The Latest Bank Trick For Landlords In Default
I have seen it twice this week, a terrific move by the bank that certainly gets the borrower’s attention and causes maximum damage to the borrower while supporting the bank’s recovery process. Maybe.
The banks are now utilizing powers buried deeply within the documents you as a landlord have already signed authorizing them to pull such maneuvers. They send a letter to each tenant requesting (demanding) that rents be paid directly to the bank.
That’s a disaster for most borrowers who are depending upon the rent for many reasons. It’s also presumably a bonanza for the bank as it allows them to recapture cash to apply to their account – the unpaid mortgage – or so goes the theory.
Worse, what actually happens is the tenants pay no one as they interpret this to be an open opportunity for confusion. “I did not know who to pay” they exclaim so they pay no one. Therefore, no one really wins in this strategy. Really, everyone loses.
What to do about it? Well, in both instances, I was able to get the bank to write a letter releasing the tenants form paying the bank and redirect payments to the borrower. However, the deal required the borrower making monthly payments going forward. In both instances the borrower felt his relationship with his tenants would result in them ignoring the banks letter and they would pay the borrower directly anyway, so the net result was that it was a bust for the bank.
The evaluation was that if there would be any net left over after the payment was made on the mortgage it would go to the bank. In both instances there would be nothing left over as vacancies were high and rents were low thus it was a total wash. So, we did not enter into the agreement and the borrower collected the rents anyway while we worked out the conclusion with the bank based on our winning strategies.
However, it is a dangerous strategy and borrowers who own rental properties should be aware of this. Pay attention, workouts are a tricky business. Call if you need help and we will arrange a no-obligation conference call.
