Bank Frustrations: Loan Mod; Prepayment Penalty; Refusal of ELOC

[Dan O'Neill]

Good Morning Everyone. I'm more than a bit frustrated with my current lender. Five years ago, I purchased a 16 Unit apartment complex for 472k put about 150k into it. Raised the rents from $500 to $800. Reduced vacancy from 25% to essentially zero. The balloon payment came due this November so I worked with the bank in an attempt to do the following: 1) put in place a loan modification to refinance; and 2) open a significant equity line (to fund the purchase of my next investment). The Bank's appraisal for the loan mod came back at 910k which I feel is at least 200k too low but whatever. The response I got back from the bank was that they would not provide an equity line (citing current economic conditions). I pushed and pushed to get an equity line but got nowhere. Using the Bank's value of 910k I have roughly 560k of equity. How is this possible that the bank wouldn't be interested in giving me an equity line on at least 1/2 of that? Here's the kicker, they send over the loan mod with a prepayment penalty addendum (3% year 1; 2% year 2; 1% year 3; goes away after that). I signed the loan but did not sign the addendum. The bank has since accepted my payments but someone at the bank finally realized there was no addendum and they are now asking me to sign it. I'm frustrated because I already went through a prepayment penalty period with the original loan. So, in my mind they have recouped their costs of getting my business and are now making money from me. So, there's no need for another prepayment period (in my mind - a loan mod should be a low-cost effort for the bank especially since I paid for their appraisal).

Taken separately I think I could move past not getting an equity line or having to agree to another prepayment penalty but the combination of the two I find infuriating. Essentially, they are holding me and my equity captive for three years. While in the end the outstanding loan balance is pretty low so any prepayment penalty wouldn't be that much, its more the principle that really gets me. So, in order to make my next investment in the next three years, I would need to sell the property which I'm not really interested in doing and pay a prepayment penalty. I told the bank over the phone I wasn't signing the prepayment penalty form and they have since sent me an email requesting a formal response.

Any and all thoughts, comments or suggestions welcome. Thanks in advance.