A good reason to have different lenders

[RightValue]

One of the things I have learnt from this forum is to not cross collateralise properties if possible and also not to have all your loans with one lender.

It appears that investors in NZ are learning this lesson the hard way..

By way of background; The NZ economy is not as healthy as ours and the property market is going down.

cheers

RightValue

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10583877

Double loan trouble

Cash-strapped investors selling up are getting a nasty shock when hardball banks won't discharge their mortgage - or take their sale profits as a condition.

Investors with more than one property mortgaged to the same bank - one of which is likely to be their home - are striking trouble when trying to free up cash. They sell a property in which they have good equity, only to find the bank demands the entire sum to reduce the investor's other debt.

......

[EDIT]Deleted due to copyright infringement and/or no attribution.[/EDIT]

 

[Peter_Tersteeg]

The same thing happens in Australia all the time. I first heard a case like this about 8 years ago (when times were quite good).

I recently had a client who was trying to purchase a house. The vendor was putting all sorts of conditions on the sale including 'subject to finance of my new purchase'.

With a few directed questions to the agent, we managed to determine that the vendor had a few properties cross-collateralised and was selling this house to be able to get into a new home. The bank didn't want him to sell unless he would put down the money to pay off existing debt rather than buy the house he wanted to live in.

 

[katay4]

I have found alot of the clients I work with have had the same situation..

It comes down to them not being educated enough about it and the bank or broker who is setting up the loan not advising them fully of the downsides and just telling them that if they cross collateralise it will help get the loan over the line..

its SUPER FRUSTRATING to un cross them and can sometimes result in the client suffering significantly because of it..

 

[Spectre]

Interesting, in the US they have the situation where you owe more than the house is worth (in a few parts). So the bank does a short sale.

 

[xcesiv]

Once they are crossed, is there a way to uncross this.

I think i might be in this position. Im not 100% sure, but if i am i would like to try fix it before i buy my Next IP

Where on the contracts and paperwork would be evidence of this cross if it existed.

I think im ok with both having good growth over the last few years i have decent Equity in both.

 

[Rolf Latham]

Hiya

Depending on the lender and the structures it may not be easy, because it may involve LMI etc etc.

best to sit with your broker and see what will work for you .

ta
rolf

 

[xcesiv]

Both of my IPs are under 80% LVR on there own.

255 Value, 146 Loan = 57.25%
310 Value, 220 Loan = 70.97%

Where on my paperwork would i find if they r crossed.

 

[Qlds007]

xcesiv

Where on my paperwork would i find if they r crossed.

The Banks letter of offer should tell you all you need to know.

 

[Dazz]

Try the list under the 'security offered' section for the loan.


If there is just one property listed, it's stand alone and fine.


If it looks like mine and there is about two pages of details, then you are crossed up the wazoo, and it will resemble a ball of string after a kitten has finished playing with it, getting the brokers or bankers to unravel the mess.


Having said that, I love my ball of string.

 

[xcesiv]

Thanks guys... hopefully mine isnt like that

I put 8-10% cash down on the 2nd IP up front so there might be a good chance of the cross

Hopefully with the 3rd IP coming up, i can uncross these 2 at the same time

thanks

 

[Qlds007]

If in doubt just get your Bank to organise a new valuation on the existing securities and then see what the current LVR is.

If they hesitate or say NO just look at an alternative lender.

Only issue would be anything over 80% would mean LMI again but may still be worth it if it free's up your securities and means you can carry on investing.

 

[sash]

You may want to keep reading the contract further...it would also say that they can call your loan in at any time and can take any securities you have with the bank.

So the moral of the story is to put through loans with separate institutions. If this is not practical at least do not X-collateralise and keep your total borrowings (including what you can redraw or pull out of LOC) to well under $1m. Also, banks and other creditors will find it hard to see if you have any equity in your property....a form of asset protection without the costs. The solicitors who search will see you have assets but have no idea how much you are worth!

For example i have 4 loans with the CBA....I am in the process of refinancing 1and selling another. This is despite them still throwing money at me!

Banks need to be treated like Tigers...they are majestic and seem very cute...but can turn on you at any moment.

Also, build a history of being a thorough and a customer who does not take "BS". Ensure that you play you committments like clockwork. When and if things go wrong the will look at your history....they are unlikely to take on someone who is wealthy...because you can litigate....not got PR for them if it makes the press. Over the years...I have been a thorn in CBAs side....they now treat me with kit gloves.

Try the list under the 'security offered' section for the loan.

If there is just one property listed, it's stand alone and fine.

If it looks like mine and there is about two pages of details, then you are crossed up the wazoo, and it will resemble a ball of string after a kitten has finished playing with it, getting the brokers or bankers to unravel the mess.

Having said that, I love my ball of string.

 

[JamesGG]

You may want to keep reading the contract further...it would also say that they can call your loan in at any time and can take any securities you have with the bank.

So the moral of the story is to put through loans with separate institutions. If this is not practical at least do not X-collateralise and keep your total borrowings (including what you can redraw or pull out of LOC) to well under $1m.

I daresay Daz would know more about his contracts than most.

But it's your second paragraph that puzzles me most. Isn't that thinking, kinda, well... small?

I used to be in the anti-cross-coll group. I've since realised that it's a tool, like any other. Sometimes, it's a very useful thing for obtaining the right finance to acquire the right properties. Others, it's like using a hammer to nail in a screw.

As with most things, I'd suggest that ruling it out completely would only limit the available options...

 

[Rolf Latham]

Hiya JGG

There are screw nails

ta
rolf

 

[JamesGG]

Hiya JGG

There are screw nails

And there's a good reason why I work a desk job.

 

[Greg Reid]

I daresay Daz would know more about his contracts than most.

I used to be in the anti-cross-coll group. I've since realised that it's a tool, like any other. Sometimes, it's a very useful thing for obtaining the right finance to acquire the right properties. Others, it's like using a hammer to nail in a screw.

As with most things, I'd suggest that ruling it out completely would only limit the available options...

JamesGG,
I have clients who are cross-coll and for some it has been difficult to get out from. For most investors it is better to stay away from and use separate lenders for each IP. It provides flexibility.
I agree that you should not rule it out for everyone. The ability to borrow more can be valuable (some lenders will still do a 95% LVR for existing clients) and the negotiating power of assets with one lender can lead to significant discounts. We were able to negotiate a 0.87% discount last month for a client.
Investors who are happy with just one or two IP's may benefit from using one lender. Remember even if you negotiate out of the cross-coll directly there is always the all money clause.

 

[JamesGG]

Oh, I'm well aware of the potential dangers in x-coll, believe me. By no means would I suggest that it's a decision to be made lightly.

My point was simply that having a blinkered view on the concept (ie, x-coll is bad, full stop, nobody should accept it) is not going to be helpful when one would otherwise find value in the tool.

As I suggested with the misjudged metaphor, that's all that x-coll is; a tool. Allowing the bank to x-coll a number of properties (as both Dazz, and Rob Williams, have outlined for the forum recently) may be the difference between having the ability to pick up a great deal, or not.

 

[Dazz]

Remember even if you negotiate out of the cross-coll directly there is always the all money clause.

If you manage to not fall asleep as you read the mortgage documents - yes all of them - and you discover during your third cup of tea, two thirds of the way down on page 77 - you find the all monies clause - and summarily scratch it out completely and then spend the next 2 weeks argy bargying with the Banks legal dept.

Then, and only then, can one remove the words "always" from your quote.

As usual, the Banks legal depts are past masters at stonewalling during negotiations, and have been a constant source of amazement and knowledge for me over the years. Inspirational contract negotiators the lot of 'em.

If you are the type who fall asleep or toss the document away after reading page 5 or 6 with the fluffy bears and contents page, and the schedule page with all of the numbers, then absolutely, all of the nasty clauses shall definitely be in your mortgage contract.

 

[Kristine..]

Well put, Dazz

When I was first starting out I had a customer with a very marginal deal and we offered the bank the opportunity to cross coll the new purchase with the existing security.

They said 'Oh, no, we don't need to do that', and eventually lent him the money.

I asked him to check the loan documents when he got them, and nope, no cross coll.

But this was the big blue bank, and they don't bother to cross collateralise becuase they rely on the 'all monies' clause.

And yes, you guessed it, when he sold the second property quite cheaply (he had three with the bank by this time) because it needed major structural repairs, the bank happily required the third mortgage to be reduced by a quite considerable amount before they would release the title to property two.

Which was a bit of a shock and as the sale was past the point of no return, a bit of a dilemma, too.

However, no-one said that borrowing thousands of dollars, maybe even hundreds of thousands of dollars, would be easy.

If it was easy, everybody would be doing it, and believe me, it isn't and they aren't.

Cheers
Kristine

 

[Perp]

If it looks like mine and there is about two pages of details, then you are crossed up the wazoo, and it will resemble a ball of string after a kitten has finished playing with it, getting the brokers or bankers to unravel the mess.


Having said that, I love my ball of string.

That's because you're really a kitten underneath that gruff exterior.

So the moral of the story is to put through loans with separate institutions. If this is not practical at least do not X-collateralise and keep your total borrowings (including what you can redraw or pull out of LOC) to well under $1m.

Isn't that thinking, kinda, well... small?

I thought the same thing. I'd like to see Dazz try and keep his borrowings under $1M with each lender...

I take your point, sash, but it's counter-productive to stay small simply to avoid cross-collateralisation. I'd definitely rather have Dazz's x-colled portfolio than a few $400K houses, each neatly compartmentalised.

As with nearly everything, it depends on your current circumstances, and what you're trying to achieve, as to what strategy is best.