# Bank calls in loan??



## aldebaran3003 (7 March 2009)

A friend of mine is in a new relationship and is being told some interesting facts.  This person has a business loan worth hundreds of thousands of dollars and apparently the bank is calling it in.  It's not a margin loan.  I thought for a business, personal or home loan, the bank couldn't just call it in because they want to, provided you haven't defaulted on payments?  Thoughts???


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## Stormin_Norman (7 March 2009)

in the contract it says they can call in the loan at any time.


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## nulla nulla (7 March 2009)

there would be a trigger, once triggered it would be at the banks discretion. Try negotiating.


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## aldebaran3003 (7 March 2009)

Stormin_Norman said:


> in the contract it says they can call in the loan at any time.




Is that for all loans or for business loans only?  Isn't that how the first great depression occurred?  I thought there was protection/laws against it.  Read it somewhere but don't have a clue where.  Surely there would have to be a default or some reason for calling it in (the whole amount that is)??


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## aldebaran3003 (7 March 2009)

nulla nulla said:


> there would be a trigger, once triggered it would be at the banks discretion. Try negotiating.



Hmmm.  Like an ASIC case against them??  I would imagine that could be a trigger?


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## Stormin_Norman (7 March 2009)

all loans do. least any i have written. ive done car, house and business loans.


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## aldebaran3003 (7 March 2009)

Stormin_Norman said:


> all loans do. least any i have written. ive done car, house and business loans.




Most interesting.  Is that for any reason they like or because they might foresee the business tanking do you think?


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## Stormin_Norman (7 March 2009)

banks are arseholes.  

there doesnt need to be a reason. least the contract's ive seen dont give one.


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## Beej (7 March 2009)

Stormin_Norman said:


> all loans do. least any i have written. ive done car, house and business loans.




No mortgage/house loan I have ever had has a clause like that in the contract. The last one I got I looked specifically for it, asked my personal banker etc about it, and there absolutely is no such thing in my loan contract, which is based on NSW standard mortgage contract by the way.

Cheers,

Beej


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## Stormin_Norman (7 March 2009)

im surprised. which bank?


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## Smurf1976 (7 March 2009)

Beej said:


> No mortgage/house loan I have ever had has a clause like that in the contract. The last one I got I looked specifically for it, asked my personal banker etc about it, and there absolutely is no such thing in my loan contract, which is based on NSW standard mortgage contract by the way.



Same here. Looked for that and couldn't find it anywhere in the contract. It's a standard mortgage with one of the big 4 banks.


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## Beej (7 March 2009)

ANZ. I just double checked again - basically residential mortgages are regulated under the state Consumer Credit Code. In the case of NSW, this strictly regulates the conditions under which a default occurs on the mortgage and the actions that the bank can take in case of default. The bottom line is keep up your payments and there is no way the loan can be called in etc etc.

There are different provisions for unregulated loans (I guess most business loans might fall under this category), whereby the bank has the right to re-assess the situation at anytime - however it would seem this is not the case for a regulated residential mortgage (in NSW at least, don't know about other states).

Cheers,

Beej


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## OzWaveGuy (8 March 2009)

Does anyone know if the bank can call a loan (or portion thereof) when additional credit has been drawn out over the asset due to the positive change in value? Eg Housing

Talking to a friend of mine in the US, he said that he had been contacted by his bank and ask to insert $50k into the loan in order to close the gap on the decreasing value of his house and the outstanding loan.

Like the US, many have negotiated additional credit on their house to buy cars and LCD TV and the like. The question is: Do the banks have a legal provision to at least be capable to call that potion of the credit in?


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## Beej (8 March 2009)

OzWaveGuy said:


> Does anyone know if the bank can call a loan (or portion thereof) when additional credit has been drawn out over the asset due to the positive change in value? Eg Housing
> 
> Talking to a friend of mine in the US, he said that he had been contacted by his bank and ask to insert $50k into the loan in order to close the gap on the decreasing value of his house and the outstanding loan.
> 
> Like the US, many have negotiated additional credit on their house to buy cars and LCD TV and the like. The question is: Do the banks have a legal provision to at least be capable to call that potion of the credit in?




No. The bank has no knowledge/interest in what money made available for the mortgage is actually used for. Re-drawing from an existing loan does not change the contract you have. If renegotiating and upping the mortgage amount, then you would enter into a new contract, but again in AU if it is a regulated mortgage arrangement, then there is no provision for a "margin call" allowing the bank to change it's original assessment of the security and demand immediate capital payments etc. So as long as make the payments as required and on time, you are not in default and that's that. Of course they can change the interest rate anytime if you are on variable.

IF this sort of thing can actually happen in the US, then it is yet another example of where our better regulation here in AU help keep our housing markets and banking systems more stable through tough times than those in the US.....

Cheers,

Beej


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## MR. (8 March 2009)

A residential mortgage of ones personal home makes sense. (can't be called in when no repayments have been missed) But what about other investments in residential properties?  Could be different!

Banks have always requested Profit and Loss Statements from my business.  Just to keep an eye on things.  If they felt the risk was becoming too high, I would have had to come up with some, if not all the money to repay that loan.


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## Tysonboss1 (8 March 2009)

Beej said:


> ANZ. I just double checked again - basically residential mortgages are regulated under the state Consumer Credit Code. In the case of NSW, this strictly regulates the conditions under which a default occurs on the mortgage and the actions that the bank can take in case of default. The bottom line is keep up your payments and there is no way the loan can be called in etc etc.
> 
> There are different provisions for unregulated loans (I guess most business loans might fall under this category), whereby the bank has the right to re-assess the situation at anytime - however it would seem this is not the case for a regulated residential mortgage (in NSW at least, don't know about other states).
> 
> ...




you'll probally find that yur loan has a contracted term, it might be 10years or it might be 25, some interest only loans may be 3 years.

at the end of the contracted term the bank has the right to either extend the contracted term, renegotiate terms or demand the remaining balance be paid.

Most loans should be pretty much paid off at the end of the contracted terms, however if over the 25 years the loan interest goes up or you reduce your payments or you put it on intest only for a few years then you can still have a balance remaining at the end of the contacted term.


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## kincella (8 March 2009)

I could be wrong...do not have time to check now....but the low doc loans and business loans are not regulated...low doc loans are only given to people holding an ABN number....so it makes sense then....not regulated by consumer credit codes....and considered same as a business loan....

supposedly if in business...one has a bit more nous than the average home buyer...hence no need for the consumer credit code to protect them
what other explanation is there ?


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## billv (8 March 2009)

It doesn't surprise me.

The banks continue they ignore the fact that they enjoy a privileged position in this country and continue to choke any business which could be profitable but has short term cash flow issues.

The government was meant to fix this but they didn't.
Even if they don't want to regulate the banking industry they have the responsibility to put pressure on the banks to be socially responsible.

The banks are still VERY profitable 
IMO the government should withdraw the deposit guarantee from any bank refusing to do the right thing.  
In this economic environment pulling the plug on businesses and making people unemployed isn't helping anyone.


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## IFocus (8 March 2009)

Beej said:


> No mortgage/house loan I have ever had has a clause like that in the contract. The last one I got I looked specifically for it, asked my personal banker etc about it, and there absolutely is no such thing in my loan contract, which is based on NSW standard mortgage contract by the way.
> 
> Cheers,
> 
> Beej




Interesting Beej a Bank West Equity loan I have is pretty clear they can call in the loan in full should they choose to.

I was told / assumed that all other equity loans were the same might go back and check it out.

Thanks


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## Temjin (11 March 2009)

IFocus said:


> Interesting Beej a Bank West Equity loan I have is pretty clear they can call in the loan in full should they choose to.
> 
> I was told / assumed that all other equity loans were the same might go back and check it out.
> 
> Thanks




You are right.

All other mortgage loans WOULD certainly have that clause in there stating the banks have the right to "call in" loan or ask for increased collateral, renegotiate contract terms, whatever, at any time they feel it is needed. 

It's all part of their standard risk minimisation strategy. It has rarely been enforced over the past because of rising house prices, but that does not mean the banks DO NOT have the ability to do it. 

A rather high profile real estate permabull has mentioned this quite before in the perma-bull only somersoft property forum. (Trying to find his thread)


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## Temjin (11 March 2009)

There, I found it.

http://www.somersoft.com/forums/showpost.php?p=468864&postcount=45

From your once a perma-bull, Peter Spann. 



> Quote:
> Originally Posted by *Gremlin*
> 
> 
> ...


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## Beej (11 March 2009)

Temjin said:


> There, I found it.
> 
> http://www.somersoft.com/forums/showpost.php?p=468864&postcount=45
> 
> ...




Temjin - when this came up the other day I dug out my latest mortgage/loan agreements, contract etc and went through them. There is no "all monies" clause or anything like it that is applicable! I don't believe the post you just referenced is correct - sounds more like what happened in the 30s/GD, not the 90s recession, which was one of the reasons regulations were brought in around this sort of thing. Or else the examples being cited were in fact for UNREGULATED loans where they had been taken out as a business loan etc with the house as collateral for the mortgage.

As stated in my previous post, any "regulated" mortgage, as per the Consumer Credit Code, which is just about all residential mortgages, including equity manager facilities etc (which I have), does not have this ability you guys are all going on about. An "unregulated" mortgage (which might include business loans and such), does have such provisions. I think this is where everyone get's this idea from.

This issue seems to come up from time to time and to me it seems like it might be an urban myth being attempting to be started or perpetuated via sites like GHPC and similar?

Cheers,

Beej


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## Beej (11 March 2009)

PS: I'm not even sure where this "All Monies" clause term is coming from, but after a bit of googling, it seems that "All Monies" clauses as they relate to loans/mortgages are to do with loans where there is a 3rd party guarantor, and the clause related to the lenders ability to pursue the guarantor widely to recover losses in the case of default by the guaranteed borrower:

Eg, from: http://www.lawlink.nsw.gov.au/lawlink/lrc/ll_lrc.nsf/pages/LRC_r107chp08#H1



> “ALL MONEYS” CLAUSES
> 
> Definition
> 
> ...




So it really looks to me even more like this whole thing is an urban myth, with legalistic sounding, but incorrectly defined terms from a mortgage contract being used to make it all sound legit/possible....

What's more even guarantor related clauses like those referenced above are not allowed under regulated loans by the Consumer Credit Code anyway....

Beej


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## MR. (11 March 2009)

Just rang the CBA loan division.  They claimed that if all repayments were being met your investment property can not be foreclosed. Even if that property dropped in value to $300K when the loan was still $400K.

He did say the best people to speak to, would be the bank managers.

anyway some feed back....


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## grace (11 March 2009)

MR. said:


> Just rang the CBA loan division.  They claimed that if all repayments were being met your investment property can not be foreclosed. Even if that property dropped in value to $300K when the loan was still $400K.
> 
> He did say the best people to speak to, would be the bank managers.
> 
> anyway some feed back....




I'm probably off on a bit of a tangent here from your discussion....

If you have a line of credit used in a business taken out over your home loan, the bank can certainly call up the loan if you default on a payment (and sell the house even if you have a home loan over the house as well).  If you have a home loan only over the house you live in, they must offer you a very small amount of time under hardship provisions that all australian banks must follow, before they sell you up.

About the equity levels,  your reply from CBA sounds too good to be true....perhaps it is true though.  I see some things in the media today how banks are not lending to those who have defaulted on paying their phone bill.  It is an indication of what is to come with that customer.  That would be one very small thing appearing on their credit report, but enough for the bank to say they are too risky.


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## Beej (11 March 2009)

grace said:


> If you have a line of credit used in a business taken out over your home loan, the bank can certainly call up the loan if you default on a payment (and sell the house even if you have a home loan over the house as well).




Yes, as that would then be an UNREGULATED business loan.



> If you have a home loan only over the house you live in, they must offer you a very small amount of time under hardship provisions that all australian banks must follow, before they sell you up.




And then ONLY if you are in default as defined by the definitions allowed under the Consumer Credit Code, which is ONLY if you have failed to make your contracted payments on time. Make your payments, no default = no possibility of repossession, demands for extra cash or any of the other things being suggested as possible here.



> About the equity levels,  your reply from CBA sounds too good to be true....perhaps it is true though.




Exactly -  not too good to be true at all, it IS true - that is the way it works with a regulated residential mortgage in Australia.



> I see some things in the media today how banks are not lending to those who have defaulted on paying their phone bill.  It is an indication of what is to come with that customer.  That would be one very small thing appearing on their credit report, but enough for the bank to say they are too risky.




Well if you have any blemish on your credit history you are always going to have issues getting any loan. That's pretty much always been the case here - we are not the US! 

Cheers,

Beej


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## Temjin (12 March 2009)

Beej said:


> Temjin - when this came up the other day I dug out my latest mortgage/loan agreements, contract etc and went through them. There is no "all monies" clause or anything like it that is applicable! I don't believe the post you just referenced is correct - sounds more like what happened in the 30s/GD, not the 90s recession, which was one of the reasons regulations were brought in around this sort of thing. Or else the examples being cited were in fact for UNREGULATED loans where they had been taken out as a business loan etc with the house as collateral for the mortgage.
> 
> As stated in my previous post, any "regulated" mortgage, as per the Consumer Credit Code, which is just about all residential mortgages, including equity manager facilities etc (which I have), does not have this ability you guys are all going on about. An "unregulated" mortgage (which might include business loans and such), does have such provisions. I think this is where everyone get's this idea from.




I've done a bit of googling as well and it does clear things up a bit more. Yep, the Consumer Credit Code do seem to require new mortgage loans to remove the "all monies" clause for unfairness. (though I have yet to see the actual code in details...) Though the "unfairness" was definitely not originated from equity on loan being underwater and the lender requires the borrower to secure additional equity. 



> This issue seems to come up from time to time and to me it seems like it might be an urban myth being attempting to be started or perpetuated via sites like GHPC and similar?
> 
> Cheers,
> 
> Beej




For your information, I only heard of this so called "urban myth" from Peter Spann in the somersoft property forum. I'm trying to find out more information as well to get a clearer picture. Since you are a property investor yourself, I'm sure you have ventured in that forum before (and agree with most of the posters there who have similar interests with you) and am well aware of his credibility. (i.e. own business, multiple property investments, do seminars on positive cash flows, etc) 

But yes, he is only talking about business property investment, and not residential loans.  

Here are some interesting links I found.

http://www.investorsedgefinance.com.au/assets



> The difficulty is its secrecy, because you won’t find a clause called the “All Monies Mortgage Clause”. So, you have do a search and look for phrases which include words such as: ‘trigger a general default’, ‘material adverse change in circumstances’, ‘immediate repayment in full’, ‘you will be required to prove no adverse changes exist’, ‘break of any condition of this agreement’, ‘jointly and severally liable’ and ‘…all of your estate’.




I don't have a mortgage contract with me right now, but perhaps these clauses might still be in alot of existing contracts or hidden in new ones? 

http://money.ninemsn.com.au/article.aspx?id=253822



> Good question! Any homeowner with a mortgage before 1996 may well be in the same predicament. Why? Because of a pesky little clause, known as the "all monies clause". Mercifully, you won't find this clause in new mortgages thanks to the Uniform Consumer Credit Code (UCCC). Even if you have an old mortgage, credit cards are deemed to be unsecured.
> *Look out for it though if you have an investment property loan as the UCCC does not regulate business loans or investment loans.*




And what would happens if the banks DO decide to enforce the clause for property investors out there? Probably unlikely but like Peter Spann said, it cannot be ruled out. 

It does get fairly complicated so anyone who is looking to sign on a loan contract should seriously read through the terms and conditions and consult a soliticator for advise.


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## prana (12 March 2009)

FWIW - I also approached my broker with this same question. He explained that in Australia, the bond is binding for the term of the loan. So even if the property drops below market value, as long as reoayments are made, they cannot foreclose your loan.

HOWEVER this I am unclear and didn't ask -  it is unclear if a line of credit account can be frozen for any untapped credit (I dont have a LOC). As any credit on the "line of credit" may be treated as repaid, and as mentioned in the above post, used as "capital" to balance a lost of asset value. I know the tax office definitely treats it differently hence line of credits have been shunned against here. But over in the US, banks were freezing LOC's from redraw.

Anyways, nothing solid but I asked this question about 6 months ago.


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## kincella (12 March 2009)

love the utilities...all of them....dont pay on time, then get recorded on the black credit list.....and no one wants that to happen...if you want a loan in the future
if there is an honest mistake etc...you can apparently explain it to the lender.
and if you ever apply for a loan or a credit card that is recorded on the register...
just wondered how that female on the 60 minutes program, racked up 70,000 in credit card debt on 5 cards...and said she had no intention of paying any of it off....obviously the card providers, never checked her credit rating...????
that one bluffed me
you have always needed a good clear credit history....well for over 40 years that I am aware of
some people have trouble getting a loan, if they have never had credit...so no history...I know of a couple now...always paid cash....


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