Can a lender call a loan due to negative equity?

Question

I would like to know if a lender can foreclose on a property or call a loan or require an influx of cash if the loan for the property is upside down? I've seen several articles online about negative equity, but if the borrower continues to make payments, can the lender request the borrow to bring the equity and loan amount equal again? Any input on this subject would be great.

Jay Hinrichs · Answer

@Nick Colamarino  this absolutely can happen with any and most portfolio loans. and or commercial credit.. there is equity requirements in the loan .. values drop owner needs to add equity.

ask me how I know  LOL

Chris Mason · Answer

In general they weren't.

Your typical 'victim' that swears up and down that they were still making the agreed upon payments, might not (for example) include in their narrative that it was an adjustable rate mortgage that adjusted up, but they refused to make more than the initial payment during the 'teaser' period.

Jay Hinrichs · Answer

@Pat Marco  I have had to work out a few properties where this happened to me.

not a pleasant call when your bank says you need to bring in 200k to put your loan back into compliance  LOL

but for fanny Freddie VA FHA USDA  this is not an issue.. in my experience just commercial portfolio lending.  and its buried deep in the 7 page note.

although with my lines of credit we had clearly denoted net work requriements

Jay Hinrichs · Answer

@Chris Mason  just not your bag baby !! that's the world of commercial lending and equity requirements .. it goes to net worth etc etc.. very common in those realms.

IE if your having issues they want their loans paid off.

your world .. you get the laon you make the payment your done.. nothing else matters other than taxs and insurance.

Chris Mason · Answer

It blew my mind the first time someone explained to me that you often have to (in effect) re-qualify for a commercial loan on an annual basis.

Chris Mason · Answer

In effect that's what happens when you have a balloon. Most people refinance as it approaches. In a scenario where you are underwater, the refinance lender (which may be the same lender) would require you to come in with money.

For a normal 30YF Fannie/Freddie loan, the short answer is no.

Tyler Richard · Answer

Chris, That makes much more sense. Thanks for your excellent explanation.

Tyler Richard · Answer

The question merely spawned from thinking about the nature of a foreclosure. If the property being foreclosed upon reduces in value below what is currently borrowed, the lender would loose the ability to effectively recover the outstanding balance. I wanted to make sure that there weren't loans out there that provide protection to the lender against market fluctuations by requiring that the borrower maintain equity within a certain percentage of the remaining balance on the loan. If such a protection doesn't exist, then it raises a second question from me: During the 2008 housing crises, how were borrowers being foreclosed upon if they were still making their mortgage payments from rental income? Thanks for this discussion and your quick responses.

Nick C. · Answer

I don't see how that would be possible.

Can a lender call a loan due to negative equity?

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