May 09 ~ Special Finance ReportBy Dean Letfus
My main newsletter is due shortly but having had several clients and friends caught out in recent days with the following I felt compelled to get this info to you ASAP.
Please forward this to anybody who is thinking of selling a property at the moment. CLICK HERE TO SEND
Surplus funds on settlement
So you’ve decided to sell a property that has plenty of equity in it and use the surplus funds to survive, for further investing or just to fund that trip you’ve been promising yourself.
Get an unconditional contract on the property, spend the money you’ve got coming before you get it and wait for settlement day.
When your lawyer contacts the bank to get the settlement figure the bank advises your lawyer that they require ALL THE FUNDS.
You say: “What? How can you need all the funds? My loan on that property is only $140,000 and I’ve sold it for $300,000.”
The Bank says: “Ah yes but you have other loans with us and due to the current economic climate we wish to reduce our level of exposure to you”
You say: “But you can’t do that, can you?”
The Bank says: “Read the loan documents you signed when you got the loan. We are on an even par with God when it comes to what we can do? However we are reasonable. If you prefer we will make you pay for valuations on every property you have with us, from a valuer of OUR choice, and any drop in value from when you cranked up your loans against those wonderful valuations you got a year ago we will require you to replay in cash to get your loan to value ratio back to where it was!”
You hang the phone up, think of 1 million ways to murder a bank employee, then start cancelling your life for the next 12 months because you suddenly have no money.
This is happening everyday to someone in a similar situation to you and you need to know before you sell a property just to release cash.
If you have multiple properties with 1 bank they can do this. If you have a mortgage with the same bank as your revolving credit they WILL do this.
What is the problem??
Well this situation has arisen through being cross securitized. I teach people to not do this but when you are starting out it is often unavoidable. The bank has security across more than 1 asset, ofetn including your own home initially and they work out your loan to value ratio across your entire security base.
So a lot of people who were going hard in 06 and 07 were able to get 80 to 90% lending in that environment.
Now however 2 things have happened, values are declining AND the banks lending criteria has dropped from 90% LVR to 70%.
So when you sell your low geared property they look at your total LVR and use the surplus proceeds to try and get you conforming to their CURRENT RULES.
Some of my peers with lots of property and lots of experience are getting caught badly with this so take note, it can happen to you!!
What can I do about it?
Well the short answer is not much. The fine print in your loan docs gives the banks rights to your first born children and they can do whatever the ^$#!((#! they like.
However the long answer is to talk to your bank BEFORE YOU SELL.
If you play hard ball with the banks they may well agree to not take the proceeds but only if you fight for it in advance. Be honest with them, tell them that you are selling to deleverage and intend to use the funds to assist with servicing your other debts with them. The worst thing they can do is say no, and often they will agree. Get it in writing and then sell your property.
Please don’t join the list of people emailing me asking for help when they have already sold and are losing the funds they needed to the bank. It is always too late then.
AND if it isn’t in writing, it doesn’t exist!!
Please send this to anybody selling a property, it is critical info!! CLICK HERE TO SEND
Stay Safe ~ Dean Letfus @ www.MassiveAction.tv
To always stay on top of current investing and personal development news subscribe to my 100% free monthly newsletter HERE