Now obviously having money in a bank that collapses is bad as insurance will only protect so much. However, what if you owe money to the bank that collapses?
Some other oufit inherits you as their debtor.
Can somebody buy just the debt owed to a bank? Like if the bank is worth less than it is owed, could somebody just buy the debts? Can they change the terms of the debt (presumably not)?
Note, I’m not in this situation, just following the news of SVB collapsing and was wondering.
Unless whacking is involved in the transfer of your debt, the terms stay the same. You will just end up paying someone else who buys the defunct bank or some portion of its assets.
I remember people in the U.K. panicking when Northern Trust went under - because they had a mortgage with them. Somehow they thought they might lose their home. I guess that’s why the financial markets need to be tightly regulated.
I worked for a company that bought computer equipment and services from an IT company. On the services side we owed them about $1M for services they provided (about six weeks of services).
On the flip side one of our purchasing managers in an attempt to use up his equipment budget before year end PREPAID the same vendor $6M for a variety of hardware. He was either stupid or corrupt, never figured out which.
The company went bankrupt and straight into liquidation. We never got the $6M worth of hardware we had paid for, but we had to pay the $1M bill. No offsetting said the court. The two debts were separate. Didn’t matter that the parties were the same.
Wow. That’s wild!
On that note, my sister used to be an accountant. She was supervising the liquidation of a defunct company when a cheque for £5000 arrived in the post. Soon after, she had a call from the FD of the company that had sent it saying in effect - “Sorry, we sent that by mistake. Please tear it up.”
She had already dispatched someone to get it cleared before they could stop it and they were added to the unsecured creditors’ list.
Many years ago, during the S&L issues, I heard of some people who had owned mobile homes and land with a mortgage through a consumer loans company. this was before the age when a small business would be computerized. I assume when the local office closed the company had some serious confusion about records and presumably several such loans got lost in the shuffle. A friend of mine who used to work at a bank told me this story - says he told them, just sit tight and wait, keep the money on hand. After 10 years (?) if nobody comes after you, get a lawyer and claim squatter’s rights.
Thinking about this much later, it occurred to me they probably had title and the issue was a lien on the property? How are liens on title affected? maybe they had a “rent to own” type agreement…
I’m not sure what the “statute of limitations” is for anyone to claim a debt. I vaguely recall there are assorted lengths of time (depending on jurisdiction) at which the debt is effectively unenforceable if no effort has been made to collect.
That’s an interesting one. There’s always a statute of limitations on filing a lawsuit to collect a demanded but unpaid debt, so it’s hard to believe that the same statute wouldn’t apply to someone who has never tried to collect. But the law can be weird.
And secured debt, like a real-estate mortgage, can be even weirder. That’s one reason title insurance exists.
would the company that winds up with the mortgages pay less then they are worth? It doesn’t make sense for company B to pay face value for mortgages from a dying company A.
Which leads me to…can I buy my own mortgage from my lender who has gone under for less than I owe?
all hypothetical, of course.
Which would make sense if it was locked in at a low interest rate. The value of something that pays 4% is much less than the same principal at 8% or more. Presumably you would have to pay whatever the asset (income generating loan) would be valued at -net present value - when applying current market interest rate. (Given that one of the problems with SVB was their money was tied up in low interest long term investments)
I presume the issue with the homeowner with the missing mortgage holder would be that the land title is still in someone’s name. Who’s? Hence, squatters rights (“adverse possession”?) after the elapsed time. Just keep paying the property tax so the municipality doesn’t try to track down the real owner.
But I definitely recall reading of assorted “if you don’t try to collect after X years, the debt is void” something collection agencies are well aware of. For example:
Summary: The statute of limitations on most debt in New York is just three years . This means that creditors and debt collectors only have three years from the date of the last activity on an account to sue someone for a debt.
I assume for those settling an estate, the limitation on people asserting claims is even less?
Yes, creditors need to file a claim against a dead person within a year of death. At least in my state. I’m the executor if my mom’s estate, and it can’t be settled and dissolves until that year is up, but after that, i only need to worry about taxes accrued in any income of the estate.
At least, that’s what the lawyer told me.
If it’s an American bank, it’s insured by the FDC. Given the resources of the fed government, I would assume it could cover small-to-medium sized bank collapses.
There’s some confusion at the core here. A mortgage is an asset from the bank’s POV. It’s a liability from the homeowner’s POV.
The fact that Bank A is in financial trouble does nothing to harm the value of their assets. It only suggests (or proves) that the liabilities of Bank A: its routine bills for expenses, any money it borrowed, and its shareholders, will come up short as there’s not enough money to go around to pay all of them. And absent FDIC, the depositors particularly will get screwed and get screwed first. With FDIC, the depositors are taken out of the equation, but the rest of the creditors will still get screwed to some degree.
Meanwhile the assets sail on undisturbed. Whoever is managing the bankruptcy will sell the assets, whether that’s bank branches sitting on real estate, computers, and yes, all the mortgages for what they can get for them. Which for a mortgage at current interest rates will be full value. @md-2000 makes the valid point about mortgages written at different times at different rates being worth more or less than face value depending on how interest rates have changed since. But that has zero to do with the bank’s bankruptcy; that’s just a normal fact of daily business in the finance industry.
Lastly, nowadays very few banks actually own much in the way of mortgages. They make be involved is setting up your mortgage, and they may be who you send the payment to every month, but they’ve almost certainly sold the actual debt off to a specialist finance outfit shortly after it was originated.
From the homeowner’s POV all this is transparent. But as applied to the OP’s scenario it means that whoever does hold your mortgage is probably not who you think it is, and there’s not an opportunity for you to buy it out at any extra special discount just because the bank you’ve been making payments to has run aground.
As to estates:
My deceased first wife used to be in that business. In the USA it’s totally a creature of state statute.
In the few states I’m familiar with in detail, after the probate estate is formally opened by the court, a notice is published telling all creditors where to make claims for payment. Typically that’s to the attorney handling the probate estate. Depending on the state, creditors have 60 or 90 days from that date to present a claim. If they get their claim in on time, it’ll be paid by the estate (to the extent there are enough funds in the estate). Miss the deadline by a day and the answer changes to “Sorry Charlie; you snoozed and loosed.” As @puzzlegal says, in her state it’s a year after death; states definitely do vary in how this is reckoned. But once teh claim period is over, it’s over.
Also in general, death does not discharge secured debt. Or more accurately, it does not discharge the security interest the lender has in the collateral. When someone dies with a mortgage, the house need not be sold immediately to pay the bank. But when the house does eventually sell, the bank gets paid first and the heirs get the rest.
Technology is always fun. I would assume in the days of paper records or on-site servers, the records were there to be recovered. But nowadays, with many businesses contracting out their IT services to a cloud service, there’s the risk - absent law to the contrary - that the bank failing to pay its bills, the data simply gets erased. Take to long to settle things, and the backups disappear too. Or the folks with the passwords disappear.
(Classic cartoon in an ad from the mainframe days, everyone is standing around the grave during a funeral, and one fellow is asking the widow “I know it’s an awkward time, but did he ever say anything about backups?”)
I would assume the full terms apply - i.e. the estate and then the heir are obliged to make the contracted regular payments. The lien does not disappear? Since the contract is on record, as opposed to random merchants who may be owed money.
They can and they do. That’s what a mortgaged back security is. A bank buys up a bunch of mortgages from other banks, packages up and then sells them as a bond.
You can’t actually change the terms of the loan unless you and the bank are willing to refinance the loan.
But as someone else pointed out, the debt (mortgages) the bank holds are assets (things that pay the bank) to the bank. Your deposits are liabilities (things the bank has to pay). So the bank is going to want to maximize how much it sells the debt for and minimize the deposits they need to play back.
Which is what happened to SVB. They used cash from deposits to buy a bunch of bonds (much of them mortgage back securities). Interest rates rose and the value of the bonds decreased. A bunch of rich venture capitalists got nervous and tried to pull out their largely uninsured deposits and SVB wasn’t able to come up with enough cash to pay them.
I was careful to say, “in my state”. I suspected those laws might vary by state. 60-90 days, huh.
(She died a year ago January, so we’re closing things down now. But we’ll have to file taxes on the estate, because it still existed on January 1st.)
I SO wish I had found something like “what to expect when you are executing”. I hadn’t a clue what to do, and I’m still worried I’ll do something wrong. Also, my mother’s accountant is terrible.
So you were.
In the states I’m aware of with the 60- or 90-day periods, they’re reckoned not from date of death, but from date of publication of the notice. Which comes some days after the court’s formal opening of probate which comes some weeks or even months after the death itself. So in practice, even in those states there’s often 6-9 months from the date of death to the end of the creditor’s claim period.
My wife’s other clients were banks. Who are commonly creditors of lots of people, being in the business of loaning money as they are.
They subscribe to newsletters, now online feeds, of deaths. Which data comes from county birth/death recording departments and is also fed to Social Security who in turn republishes it to the world. Given today’s or this weeks death list, the banks cross-match that against their customer database. Once they know somebody is dead, they’ll do things like flag or lock accounts, freeze/close credit cards, contact PODs, POAs, or account co-owner/co-borrowers, set up a watch for the appropriate courthouse to issue a probate order, or watch the relevant local legal publications for the creditor’s notice.
There’s lots of bureaucracy watching the living to ensure they don’t sneak off with money once somebody else has snuck off the planet.
Northern Rock - I had a mortgage with them. I didn’t panic at all - didn’t cross my mind that I might lose my home - in fact, a teeny part of me hoped that I might not have to pay my mortgage back (not seriously). In reality, Virgin Money acquired the debts, and I just started paying them instead. Same terms/interest.