Margin Call on Property

Hiya

Just curious to know in the last 30 years during which some years there were property values falling, whether there had been any "margin calls" on your property (investment property or PPOR)?

Ie where for eg. your LVR was 90% or higher and subsequently your valuation dropped and the bank asks you to top up the difference?

If it had happened to you, can you care to share the experience?

Reason for asking, is i may be buying a few more IPs and i'll like to calculate my SANSF?
 
Not a margin call per se, but a now elderly (then middle aged) relative of mine had the "all monies" clause invoked on their home loan with a Big Four bank in the late 80s.

Said relative had never missed a payment and was paying down more than their minimum monthly repayment, when the bank unilaterally transferred several thousands of dollars from their transaction account to the home loan, citing the all monies clause in their loan contract. Their justification was that their risk assessment had changed and they were seizing the funds for additional security. IIRC, the transaction was later reversed, but not before about six months of effort on behalf of said relative.

As an aside, the same relative also had a run in during the early 80s when she went to withdraw funds from her transaction account only to be told it had been closed. Apparently the bank had decided that an account in the name of "Gremlin's Aunt" must have been opened in error because she was a woman, so it was closed without her knowledge/permission and the proceeds transferred to a new account opened in the name of "Gremlin's Uncle". Good times...
 
Margin call

Hiya Aaron

Thanks for the assurance...do not what to come across as rude but dare i ask how long you have been in this game? This will help me to assess my own risk management...


FYI, i know it has happened before; in my own country before i migrated to Oz; and we are talking about a well developed country with a first rate banking system to boot ...
 
define "first rate banking system" considering most are in the ***** now.... :)

i've been in resi development since 2004 and been an active property transactor since 2001.

see my website for what i do.
 
I could see it happening more in commercial investment property rather then residential, maybe some of the comm property owners could comment on this?
 
Hiya

Just curious to know in the last 30 years during which some years there were property values falling, whether there had been any "margin calls" on your property (investment property or PPOR)?

Ie where for eg. your LVR was 90% or higher and subsequently your valuation dropped and the bank asks you to top up the difference?

If it had happened to you, can you care to share the experience?

Reason for asking, is i may be buying a few more IPs and i'll like to calculate my SANSF?

Extremely rare event for the ordinary borrower. Have done it several times as a lender but in each instance it was not simply a matter of the property's value dropping. They all involved various degrees of, shall we say, naughtiness on the part of the borrower at the time of application or subsequently.
 
I could see it happening more in commercial investment property rather then residential, maybe some of the comm property owners could comment on this?

Never happened to us and never happened to any of the old Greek and Italian gentlemen who have been in the game longer than I've been alive.

I could see it happening more in the residential field, with some keen-as-mustard negative gearer getting a little bit over his head cashflow wise.

How we view things depends entirely on what sort of goggles we are viewing the world with.
 
Never happened to us and never happened to any of the old Greek and Italian gentlemen who have been in the game longer than I've been alive.

I could see it happening more in the residential field, with some keen-as-mustard negative gearer getting a little bit over his head cashflow wise.

How we view things depends entirely on what sort of goggles we are viewing the world with.

Sorta like saying the person who purchased his house in 1960 for 5k has never gotten a margin call.

The guy who purchased 5 tin sheds in 1960 for 10k that has a LVR of 0.00001% hasn't gotten a margin call.

Wasn't this the reason AREITS got smashed recently (due to increasing LVR and having to sell assets)? They make up more of the market then private investors
 
Extremely rare event for the ordinary borrower. Have done it several times as a lender but in each instance it was not simply a matter of the property's value dropping. They all involved various degrees of, shall we say, naughtiness on the part of the borrower at the time of application or subsequently.

Hi Token Funder

Regarding your last sentence, as the redhead would say "Please explain...".

Reason why i'm asking is going into the next 12 months, some of us are shall we say apt to be a little "naughty!" or in my case planning to be naughty!:p
 
Extremely rare event for the ordinary borrower. Have done it several times as a lender but in each instance it was not simply a matter of the property's value dropping. They all involved various degrees of, shall we say, naughtiness on the part of the borrower at the time of application or subsequently.

Token, what sort of naughtiness are you referring to? Please share some of your experiences with us
 
Token, what sort of naughtiness are you referring to? Please share some of your experiences with us

Say you were less than completely honest in your appication.
And say the bank, for whatever reason, finds your LVR position not what they would prefer, even though you are making all your payments.
They might invite said borrower to voluntarily reduce their LVR as an alternative to having it called in immediately.
Just hypothetically, of course.;)
 
This topic came up recently on another forum and some interesting tidbits from the CBA Home Loan T&C were linked:

Pg26 Section 3.5
The value of and title to the Security Property must be to our reasonable satisfaction at all times during the term of the Contract.We may obtain a new valuation of any security property.

Pg32 Section 9.1
You are in default of under the Contract if any of the following conditions apply;
C) Value or title unsatisfactory : We are reasonable satisfied with the value of/ or title to the security property or the security over it will be inadequate security for our Loan in accoradnce with our usual prudent credit standards.
http://www.commbank.com.au/personal/apply-online/download-printed-forms/UTC_HomeLoan.pdf

The clauses are there should the need to invoke them arise and you don't need to be behind in repayments to be in default on the loan, your house could just be inadequate security vs the loan at the time CBA performs a new valuation :eek:
 
This topic came up recently on another forum and some interesting tidbits from the CBA Home Loan T&C were linked:


http://www.commbank.com.au/personal/apply-online/download-printed-forms/UTC_HomeLoan.pdf

The clauses are there should the need to invoke them arise and you don't need to be behind in repayments to be in default on the loan, your house could just be inadequate security vs the loan at the time CBA performs a new valuation :eek:

hobo, the banks will be very reluctant to exercise that option if you are paying your mortgage regularly.

It is a huge loss to the banks bottom line when their assets are re-valued and fire sale happens. You just have to look at US and what happened to the banks loan books. Had the people continued to pay their mortgage everything would have been rosy. It's only when people started defaulting did the banks start the foreclosures which created a snowball effect of falling property prices.

So IMHO if people continue to pay their mortgages, banks won't try and margin call because it is not in their best interest.

Cheers,
Oracle.
 
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