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Val123's avatar

Can a bank foreclose on your home at any time for any reason, even if you've never missed a payment?

Asked by Val123 (12679points) February 19th, 2010

Having a discussion in another Q on this. I say they can’t. It’s illegal. I’m also sure that it’s illegal for any lending agent to take more that it’s owed on a payoff. If you owe $160,000 on a house, the bank can’t just decide to take for no reason AND sell it for $350,000 and keep all of that money. Can it?

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16 Answers

CMaz's avatar

Yes. It is in the small print.

It would be a very bad thing to do. But, most loans have a clause to that effect.

erichw1504's avatar

I don’t know, but I sure hope it doesn’t happen to me!

hug_of_war's avatar

I don’t believe it’s in the bank’s best interest to do so.

UScitizen's avatar

The answer is complex. It lies in the contract between the mortagee and the mortgagor. To over simplify it, the bank can only foreclose if the mortgagor defaults on the mortgage contract. An example of default would be missing payments.

Val123's avatar

@UScitizen That’s what I thought…so wouldn’t it be illegal to just foreclose on the house without good cause?

Also, what about the second half of the Q, taking more than than what is required to pay off the loan? They can’t do that, can they?

susanc's avatar

Hi, @Val123.
If talking about my scenario:
No payments missed, bank not threatening to foreclose; but bank is getting paid for a $500K house that is now, through no fault of owner, worth $350K. “Owner” can sell house for $350K if he wants, but since he still owes the bank $390, he must come up with the additional $40K. (He has already forfeited his $100K down payment.)

Perfectly legal for bank to require payment for a $500K house even if it’s not worth that any more. My question: is it moral?

Val123's avatar

@susanc Actually, I’m still trying to puzzle out the deal with the guy who bull dozed his home.

Well, OK. I took out a business loan for $65,000. Four years later we decided to shut it down, so at that point the business is worth $0. Should I still have to pay on the balance of that business loan, even though I have nothing to show for it? Yes. I do.

noyesa's avatar

@susanc This isn’t a question of whether or not it’s moral. $500,000 was paid to either purchase or build the home, which someone accepted as payment. That money changed hands. Even if the house isn’t worth $500,000 anymore, the bank still loaned that amount, that amount was still paid, and you still owe them for that loan.

It’s not good business sense for a bank to randomly foreclose on a house. However, through the housing bubble, where houses were rising in value very quickly, predatory lending was pretty common where banks would approve mortgages far out of the reasonable reach of the mortgagee under the intent of essentially collecting payments on the home while the home owner could afford it, and turning the house over for a profit when he or she defaults and the bank forecloses on the home. This only really works when you can expect the house to increase in value relatively quickly. I think that’s where many people get this stigma that banks are just foreclosing on people for no good reason.

Val123's avatar

@noyesa Those are my thoughts too. You borrowed the money, you have to pay it back. End of story.
I didn’t say anything about “morality” though. I asked if it was legal.

susanc's avatar

@val123: then we’re looking at two different questions. I said I know it’s legal. I don’t think it’s moral. If the economy tanks, the debtor continues to pay what he’s have paid if the economy were booming. If the economy booms, on the other hand, the bank profits at least as much as the debtor. The bank wins no matter what. I think the rules are immoral.
Not illegal. Our laws are designed to protect corporations.

grumpyfish's avatar

@susanc

If I buy a $500k house with an 80% mortgage (so that’s a $400k mortgage + $100k down payment). The bank has $400k in my house, and I have $100k. Right?

Okay, the economy booms, and I sell my house for $650k—I pay the bank the $400k + whatever interest I’ve paid on it. I make $250k minus whatever interest I paid to the bank.

The economy busts, and I sell my house for $350k—I need to pay the bank the extra $50k + whatever interest I’ve already paid, and I lose $50k + whatever I paid in interest.

How is any of that immoral?

Tropical_Willie's avatar

@Val123 .... If you sign a contract in bad faith ie. you think some or all of contract is immoral. You cannot unilaterally change terms.
You signed a contract and terms of contract will apply. The bank may now own the house or the car or whatever assets you have if that’s the terms of the contract.
Banks are not in the business of supplying money for people with bad judgment or false info on the loan paperwork. CountryWIde and several others are no longer in business as banks and mortgage companies.

Val123's avatar

@Tropical_Willie What’s with the sudden attacks and assumptions? This has nothing to do with me personally or my house or my life! If I borrow money, I pay it back. Please, read the details and read the responses.

YARNLADY's avatar

What ever the contract between the two parties is what the bank can do. If the mortgage holder agreed to the terms, they can’t back out.

I worked for a lender, and some people thought that when they paid back the amount they borrowed, it was over, but they didn’t seem to understand that they owed interest on it, and most of the time, the interest was far more than the original amount borrowed.

If the mortgage holder has refinanced, it’s possible the cost of the loan was tacked on the mortgage, there isn’t enough information in the example given to make any kind of judgment.

thriftymaid's avatar

The borrower must be in default before a lender may foreclose.
Lenders generally may call in a loan if ownership of the mortgaged property is transferred in a way that is prohibited by the mortgage/note. Read your docs.

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