CAN A BANK CALL GOOD/PERFORMING LOANS?

20 Replies

CAN A BANK CALL GOOD/PERFORMING LOANS?IF SO HOW DOES ONE PREVENT/PREPARE FOR THIS, OR CAN THEY?

I have always thought that if I am current on my bank loans the bank would not want to call the loan or foreclose on the property. Additionally, I thought and still do think that if I am performing my payment obligations and other requirements under a note and loan agreement that the bank will classify my loan as a “performing loan”, or a good loan. That’s what I think. But is that all true in today’s lending world?Am so confused L!

short answer is yes.

but there are caveats

there can be income requirements on certain loans and net worth requirements.. that require you to send in quartly financials and if you net worth drops below a certain point the bank can call your loan.

these are commercial loans.

Loans come due .. and even if your current they can call the loan if the due date is up.

you don't pay the property tax's that's an event of default.

you don't pay insurance that's an event of default.

you commit waste on the property that's an event of default.

and there are probably a few more but those are the one's I am most familiar with.

if we are talking about conventional gov ment backed loans then financial qualifications as stated aboe are not part of it.. but the insurance tax's and waste are.

Also Heloc's if your talking that kind of loan can be called at anytime.

and for basically any reason..  they are mainly called when the bank feels the value in your particular market might have slipped... they will freeze them and call them..

during the 08 melt down many many got called.. because values eroded.

read the fine print on any heloc you will be amazed that your loan its not secure for a time line even if your making payments and are current and in compliance with all other terms..

Wow, thank you @Jay Hinrichs .  Good thing I always make my payments on time and my property tax and insurance are included in the monthly mortgage payments which I have set up auto-pay so as to never fail to send in that payment.  Thank you for your detailed response.  :)

Transferring a property from your personal name to an entity such as your LLC could also cause a current loan to be called because of a due on sale clause.

Check your CD or your TIL -- does your loan have a demand feature? Not likely. Unless the box is checked that says YES your loan has a demand feature, then as long as you are not in default your loan cannot be accelerated.

If your loan did not have a CD or a TIL, then ignore me... you don't have a typical residential loan and the terms could include just about anything.

Thank you @ Paul Bowers, yes nice to know about the LLC transfer.

@Tom Gimer , thank you for giving me the exact thing to look for on the CD. 

I have been wondering about this too.  Every year I have to give my commercial mortgage broker a financial statement and tax return.  I don't see what difference my net worth makes to them as long as I'm making the payments.  I've yet to test them by not submitting the documents, but it is a nuisance.

Also, during the financial crisis my friends who were manufactured home dealers lost their line of credit because the bank decided to stop financing that type of business.  This was after 25+ years of on-time payments and it might have been the final straw that put them out of business.

@Amy A. , thank you for the response.  I definitely will use my line of credit very carefully should the same happen in my case as I would hate to loose my home.  :(

@Jay Hinrichs @Amy A. Banks had to close lines of credit during the financial crisis for regulatory reasons.  Banks are required to maintain risk based capital ratios and when those ratios fall below certain levels, they can no longer lend.  Banks asset values (loans and investment securities) plummeted during the crisis driving down their capital ratios and their ability to lend.  If they were going to lend, it was going to be in loan products that received the highest credit in their capital ratios and 2nd mortgages and MHP loans were not towards the top of the list.  As you mentioned, property values were part of the equation as were regulatory capital ratios.

"Loan covenants" is the term we are looking for regarding the ability to call loans due.  Stay in compliance with those and most of us are good to go.  Violate them and you need a waiver or the lender can call the loan due, if they choose.

@Mike Dymski   08 to 2010 I probably bailed out no less than 20 flippers who had counted on their heloc to finish their fix and flip..

Even my personal banker got his heloc called.. I did not have one personally..

but if the banks feel their assets are under water vis a vi current values then they can elect to freeze them or call them..

but I am not predicting that anytime in the future.. but when you have others who feel when they get a heloc its like a 30 year conventional IE just make my payments and nothing can happen.. that is flawed thinking they just don't know what they don't know.

@Mike Dymski , thank you for your comments and I finally learned what its called, "Loan covenant".  I intend to stay in compliance and hope for the best.  @Jay Hinrichs , thank you once again for your input. A friend told me today of his own experience in 2009 when his HELOC (a huge one at that ~ $284K was frozen after he had withdrawn about $195K of it), so I guess it does happen and it got me thinking, now that would just be horrible, here I have planned and called out contractors to start work and then.....gosh I cannot pay them for work done. :(

@Jay Hinrichs and @Mike Dymski the direction of this discussion spurred me to wonder if there are restrictions typically in place that would prevent a HELOC purchased on the secondary market from being called due if it's performing (i.e. a note investor purchases a performing 2nd lien in the form of a HELOC)?

HELOC’s are not sold to my knowledge. I’ve never heard of or experienced that. Loans that are sold are typically packaged into securities and sold to investors. I can’t conceive of how that would work with a LOC, because if you chose to draw on it they’d have to actually then come up with and lend you the capital.

I’ve heard of HELOC’s being frozen but not called. Do you mean the bank demanded the already lended out principal back? That’s a little scary if so.

Originally posted by @Anna M. :

CAN A BANK CALL GOOD/PERFORMING LOANS?IF SO HOW DOES ONE PREVENT/PREPARE FOR THIS, OR CAN THEY?

I have always thought that if I am current on my bank loans the bank would not want to call the loan or foreclose on the property. Additionally, I thought and still do think that if I am performing my payment obligations and other requirements under a note and loan agreement that the bank will classify my loan as a “performing loan”, or a good loan. That’s what I think. But is that all true in today’s lending world?Am so confused L!

 Depends what's in the loan. For example I have a $500k loan with a local bank where one of the conditions is an annual review of my company's financials as well as an annual review of the performance of the property. Even if the loan is current if either of those fall below what the bank classifies as a strong performance they can increase the interest rate or call the entire loan due.

James Wise, Real Estate Agent in OH (#2015001161)
216-661-6633

This was how Dave Ramsey lost his shirt.  He got too leveraged and too many loans got accelerated.  Moderation with backup assets is my policy. 

They can yes. But it has to be spelled out how they can when you sign everything. Generally speaking they don't want to call a performing loan and won't. Also generally speaking residential loans have more borrower protections, are simpler and have less ways to be called. My commercial loans have many stipulations, 3 of which are they can ask for my personal financials, the building financials and do an inspection a couple times a year. In practice, on loans under 2M they never ask for anything. On loans over 2M they ask for building financials like clockwork, once a year. They never ask for my personal stuff post close and I'm not aware of them driving the buildings. I don't know a single person who has had their performing loan called; HELOCS as @Jay Hinrichs pointed out, are different.

Matt

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