar.  It's idle money, is should at least earn interest and that interest should be yours not theirs.  

It is not uncommon for banks to put forth other such demands on loan approval like maintaining a business operating account or loan reserves (typically interest) with said bank.  They can ask and you can agree to a whole slew of what might seem like unconventional arrangements or demands.  There are some arrangements more and less common.   

Typically and properly there needs to be a specific documented arrangement for the account.  If there is not, as you imply above, that is a problem for the bank.  Silly on your behalf for not dealing with this properly at the time.  Hindsight is always 20/20.  It is pretty strange for the bank to operate like that and for their counsel to approve such at thing.  Perhaps counsel doesn't know.

I would approach the bank formally in writing calling for the account to be documented properly and terms be put forth that both of you can agree on.  Their only security would be your future loan approvals if no currently held loan has a specific tie to that account.  In the event you cannot agree, then they really should release those funds.  They already made the loan and they didn't formally tie it to the account.  Their bad.  They can not just hold your money indefinitely with no agreement or order to do so.  

If they do not respond to formal request in writing within a reasonable amount of time, say 2 weeks then I would seek counsel and increase the tone of the conversation.  Good luck.

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When asked them for documentation that I signed agreeing to a hold on reserve funds this is what was in the loan commitment on page 3.

Deposit Accounts:  Borrower and guarantors to establish new membership account with (bank name) and maintain the deposit account for the entire term of the loan. Maintain the Cash reserve account with 2 months P&I for the entire portfolio. The reserve amount to increase with each new booked loan.

Financial Covenants:  Maintain a minimum debt service coverage ratio of 1.2x's both individually and globally for the entire term of the loan.

Other Conditions:  Any, and all, entity owner/purchaser business organization documents shall be required for review by ( bank name ) at least 10 days prior to settlement i.e. Submission and satisfactory review of Articles of Incorporation and/or partnership Agreement, Company By-Laws and time stamped copy of the Cert of Organization.

The term and conditions stated above shall apply from the date of acceptance, shall survive the execution of notes and/or other loan documents and shall continue to apply until the obligations or Borrowers are paid in full.

This commitment is contingent upon the right of the Credit Union, at any time hereafter and from time to time, to review the commitment, to adjust the terms and conditions or to discontinue the commitment should the Credit Union, in the reasonable exercise of its sole business discretion, deem it necessary to do so

To accept this offer, please sign and return this original commitment letter. With the acceptance by the Borrower of this Commitment, a non-refundable Commitment Fee equal to 1/2% of the total loan amount ($000.00) will be due to the Lender. This 1/2% fee is a portion of the 1% origination fee that is being charged ans will be applied at settlement towards final settlement costs.

No where does it say the account made will be placed on hold. Secondly I had a HELOC with them on a property that has since been paid off in full and they have not returned those payment funds to me. I have since tried to apply for a loan (no different than any other "approved" loan) and they denied it for BS reasons like incomplete application and no description of what funds from loan would be used for. These guys know what I do, I have 8 loans with them. So now they have my money in an account that I cant access, they have funds in the account that don't pertain to this particular institution, they have funds in the account for a loan that has been paid in full, and they clearly don't want to do business any longer. Should I get an attorney or am I blowing this out of proportion?