Can someone explain how Dave Ramsey lost everything?

Question

I don't understand how Dave Ramsey was screwed over so bad. He was young, had a lot of debt, but had about $1M in equity. He says the banks he went through were bought out and that the new owners wanted the debts paid within 90 days, more or less.

I don't understand this at all. How can you sign a loan on a bank, and then somehow have to pay the lien way quicker than the terms originally agreed to?

The BRRRR strategy seems appealing to me, but it's scary when I hear Dave's story. He doesn't go into super specific details, though. So I'm confused on how he was screwed over so badly.

Mindy Jensen · Answer

Hi @Timothy Metra .

I think you are thinking that he had traditional fixed-rate mortgages with these banks.

He had highly-leveraged commercial properties with loans that I do not completely understand. The bank that had been lending to him was purchased by a larger bank that did not like his outstanding debt.

From what I've read, the $1 million was equity that wasn't rock solid - it was speculative.

Side note, Dave eventually paid back every penny he owed, even though it was wiped out in bankruptcy court. He doesn't publicize that part, though.

Mindy Jensen · Answer

@Timothy Metra , if you purchase a property and finance it with a residential loan, as long as you abide by the terms of the loan you can continue to pay it for your fixed amount of time.

You get into trouble when you try to take a property deeded in your personal name and change the deed to your LLC, without changing the loan. The mortgage lender could call your loan due, meaning you have X days to pay the remainder off in full.

Andrew Musholt · Answer

Can't find any specifics on the terms of his loans, but the gist of it is: he had a relationship with a bank. He was somewhere around $4 million in real estate ($1 million in equity) when his bank was acquired by a larger bank, and that larger bank didn't like how he looked on paper and decided to call the loans due. I'm not sure the specifics of his terms/how they were able to call the loans due....maybe some sort of balloon loan, maybe some clause he triggered (due on sale/transfer), maybe something else. This happened in the late 80's, so things were probably different....long before the housing crisis and the regulations that followed, for example.

Here are two videos of him describing what happened:

The Dave Ramsey Story:

Dave Ramsey - How I Lost Everything:

Anthony Dooley · Answer

@David Klem The savings and loan debacle. Dave's lender was bought out. The new bank didn't like the risk. According to Dave, he owed $3M on $4M of real estate. $1M in equity. He also had consmer debt as well, such as cars, credit cards,  etc and filed bankruptcy. I'm sure it's on YouTube.

David Klem · Answer

I know this is an old post.  I too had questions about what actually happened in his situation and then I found this post. Does being over leveraged mean that he had more debt than the houses were worth?  I can't think of why it would be beneficial for a bank to call your notes unless something about the whole situation made them very uneasy. Banks are in the business of making money. When they call your notes they lose a lot of interest over the time it would take you to pay off your notes.

Anthony Dooley · Answer

A lender can call the loan due at anytime. They don't normally do this, but he was highly leveraged and considered risky to the new bank.  The main problem he had was that he couldn't sell the property fast enough.  I'm sure he tried to find another lender as well, but they called all of his loans due all at once.

I am a big fan of Dave Ramsey. His situation was unusual, but if it didn't happen, he wouldn't have been able to teach millions of people about personal finance.

Timothy Metra · Answer

* I wouldn't want the...

Timothy Metra · Answer

@Jana Cain I know he talks about his bankruptcy and the banks wanting their money instantly, just didn't know how the bank could do that. I mean if I go get a mortgage on a house for 15 years, 8 wouldn't want the bank to ask for the full amount after 5 years and give me 90 days to come up with the money. Was just confused how that played out. I know the banks called the notes or whatever, just didn't know how or why.

Jana Cain · Answer

@Timothy Metra Dave Ramsey talks about his bankruptcy days quite a bit. He's pretty transparent about his financial missteps. Sure, he could be hiding something, but he hasn't hid that he declared bankruptcy and had to rebuild his wealth from scratch. He tends to describe the downfall as "the [new] banks decided to call his notes due". I have no idea how those contracts were written (this was in the early-mid 1908s, I believe), so I would guess the likelihood of such actions these days if the notes are being paid on time is quite rare. The way I look at is, the bank can do what they want with their notes and their money, that's part of the risk you take when you take on debt. Not saying the [note calling] behavior is to be expected, but it's their money not yours (therefore to me, not out of the question). *shrugs* Good thing I'm not a bank. ;-)

Can someone explain how Dave Ramsey lost everything?

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