All Forum Posts by: Tim C.

Thanks for the responses. The issue should be resolved, but my first post on BP was kinda wordy and lacked clarity, so here's my practice revision, for the record:

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First-time post. My SFR rental property has a mortgage with a small NE Ohio community bank. It's a 15 year mortgage with a 1/1 adjustable rate, no balloon, categorized as commercial. Currently at 8.675%. No delinquent payments.

Here's a snapshot of a letter the bank sent to commercial customers 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 came in the bank's official envelope.

Woit da hay??

6% more on an existing loan? That'd be 14.675%.

Paperwork hassle every year? Gahh. I'm *not* planning on any new rental loans.

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 time to avoid paying more each month. There I'd be, at the bank every year, handing over more Hassle-paper. I'd feel just like Bugs Bunny and Yosemite Sam, looking at that pouty-pouty king in the dining room demanding, “Bring me my Hasen-pfeffer!!”

Of course documentation is required at first, but...ongoing? For up to 14 more years?

Not asking for legal advice here, just asking if you would pursue legal advice, or if you've seen this kind of thing before. I haven't talked to my attorney yet.

What 's your opinion? Some options:

a. Nah, don't pursue legal advice. The bank can prolly do this kinda thing, cuz fine print and yada yada. Spend the extra time filling out and handing over Hassle-paper stuff.

b. Nah, don't pursue legal advice, but just try to pay off the loan before June and stop giving moolah to the bank. Not gonna do hassle, not gonna do 14.675%.

c. Yes, talk to the attorney. Pay him $275/hr to examine the mortgage fine print and tell the bank a contract violation like this ain't legal, buster.

d. Something else. “Go watch Bugs Bunny and hope the problem goes away” is not an valid answer.

e. Option (a) above, but hand the bank some steam-cooked carrots instead - Bugs Bunny style. They won't notice the difference.

Update:

First, thanks for the all the replies.

Second, the bank confirmed my SFR rental mortgage is in fact categorized as Commercial.

Third, they said that since I don't have a total mortgage balance of over 250k with them, I'll be exempt from the extra paperwork hassle. I had them confirm this in writing just now. They also confirmed I would *not* be exempt if I had a handful of rentals with them with total balance over 250k. In that scenario, it means that even if I would never be delinquent on payments, they would bump my rate to 11.675 to 14.675% if no Hassle-paper is given, apparently. Gahh. "Are you calling about the letter?" tells me they've been getting calls from customers alright.

Fourth, I looked through the mortgage contract fine print (see last photo) and found one reference to where the bank could require Annual Reports for net operating income, but nothing about requiring tax returns, requiring an annual personal financial statement, or anything about tacked-on interest rate bumps, other than delinquency. But maybe that word has a broader definition that I may have assumed.

Fifth, to reiterate: the issue is the legality of "6% added to existing loans," not variable rates or anything else.

Quote from @V.G Jason:

Was the original term 5 years in and now set to mature? If so, these are the new terms you're going to have to re-fi elsewhere or deal with it. Why do you have a commercial loan on a SFR?

Original term is 15 years with a 1/1 adjustable variable rate based on Fed rates, no 5 year adjustment, no balloon, 2% annual cap. To reiterate above, the variable rate is not the issue, it's the attempt at new terms with punishment attached if not accepted.

FWIW, if I recall correctly from 5 years ago, my loan officer casually mentioned that the loan will be "in-house" which I understood him to mean is not a federally backed loan and they are lending directly, but I didn't ask for clarification.

Maybe my loan address was included by mistake for this mailing because of that categorization, but still, gahh.

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?