I’ve always wondered about this - let’s say I buy a house, get a 15 year mortgage with an initial principle of 400K. I make my payments faithfully for 14 years, then for whatever reason I default. At this time, I owe the bank let’s say 40K.
Can the bank eventually take the house from me? Even though the value of the asset is 10 times what I owe the bank? That seems horribly unfair but on the other hand the bank needs to secure its loan…what would really happen in a situation like that?
Banks do not like to own houses. They are in the business to make money, not own property.
They would make every effort in the universe to get the $40K. If they couldn’t; yes, they could take the house and sell it at auction for $40K or best offer.
And if the bank sells the house for more than you owe, they’ll pay you the difference (less selling expenses). If you owe $40k, and the bank gets $400k at auction, they’ll pay you the $360k (or whatever).
As a result, most people with equity will choose to sell the house before the bank can foreclose on it. That gives you more control over the selling price.
Note that at least some states require by statute that a property sell at foreclosure for some minimum amount. I remember seeing 2/3s of the appraised amount on Sheriff’s Deeds all the time in Ohio. Better off to sell it–if you can’t get at least 2/3s of the appraisal, the bank likely won’t be able to either, and no one will be happy.
My wife and I paid off a 20 year mortgage in 15 years once due to paying in extra every month. Our very last payment due was something like $106.
What if we hadn’t paid that? Or what if I had paid in an extra additional $100 once and our last payment was just $6. Would they really foreclose on 6 lousy dollars?
What if we had no source of income at that point to garnishee wages?
And, seeing the amount, what court would they sue us in? Small claims?
I’d really like some answers on this. I have an investment property that I should have paid off in the next 18-24 months. On 2 separate occasions this bank credited my payment to some other schmucks mortgage. Took 4 months to straighten it out and almost affected my credit. The bank didn’t even apologize. If withholding the last few bucks is a possible way to screw with them, I’ll consider it.
pkbites, I mean this in the nicest way possible, but that scheme seems to be on par with the student(s) who would take a teacher’s pen/pencils off of their desk to get even for giving them a bad grade on a test.
I don’t think he’s planning on intentionally not making the last payment in order to screw with the bank; I think he’s worried that the bank will screw up one of his last payments (without telling him), and wants to find out if the bank could then try and claim the property.
Legally they could, but in that scenario they’d likely just write that off and hit you with a disparaging note on your credit report. The other option is if you chose to open a checking or a savings account with the same lender in order to get a slight discount on your interest rate they’d simply take the $6 out of your account and call it done.
Slight hijack.
What happens when a mortgage is paid off? Do we get some sort of certificate to prove that we paid it off?
Technically mortgages don’t get paid off, the note does. Mortgages are security instruments filed with the local government to show that your property has a lien on it to give public notice that your collateral is being held by your lender. You’ll normally get what’s called a “paid in full” letter from the lender letting you know that you’ve satisfied your payment requirements and then a release of mortgage/trust deed/lien will be filed by the lender with the appropriate county/town/province government agency to show that the mortgage etc that was filed has been removed.
Doesn’t the bank also release the deed of trust?
Indeed, well, they’re supposed to but that’s actually something that a lot of lenders fail at pretty often, especially after the Giant Meltdown of 2005-2008 when everyone bought everyone else and set all the records on fire. A smart borrower will request a copy for themselves so that they can have it recorded themselves if need be further on down the line. This is often something that you can check yourself online as property recordings are of public record. The letter that the lender sends you isn’t worth the paper it’s printed on since they’re exceedingly easy to fake.
Edit - Security instruments is the preferred professional term as the local one changes by area, be they called mortgages or deeds of trust or whatever else.
(I’m not sure if I’m supposed to start a separate thread for this type of stuff or not. If I’m wrong, I’m sorry).
So I’m about to pay off my mortgage (yay!). What should I be doing? Should I get a lawyer?
You’re paying it off yourself out of pocket or paying it off through a refinance?
Out of pocket, though I have refinanced in the past.
Contact your lender and tell them that you’re planning on paying off your mortgage out of pocket and ask what their normal procedure is with regards to releasing the lien from your property. Ask them if they can also send you a copy for your records. Get pissy if you must, some lenders resist doing so. Google the county clerk, register or recorder (or whatever your local term is) for where your property is and check to see if they have online property records available. If so, check after 90 days or so to see if the release shows of record. If so, good, the original stamped as recorded release/re-conveyance should be mailed to you in a few weeks. If not, drive down to the recorder, etc and pay to have it recorded on the spot. They’ll give you the document back with a stamp showing that they’ve entered it into the permanent property records and retain the original just in case.
Edit - If there’s nothing available on line you’ll need to go to the recorder directly to see if the release has been recorded. Bear in mind this is a rather lengthy process and can easily take a few months from start to finish.
In a practical sense, no, as foreclosure would cost them far more than that. This would probably be no more than an entry on your credit report.
If the amount is sufficient, the bank would say to you, in effect “You agreed to pay us X dollars, but have failed to do so. You have also agreed that in case of failure to pay we have the right to seize and sell your house to obtain the money owed. We now ask you to choose which of these you prefer: if you don’t send payment by Friday, we’ll take that to mean you prefer foreclosure.”
It’s more on par with getting every question correct on the test but still getting a low mark because the teacher was looking at another students paper while grading mine.
A few years ago I received a notice that I hadn’t paid my months mortgage. I knew that was nuts because not only did I pay extra towards the principle, I was also always 3 coupons ahead at all times (when I sent in a payment coupon on June 1st it was the coupon dated September 1st, and so on.). After surviving voice mail hell, coming up with a copy of my canceled checks, etc., the bank finally admitted they had credited my payment towards the account of someone elses mortgage!
Then, 4 months later they did it again!!!:mad::mad::mad::mad::mad:
In neither case did they apologize, or even really admit what they did was bad. Just a shrug and an “Oh, well. Shit happens.”
No, drewtwo99 was correct. I mean to screw with them. Having them send me 20 letters out for a minute’ amount and then pay that amount after they’ve spent the money on the notices but before they do anything to overly affect my credit could do the trick. Grossly immature and insanely petty on my part, but immensely satisfying.
Thanks. I appreciate the advice. I would have naively just sent in the money.
Yes, the last thing you need is to pay off your mortgage; then 10 years later, you go to sell the property, and the clerk says "sorry, there’s a mortgage lien against it.’ Then you go chasing a bank that has probably changed hands and names 5 times and lost all tis records from 10 years before and can’t say for sure you paid it all off…
Trust but verify.