God said "The borrower is SLAVE to the lender".

I've written about that here before.

But today I was "slave whipped" by my lender in a way I had never considered.

For months we have been working or refinancing a big stack of existing loans. My goal is to be totally debt free and this was a huge positive step in that direction (reduce the rates but keep making the same payments plus extra principle payments, knocking off the loans in record time)

We've never been late in 25 years on a BUNCH of mortgages with them, scores and income are looking good.

We locked in a good rate and received a mountain of FedEx'd paperwork to close locally. Weeks of work coming to fruition.

Then a last minute oops.

The bank is in Florida and is applying a FL title law to Indiana titles. A tiny difference cancelled out most of the loans.

We TRUSTED our bank and they left us in the lurch. Rates all over have gone up and our lock expires tomorrow.

If we had known this earlier we could have worked with other banks at the lower rates.

The only thing we can do for the moment is keep what we have. We're chained to them but they don't care what happens to us.

They did not HURT us, but they did not LET us move ahead.

Slave to the lender.

Now I'm pizzed. And motivated to get rid of them.

Got bounced around last year on some bad refi details. We were being underwritten like we were subprime, while trying to borrow approximately 20% of our annual income, secured in RE! Grab the phone book and tell yourself failure is not an option. There are banks out there that will work. It's a matter of burning up the phones to find out who they are. There's still banks doing 100% financing on NOO properties! Ya just gotta grind it out sometimes.

Also, 0 interest CC offers are back. Chase came along with 0 int, 0 transaction fee for 12 or 18 months, I'll take it! Had 2 of them last year just like it.

Best,

O

the one with the gold makes the rules...

I have long been a fan of debt, but I am slowly changing my mind. Debt can allow you to grow more quickly, but at what cost?

There is an old saying that a bank will only loan you money if you don't need it. Perhaps one should turn that idea around, and say : you should only get loans if you don't really need them. Ie: "I could pay cash but I will get this cheap loan instead". Even this idea may be a trap, since repeating this a few times will leave you buried in debt again.

Sorry for your problems..PLease share what you mean by "tiny difference"

No "RR" - it's the one with the GUNS who makes the rules! ;-)

Sorry the Bank suckered you Brad. :( I'm not a hateful person, but I'm finding myself starting to lump banks in with politicians and used car salesmen.

Debt is good for leveraging into an appreciating market. It is (was?) good for tax relief. Otherwise I don't think it helps anyone but the lender.

Listen here you Freedom Dreamers,...

I think what Ll just wrote is fantastic. A great tool to borrow into an appreciating market. I've bought shacks that were less than a hundred and now are over three hundred after loosing 30% in value.

I love my banks but it is the governments that really make you the slave. And Slave isn't the word I would use because what we are really speaking of is an energy drain.

These projects are draining our energy.

So I'm with Brad on this one, saluting his efforts to draw a line and move to get out from debt. Most of my mortgages, no matter what the interest rate, are basically me putting money into a piggy bank at this point. There may be one or two that could still be sold while the others have paid the interest long ago.

I hear you Brad.

I've been trying to refinance a nice 1970s 3/4 brick 4 plex that I bought back when 6.5% was a good rate. Rates 6 months ago? 3.25% for NOO 4-unit. But WAIT! We couldn't find enough appraisals, so they were DEMANDING to go no higher than 70% LTV. Weeeeellll, values dropped a bit, plus appraisals are terrible, those that can be found!

Did it matter that I've been clearing over $10K a year AFTER taxes, insurance, debt service, expenses, vacancy, etc? Nope...underwriting regs don't care. Gotta go by what the piece of paper says. No freedom to THINK.

So here I sit with my same old crummy loan: the LAST loan I ever took back in 2008.

Dave Ramsey talked about the 'slavery' aspects of debt on his radio show last week and said some similar things. He agreed with a caller that it SEEMS like such a good idea to borrow money at 3-4% and invest at 12%. But he (and I) trust in God's word. He doesn't say "the borrower is SLAVE to the lender unless you get an 8% or better spread"...it's CUT and DRY. SLAVE! Read the words on the page. Well, okay some translate it SERVANT....still....SEVANTS and SLAVES must deal with a master. As Dave says, "Sometimes you get a pretty decent master, but he's STILL your MASTER."

Brad20K,

In the past, you have given me the impression that you were 100% debt free,....it would appear here you are not 100% debt free just yet.

I thought to get total freedom you had to be totally debt free,...help me figure this out.

We waited to long to work with HARP. The best rate they gave us is around one percentage point better than we are currently at with $2200 in costs, $750 upfront. We have decided to spend that money on energy improvements, possibly conversion to NG instead. It will basically be a wash.

Everyone needs a mortgage at one time or another. Our 30 year GI loan back in the day was finally paid off - yep over 30 years and all I could think of was the ones before us who celebrated with mortgage burning parties.

It was a nice feeling having no debts and no mortgage payments.

But new circumstances came up. The hubby and kinfolk all passed on so I bought the adjacent property for a rental. So again a 30 year mortgage was obtained and soon I was refinancing for lower interest rates and finally reducing the term to 15 years - each time adding chunks of money to lower the mortgage amount.

Then my goal became to pay off the 15 yr. loan in 5 years with a lower interest rate plus monthly principal payments. But now when I can afford to pay the balance with savings that earn less interest than the mortgage rate, I find that I really need to keep that mortgage deduction for some relief on IRS taxes.

Brad, are you able to get new loans with a different bank, then? What was the Fl law? They simply will not allow you to refinance, or what?

I refinanced my 8 unit 4 years ago (now sold). It wasn't until closing that I found out I had a 20 year loan, not a 5 year balloon. It wasn't until closing that I found out I had a 2% pre-payment penalty if I EVER refinanced that loan. Well, I sold that building recently and of course had to pay that 2% pre-payment penalty.

The whole debt vs cash discussion has influenced me. I sold my 8 unit, and am buying only 2 duplexes in exchange for that. From an asset point of view, I am downsizing a bit. But, one duplex is cash only. I could have purchased 3, 4, 5 duplexes with the equity from my 8 unit. Even with prices lower, and interest rates quite good, buying more property would only have increased my risk at this time, and not my cash flow.

title work is my job ... I am curious as to what happened ... cannot imagine any title work on property you already own ending up in the loan not being approved.

I feel your pain, Brad.

I am in the midst of buying another property right now. All my other personal and business properties are paid off. I have a large stock portfolio that brings in a lot of money in dividends each year (enough to live off of if I wanted). I have a decent paying job which is stable. I also have a part-time job teaching. My credit score is near perfect. The property I am purchasing brings in great income. And I have enough cash sitting in various accounts to actually buy the property outright! But for a variety of reasons I let myself get talked into taking out a loan for the new 4-plex rather than paying cash due to the supposed financial benefits. Not to brag, but I don't think I am much of a default risk to any lender. But....

I swear they have asked for everything but a blood sample from me. They are questioning every single purchase and transfer I have made between accounts. I even had to account for items in an estate account I oversaw as executor because money had been transferred from the estate account into my own account, and therefore they went through the estate account with a fine toothed comb. I finally told the bank I was sick of being made to feel like a criminal and I might as well just pay cash and avoid the hassle. They told me that it wasn't them... that this was all dictated by the government to guard against money laundering. They also said that people like me who actually have money/assets have a harder go of things because they cross-check everything. So basically, those of us who try to manage our money correctly get treated like we are potential criminals, meanwhile others with poor credit, no back-up funds, etc. can get a loan without jumping through hoops. Nice.... We are entering an era where those of us who try to succeed are seen as the enemy, folks.

Denise, that has been our experience exactly. It's maddening to be treated that way.

Question for all of you debt=slavery folks. Scenario: $100,000 mortgage balance at 4% fixed; $100,000 in the bank earning 5% in an FDIC account (hypothetical now but could be reality in a year or two). Use the money to pay off the mortgage?

Woo! Thanks for the support!

Fun Fact: When I started 36 years ago, a mortgage closing took about 5 signatures.

In the 90's I remember counting 13 signatures when new regulations were added.

Today's closing required 34 signatures per loan.

Good news: we will now save as much as $200 a month on some loans and reduced the total interest by $15,000 by reducing to a shorter term.

Some replies...

RR & Nicole: Start here - the loans were sold to an out of state bank.

The tiny difference - the houses in question had been "sold" on LAND CONTRACT to take advantage of the govt's First Time Home Buyers' Tax Credit a few years ago. When the bank underwriters looked up the props on Zillow (argh!) it showed the contract buyer's name, not ours. Yellow flag. Public record shows me or my LLCs/trusts as owner but hat did not matter.

As explained to me, FL uses CONTRACT FOR DEED which grants ownership. Indiana law is LAND CONTRACT with NO ownership. It is simply an agreement to purchase IN THE FUTURE without ownership until THE DEED IS SIGNED OVER. The LC is recorded to get the property tax homestead deduction.

The banks underwriters just said SORRY DENIED. By then we'd lost the lock and other banks raised their rates.

A few of the LCs had vacated and been releases signed & recorded, but they did not LIKE the release form becasue it did not have MY signature on it, only the BUYER's signature stating they gave up all rights to the property. Again, OK by Indiana law.

SID: I heard that call!

Don: Why not invest available cash and keep the spread? I've never heard anyone talk about the REAL numbers. They forget to deduct the taxes owed on the investment. 10% return minus taxes = 7% return. Paying 4% on the loan leaves only a 3% spread. All that work for a lousy 3%.

But Dave Ramsey had a great response for the caller. He reminded that such a technique forgets the risk factor. The return might be good this year but what about next? Sometime investments go down. Sometimes they go bankrupt.

(I strongly fear we are getting past the recession and people are forgetting how 7 million people lost their homes! because Wall Street messed up)

What if you die, leaving this for your wife to manage? What if a kid gets sick and you need cash NOW for an operation?

What if the govt raises income taxes?

When you home is paid there is little risk of losing it. Most people work til May to pay their taxes, then til December to pay their mortgage and car loans.

.

I sometimes explain FREEDOM!!! as "remember that feeling on the last day of school...when you walked out and knew you did not have to come back for a long time? The sun seemed brighter. The Popsicles were extra sweet! You could sit a tree eating mulberrys as long as you wanted.

(I fear the Millenials who grew up in daycare have not known this freedom)

Know that TGIF feeling?? especially when you jump on a plane and head somewhere fun? We are OUTTA HERE!

Compare that to the knot in your stomach on Sunday night AFTER vacation, thinking about the job?

Be like Fred Flintstone when the whistle blows and he slides off the dinosaur! Yabba Dabba DO!

Have you ever been to a place that was so inspiring and came back excited to tell your friends. You look at their blank faces and find yourself saying "these pictures just don't do it justice - you had to be there!"

Have you ever been so in love with someone that you had to tell the world?

Were you ever on a winning team that worked SOOOO hard thru the season, harder than you've ever worked in your life, faced the giant and won the big game? Chest bumping your teammates (and Roy kissing the cheerleaders!) That's what FREEDOM!!! is like.

Imagine never having to pay anything more than that month's utility bill?

Feed your family, clothe them, provide housing...THEN invest what's left over.

If you're such a financial whiz, get busy and pay off that debt so you can take full advantage of the investment.

I would guess that for every Cali investor who has benefited from the unusual appreciation, there are just as many who lost everything because of it.

Build your house on solid rock, not the sand of banks.

Roy: we are personally debt free (yes my 2 Porsches and Vette were bought with cash!) and our business operation is debt free other than the old mortgages. But they would choke a horse!

We have not signed a bank loan to purchase since '06. Most new homes have been CASH, a few with financial PARTNERS. (they are the money and I'm the brains and the good looks! :) IF the deal goes bad, they lose too. The banks carried no "risk" in the success. Up or down, good times or bad, Brad and Wifey absorbed the difference and the bank got their money.

As we refi'd today I noticed a few houses that we have refi'd several times over the years. Each time was an improvement to our bottom line but I realized that on that little $42K loan we've paid $5000 in points or origination fees over it's life. Add the interest already paid and I've made the bank rich!

Denise, we have been seen as the enemy for a while now... Sad really

The LLC is doing a cash closing on a property tomorrow at 3pm, as of right now - we don't know what the certified check has to be made out for... Title company dragging on this one. This has relevance since the LLC voted to use the available cash for a purchase into the portfolio, and then voted to get a reno loan for repair of existing houses.

The process of getting a reno/repair loan on a few properties for damages due to natural disaster is worse than a trip to the dentist for a root canal with zero Novocaine. All the properties in the LLC are debt free prior to this loan. The bank is only putting a lien against a single property to secure the loan but the paperwork is massive since some insurance payout was involved and the loan will be used on several houses.

Bank loans are retarded, the LLC cash flow is solid, the LLC debt is non existent prior to the loan approval, yet all the hassle and accounting for every single penny spent both before and with the loan money.

Brad20K,

I don't mean to get too personal with you, but answer this one question and I will leave you alone.

When you were paying cash for those Porsches and Vette, did you ever consider paying off some of your old debt first?

...RR & Nicole: Start here - the loans were sold to an out of state bank.

The tiny difference - the houses in question had been "sold" on LAND CONTRACT to take advantage of the govt's First Time Home Buyers' Tax Credit a few years ago. When the bank underwriters looked up the props on Zillow (argh!) it showed the contract buyer's name, not ours. Yellow flag. Public record shows me or my LLCs/trusts as owner but hat did not matter.

As explained to me, FL uses CONTRACT FOR DEED which grants ownership. Indiana law is LAND CONTRACT with NO ownership. It is simply an agreement to purchase IN THE FUTURE without ownership until THE DEED IS SIGNED OVER. The LC is recorded to get the property tax homestead deduction....

I LOVE this stuff ... a sad, pitiful life I've got !!!!! Here, you can pay off an Installment Sales Contract via a refi because you have an "equitable interest" in the property, even though the Deed hasn't been transferred. the deed comes w/the refi transaction when the original seller gets paid in full.

Roy, That is an excellent and very appropriate question.

The black Porsche was teh DREAM that propelled me to move forward and meet a goal of paying off/reorganizing all my odd debt. (Line of Credit, Equity Line...)

The red Porsche was a Christmas gift from my wife, paid for by extra money we had brought in that year OVER our goal. All bills paid on schedule and some houses bought with cash. Rough calculation: the ELT fees collected that year paid for the 911.

Corvette: sexy, red 1980 classic! Again. Christmas from Wifey. (guys, are you getting the hint!)

We had exceeded our income goal past our wildest DREAMS, bought some more with all cash, met all our normal obligations, and had cash in the bank.

Yes, we could have used the money to pay off old loans, but the loans are on track, nothing is late, expanded our business with cash, and used some to live it up.

Also know that Wifey's bling collection grew! and she got a new car from her Hubby.

1. We've been LLing for 36 years, always putting back and doing without. I want to drive my dream car while I can still climb in and out, and my legs will still work a stiff clutch.

2. I decided to let existing loans ride (they are doing OK) and use all available cash to buy up deals while they are still 50% off. Starting to see that leave as the media starts talking about flipping and investing in RE, and fresh new investors enter the market, along with pent up demand from old timers.

I had my own home and two rental properties free and clear. Family member offered me a great deal on a house with 0% interest for 30 years. Too good to pass up. Then the big market crash was too good to pass up on some deals. Bought two houses and fixed them up by borrowing to buy them and HELOC against my own home.