Bank's unethical techniques - what to do?

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Bank's unethical techniques - what to do?

Tomasz Banas
Real Estate Investor/Agent · Brick, NJ · Member since 2014 · 49 posts · 9 votes
I got one condo under contract (buy & hold). After receiving the condo questionnaire I found this condo is a non-warrantable. I was able to find a local bank by searching for properties that closed in the same complex in last 12 months and owner's address is different than the property's address (most likely an investor). By filtering it down this way I looked who financed it and Voila! First, I provided them a condo questionnaire to make sure they are 100% ok with the condition of the complex. They confirmed it's ok. During the process I was informed that the president of the bank (its a small bank with 7 locations) is interested in a long term relationship and would appreciate if I bank with them and not just get a loan. I said I will be happy to consider but I am not ready to move my banking as I don't like to get pregnant at the first date. They did not have a problem with that. On Friday, I received an email: "The President has the Loan Underwriting on his desk. He wants to know if you will move over your business account to the Bank if he approves the loan." I did not change my position and reminded them what we talked about 2-3x. I said I will be happy to open savings account for security deposit and checking account for that property. Here's the reply I received: "Oh yeah, I remember! But here’s the thing, the President will not approve your loan unless you bring your business account over in addition to those other accounts." I was extremely surprised and sent them a long response regarding their technique. 3h later I received an email directly from the president: "I am not interested in doing the loan unless I know that I will have a deposit banking relationship that is satisfactory and acceptable. The bank has slowed down its lending in the market as to this product and is considering the requests based on the value of the deposit relationship. At this point, I thank you for considering our bank, but we will pass on this commercial mortgage opportunity." How can they go through the whole process including a verification of my financial information and come up with something like this right before providing a mortgage commitment? I am obligated to provide a mortgage commitment by 3/15. If not, I'm going to lose this deal. Seller has multiple cash offers $10k higher than my approved offer. Please help! Thank you in advance!
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Ann Bellamy
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
9y

@Tomasz Banas, this is not "whatever it takes to get a deal".  This is just normal business practice.  In fact, it is probably just a given for them, and you are blowing it out of proportion, in my opinion.  

There are lots of requirements in the business world that aren't immediately disclosed, because it is either such common practice that it's not worth mentioning, or it is considered to be not terribly significant in the early stages of the conversation.  This is probably the former.

Here is an example:  Most hard money lenders require that you close with their title company.  In fact, when you get a mortgage from most banks, they choose the closing attorney or title company.  Very common practice, at least in my geography.  Think about it:  When you got your first mortgage, even on your own residence, and you got approved for financing, you didn't go out and search for a title company, you were told by the mortgage company as to which title company or attorney would be handling the closing.  

Is this disclosed up front on their website somewhere, or in the paperwork?  No, because it's not worthy of mention and is common practice.  

In fact, the more experience you get, the more of these "issues" you will run into.  This is why some people won't work with beginners, because educating them takes major effort.  I am guilty over the years of drawing a line in the sand also, and in retrospect, from the viewpoint of decades later, I was wasting time, emotional energy, and relationships. 

No one here is telling you to run from your bank, or even move your account.  Simply add another account and open up another relationship.  Don't sweat the small stuff.  This is small stuff.

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  • Shane Baganz
    Rental Property Investor · Saint Cloud, WI · Member since 2016 · 186 posts · 63 votes
    9y
    I've heard this happen more than once. Nothing surprises me anymore. My recommendation? Transfer your accounts, then pull them after the loan if it makes sense to do so. Great relationships are earned, not forced or coerced. Get your deal done. Walk when you can.
    9Reply
  • Greg Barbre
    Investor · Downers Grove, IL · Member since 2015 · 28 posts · 8 votes
    9y
    Maybe you can get hard money loan for purchase until you find another portfolio lender. You will find one then just cash out refi and pay back HML.
    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Sounds like your principals are getting in the way of making money.

    Give them what they want.

    12Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y

    Hi @Tomasz Banas,

    That sucks. And they have it classified as commercial, it appears, so I'm far from certain that Dodd-Frank, CFPB, and the like, would protect you the same as if it were residential. 

    Big banks tend to be ubiquitous at being horrible at speed and reliability. 

    Some of the regional banks and small credit unions can in fact deliver on speed, reliability, and rate, but of the ones I've looked at, they ALL list cross-selling as a basic job requirement to be a MLO. Which is why I'm not at one - some people just need a mortgage, they don't need a new business checking account, 3 credit cards, and a car loan!

    In the case you describe, this is incredibly heavy handed cross-selling, and I'd be pretty furious if in your shoes. Also in your shoes, honestly it would be a coin toss if I did the "wrong thing" which is to get the deal and send my business account over, or if I'd do the "wrong thing" and tell them to pound sand, but lose the deal.

    Note that many commercial mortgages, they can impose requirements on you that you aren't necessarily cognizant of, like the right to annually audit the business and call the note due or force a refinance at lower LTV if they don't like what they see. Internally, this means they can document the business account requirement as in place to "facilitate that annual audit" of the business, and not as a high pressure cross-selling technique, in order to have their ducks in a row in case THEIR books are audited, and there potentially might not be a thing you could do about it. So if you're thinking of moving funds over and opening the account to check the box, and then pulling them after, look into what ONGOING obligations you have other than to make timely payments.

    8Reply
  • Bob Derwin
    Investor · Mountaintop, PA · Member since 2013 · 110 posts · 57 votes
    9y

    The real estate business is about building relationships.  Is there a reason you did not use your primary bank for this loan?  If they would not consider a loan on this condo, I would have taken ALL of my business elsewhere.  You have/had an opertunity to build a relationship with the President of a community bank. 

    4Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Bob is most likely right which is why I recommend meeting their needs and staying with them.

    You're shooting yourself in the foot by not nurturing the relationship. It will pay dividends down the road.

    Business is best done without emotion.  You want something, they want something, sounds like the perfect relationship to me.

    7Reply
  • Ed S.
    Investor · Oskaloosa, IA · Member since 2014 · 126 posts · 65 votes
    9y
    I agree with Greg and Bob. Build a long term relationship, (not a night stand)!!!!! Small bank, personal service -- wow! All I get from Wells is cross sales pressure! Not any more -- LOL! My community banker is great to work with. He answers his phone, takes time to hear me out. Gives great service! Build a relationship, this is a business we are in folks.
    1Reply
  • Ed S.
    Investor · Oskaloosa, IA · Member since 2014 · 126 posts · 65 votes
    9y
    Missed a word:: one night stand
    1Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    9y

    I have been required to move the business operating account to a bank when obtaining a commercial loan.  So I open a checking account at that bank, and pay my bills out of it.  It doesn't mean I don't keep cash from that business at another bank.  I have relationships with multiple banks, in fact 5 of them right now.  

    Written in the loan docs for most loans are clauses that allow the bank to take the funds in your checking/savings accounts, sometimes for reasons totally outside your control, such as banking regulations and requirements.  So I don't keep significant cash in the same bank where I have mortgages.  

    I recently refinanced two commercial loans with a bank new to me.  I opened new checking accounts there for both businesses, and left the bulk of the cash at another bank.  No big deal.  

    Build the relationship, it is far more important than the irritation at their inflexibility.  You have needs for loans, the banker has needs from his board, stockholders, regulatory agencies, etc.  Why not meet his needs while getting what you need?

    9Reply
  • Tomasz Banas
    OP
    Real Estate Investor/Agent · Brick, NJ · Member since 2014 · 49 posts · 9 votes
    9y
    Bob, Greg, Ed, I currently bank mostly with one of a big banks that has great integrations, apps, 24/7 service (sometimes needed during traveling), etc. This local bank doesn't even have a mobile app to make deposits or check balances :-) I am not ready to run from my bank just because they would not fund the loan. Not many banks will touch non-warrantable condos. What I'm disgusted by is the way they approach this. Not disclosing this upfront was very unprofessional. You may be ready to make whatever it takes to get a deal but I'm not. Principals are more important. I will rather at cash than being forced into relationship. As someone said, "If you believe business is built on relationships, make building them your business."
    2Reply
  • Rich N.Pro Member
    Investor · Haverhill, MA · Member since 2015 · 761 posts · 328 votes
    9y

    its true what they did is a bit sneaky, but this is what local banks do.  They are lending their private and most time family own business.  So, they want to lend money to their own customers.

    Do what @Ann Bellamy suggests and open a second business account.  In the long run, it will actually benefit you.  Because as you grow the big banks will not make additional loans, but this small bank will !

    0Reply
  • Dan Vleck
    Deerwood, MN · Member since 2014 · 184 posts · 122 votes
    9y

    Perhaps of no help for your current situation, but I use a line of credit and purchase with speed and without bankers involvement. After I control the property, I fix and rent it and go in leisurely for a bank loan. Good luck.

    6Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    9y

    @Tomasz Banas, this is not "whatever it takes to get a deal".  This is just normal business practice.  In fact, it is probably just a given for them, and you are blowing it out of proportion, in my opinion.  

    There are lots of requirements in the business world that aren't immediately disclosed, because it is either such common practice that it's not worth mentioning, or it is considered to be not terribly significant in the early stages of the conversation.  This is probably the former.

    Here is an example:  Most hard money lenders require that you close with their title company.  In fact, when you get a mortgage from most banks, they choose the closing attorney or title company.  Very common practice, at least in my geography.  Think about it:  When you got your first mortgage, even on your own residence, and you got approved for financing, you didn't go out and search for a title company, you were told by the mortgage company as to which title company or attorney would be handling the closing.  

    Is this disclosed up front on their website somewhere, or in the paperwork?  No, because it's not worthy of mention and is common practice.  

    In fact, the more experience you get, the more of these "issues" you will run into.  This is why some people won't work with beginners, because educating them takes major effort.  I am guilty over the years of drawing a line in the sand also, and in retrospect, from the viewpoint of decades later, I was wasting time, emotional energy, and relationships. 

    No one here is telling you to run from your bank, or even move your account.  Simply add another account and open up another relationship.  Don't sweat the small stuff.  This is small stuff.

    16Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Tomasz Banas  don't take it personally this is VERY common in small commercial banks.. they want relationships.. NOT mortgages they don't make squat on your mortgage..

    Personally I would NEVER bank with a big bank EVER... I like the personal service.

    they give me a check deposit machine so I can deposit checks at home.. etc etc.

    plus its always a live person I have my own personal bankers.. its really an extension of my office.

    And they have loaned me over 10 million dollars for my building projects.. and I did not get this over night.. this is a culmination of me being loyal for 20 plus years with this bank.. With average daily balances sometimes in the mid 7 figures... Like most HML or builder developers our accounts can be significant at draw time or after a bunch of payoffs and are sitting waiting to find a new loan.

    they live an die on deposits... Your just not familiar so it seems strange or unique or disgusting to you but you now you know .. its routine and to be expected if you want personal banking relationships and not do business with a computer.. @Chris Mason  Most commercial banks like these make zero Owner occ loans you  are apples and oranges... LOL.

    @Ann Bellamy All commercial loan docs I have ever seen have the right to tag your accounts without notice.. Good catch...

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    3Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    @Tomasz Unbelievable. This is what I call an 'unforced error'.

    @Ann Bellamy has a great post. Two of them, actually. Listen to what she is saying. Great stuff:

    I recently refinanced two commercial loans with a bank new to me. I opened new checking accounts there for both businesses, and left the bulk of the cash at another bank. No big deal.

    My company has multiple banking relationships. Yes, the big box banks have good online 24/7 services, etc., and offer things like Business Deposit Cards and specialty services. The small banks, the ones you want to have a working relationship with, will often surprise you. I started a bank relationship with a small local commercial bank in 2008, when lending was out of favor and banks were hurting. I remember in one quarter (3 months) I did 25% of the bank's loan volume for the whole county. I bring them business Wells Fargo won't touch or don't want to touch, even on the wealth management side. Stuff like non-conforming property like fractured condos. Now, 8+ years later, I feel comfortable asking them for financing options for projects that I never thought possible. A 'home made' self storage project, small SFR developments (as in less than 5, small stick-built houses), a small solar farm, as well as apartments and a startup commercial project. Add in equipment financing, truck financing, etc., and you'll see why I consider your emotional, non-business decision making as an 'unforced error'.

    My 2 cents

    4Reply
  • Adrian StamerPro Member
    Real Estate Investor & Agent · Richmond, VA · Member since 2013 · 319 posts · 167 votes
    9y

    Having your biz deposit account moved to the local bank is incredibly common. Loaning a on most likely cheap non warrantable condo is a lousy loan to make. So they are basically doing a favor and return they want you to open a business checking account with them. Keep your current setup with apps and stuff, move some money over to them and put all the rental deposits in with the local account. 

    It's relationship banking, they don't just want this one off loan... plus you are already talking to the president, play nice with them and they will be happy to be flexible and go to bat for you in the future 

    3Reply
  • Nathan Johnson
    Mason, MI · Member since 2016 · 30 posts · 6 votes
    9y
    Jay Hinrichs I appreciate this response. I agree that it the relationship with the bank that creates opportunities in many cases. I'm on the early end of my real estate endeavors with a few personal bios specs and a flip or two under my belt. Our local bank was a able to rush a brand new equity line loan in less than 10 days for us, which is unheard of. You can bet I'll be doing my banking there, as well as other real estate deals.
    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    As someone said, "If you believe business is built on relationships, make building them your business."

    Your principals are blinding you to a opportunity to build a valuable relationship that not everyone gets and one that most would sell their principals for in a heart beat.

    You won't go far unless you realise that business "principals" and personal "principals" are entirely different animals. To succeed in business one needs to understand the difference and carrying those business principals with them when they leave home if their desire is to succeed. IT's just business. 

    You need to embrace the reality that there is no place in business for emotions. To say that you are "disgusted" by their approach is emotional and displays a naïve approach to how business operates.

    Most would jump at your opportunity and leverage what you have to try and get an even better deal from the bank. 

    3Reply
  • Justin B.
    Investor · Gaithersburg, MD · Member since 2013 · 659 posts · 441 votes
    9y

    Like most folks, I'm not surprised by the response.  I actually do all my loans with one bank.  I bank there and get loans through them.  If you haven't done any other deals yet, I don't see what the issue is.  Plus, hopefully, future loans will be easier through them.  If you already had 50 units under your belt, the banks would be clamoring to loan to you hoping that one day you'd move your stuff there.  Then you'd have the advantage.  Until then, play the game to win!  I don't see any negative here to moving your business account(s).  Plus, I assume the current bank you bank with said no to the loan (as that's where I assume you went first) so why not move somewhere that wants your business and is willing to do business with you.

    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Tomasz Banas a lot of good points have been made above. In particular you should heed what @Ann Bellamy has said.

    I will add a point that has not been mentioned or at least not emphasized enough. It is extremely common for this kind of thing happen. Not specifically about opening an account, but to have a lender not fund a deal at the last minute, especially when the reason for not funding was knowable when the loan process started. 

    A friend who bought a house from me had lenders deny his loan for reasons like, we don't lend in that area, we don't lend on blocks where there are boarded up houses, we don't make loans that small, etc. All of these conditions existed at the beginning of the loan process but it was not until near the end the loan was denied.

    2Reply
  • Patrick Connell
    REALTOR® · Bastrop, TX · Member since 2013 · 324 posts · 191 votes
    9y
    When you use OPM, you play by whatever rules are thrown at you.... They don't need anything from you, but you need everything from them; mainly a commitment by Wed. Missed opportunity to go in, sit down, and have a nice face to face with the President of a bank who could loan you lots of money in the future.
    3Reply
  • Patrick Connell
    REALTOR® · Bastrop, TX · Member since 2013 · 324 posts · 191 votes
    9y
    P.S. The title of this thread in incredibly misleading because there's nothing unethical going on here.
    6Reply
  • Ronald PerichPro Member
    Investor · Granite City, IL · Member since 2014 · 658 posts · 301 votes
    9y

    Understanding how relationships work is key to what many of us do as real estate investors. I've always said that the "deal" has to work for both parties or it's not a deal. That's true here as well.

    For these smaller banks, they have to have deposits on hand in order for them to make money on the lending side. Understand how banks make money and you'll completely understand why this is a reasonable request from their perspective. 

    One thing I would do prior to placing your baking with them is check the strength of the bank itself over at the FDIC. Just make sure they are not in a weakened position. If they are healthy, consider it.

    But remember, if both parties don't receive something of value, it's not a "deal". So you are always free to walk away.

    0Reply
  • Account Closed
    Investor · Charlotte, NC · Member since 2016 · 374 posts · 189 votes
    9y

    @Tomasz Banas  Time to put the big boy pants on.  This is what life has thrown at you.  You can either 1) accept it and roll with it to see how it works out or 2) fight it and lose (you always lose when you fight reality).  There doesn't appear to be any other course available to you.  You have a chance to fund a deal. I can't tell you how many times I have had to change everything in order to fund a deal.  Pride is a terrible thing in this business.  In the end you may keep your pride.  I would rather keep the money I will get from the deal.

    3Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y
    Originally posted by :

    .. its routine and to be expected if you want personal banking relationships and not do business with a computer.. @Chris Mason  Most commercial banks like these make zero Owner occ loans you  are apples and oranges... LOL.

    ..

     I know, and I wouldn't be objecting if it was just the account transfer thing. It was the timing of when he was told. OP should have been told upfront, not a few days before he loses the home, putting him in the position that OP is now in. To bridge the gap between apples and oranges, it feels like if I told someone an amazing interest rate... and didn't mention that it's an ARM until the last week of escrow (#PartyingLikeIts2006).

    2Reply
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