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Updated 10 months ago, 03/28/2024
Moses! Can a bank actually do this???
I'm a small-time side investor with just a couple rental properties in NE Ohio. Two rentals are enough hassle for me and I don't plan to buy more unless it's a deal that's impossible to pass up. I occasionally scan the BP forum, but am a first-time poster.
On my one SFR rental property, I have a mortgage with a local NE Ohio community bank. It's now 5 years in on the 15 year in-house mortgage that adjusts every year. The variable interest rate went from 5.25 originally (not bad) to between 8.5 and 9% now, meh. Well thank you, Jerome Powell. But this is not the issue. I don't ever plan to get another loan at this local bank.
So far so good. Until last week.
I always thought a legal contract is a legal contract. A bank can't extort a tacked-on higher interest rate if a borrower won't agree to new terms...terms that would now require unnecessary documentation and hassle.
Here's excerpts from their letter to commercial customers I got last week, on company letterhead. They didn't proofread it well (spelling error), and the wording at times seems less professional for what one would expect from a financial institution. It did come in the bank's official envelope, so it can't be some scam letter, as that wouldn't even make sense.
I haven't talked to my attorney yet. I'm not necessarily asking for legal advice here, I'm asking if you would pursue legal advice, or if you've seen this kind of thing before.
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Dear Valued Commercial Customer,
The [bank name] is notifying you of some changes to your commercial loan agreements. All commercial loans will now have new covenants if borrowers do not provide timely personal financial statements, personal tax returns, business tax returns, rent rolls (if applicable) timely.
Personal financial statements and rent rolls (if applicable) are due within 60 days of the expiration date of the personal financial statement. Personal and business tax returns are due within 60 days of April 15th every year. [emphasis mine]
[snip stuff about tax extension dates]
Any borrower breaching such covenants will receive a three percent (3%) increase on every commercial loan you have with the bank for each covenent (personal financial statement/rent rolls and personal/business tax returns). This means if both are delinquent, a total of up to six percentage points (6%) could be added to your existing loans [emphasis mine] until you have provided the proper documentation.
We appreciate your business. By providing timely financial documentation, we are able to provide you quicker turnaround [eyes rolling here] on loan requests and help you with any other financials (sic) needs. Please reach out to your loan officer for additional questions: [names and phone numbers]
Thank you for your prompt attention.
Commercial Credit Administration
[bank name and main phone number]
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Wut thu hay??!
Here's some options:
a. No, don't pursue legal advice. The bank can likely do this cuz fine print and yada yada. Hassle-paper time.
b. No, don't pursue legal advice, but try to pay off (!) the loan before June and stop giving moolah to this bank. 8.675% is too high anyway.
c. Yes, talk to the attorney. Pay him $275/hr to examine the contract fine print and tell the bank that a contract violation like this is definitely not legal.
d. Yes, but contact the Ohio Attorney General's office and have them look into this.
e. Something else.
Gahh. What 's your opinion?