If your bank goes under what would happen to your mortgage?

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If your bank goes under can they demand you pay back your mortgage monies owed them? If they can't do this, what would happen to your mortgage? Lastly, during the depression were people simply unable to make their mortgage payments or did banks demand their money back?

-- Kim (KimWes@aol.com), February 27, 2000

Answers

Most federally insured banks, in the event of failure, are placed into receivership under the Federal Deposit Insurance Corp., and the failed bank's remaining assets are later sold/merged into a more solvent competitor bank. (This happened frequently in the 1980s in the Southwest during the Oil Bust.) The newly merged bank then administers the mortgages it holds according to the terms thereof. Generally, no, the bank cannot unilaterally call the loan due simply because the bank becomes insolvent (that's the bank's problem, not the borrower's problem.)

They may be able to do so if you sell the property (invoking the "due-on-sale" clause. There may be other reasons the bank can call a mortgage due, but those would be set forth in your mortgage or deed of trust.

Now, as in the Depression, if the holder of a mortgage cannot collect the payments from the borrower, they generally initiate foreclosure proceedings, where the property is auctioned off to the highest bidder for cash, in the manner specified by the mortgage or deed of trust. The bank really doesn't want to do that, since instead of having the money, they have a piece of real estate, and banks are not in the real estate business.

-- Milton Miteybad (prk7383@airmail.net), February 28, 2000.


The doors may close on a bank going toes up, but that is not the end of the story. Your mortgage represents an asset. the bank is liquidated just like London Fog, or LaSalle Furniture, or Sun Electronics. the assets are sold off to other institutions (NO you can't bid on the loan, only financial institutions get invited to the auction), and the loan is then owned by another bank or financial institution.

You stilll owe the payments, just to someone else. THEY can't change the call provisions of your loan, unless they "invite" you to re- negotiate.

DO CHECK YOUR LOAN PAPERS TO SEE WHAT THE CALL PROVISIONS ARE!!!

Some loans have funny call provisions.

Remember I ain't a financial or legal advisor and Y(our)M(ileage)M(ay) V(ary)

Chuck

-- Chuck, a night driver (rienzoo@en.com), February 28, 2000.


When a bank goes under, the feds come in to settle the matter, ie: FDIC. You would pay the mortgage money to them. As to the depression, the matter was handled differently in different places. My grandfather owed money on his farm during the depression and could not make the payments. No one else could either. The bank decided that there was no point is repossessing all those properties since they couldn't sell them to anyone. So the bank told them to make payments when they were able to do so. However, in other areas, the banks repossessed the properties.

-- Y2kObserver (Y2kObserver@nowhere.com), February 28, 2000.

I think someone else would take over your mortgage as a bank asset, and you pay them from there on. "Callable mortagages" are highly unusual, so Banks cannot demand mortgage balances without fault (or default)on your part.

-- W (me@home.now), February 28, 2000.

The file folder with your mortgage papers gets accidently dropped behind a cabinet and is lost for good when the branch closes, to become a video store in a few years, then you get your house for free.

-- INever (inevercheckmy@onebox.com), February 28, 2000.


From: Y2K, ` la Carte by Dancr (pic), near Monterey, California

Before it gets to that point they sell it to Sears, or whatever mortgage lender you would least like to owe money to.

-- Dancr (addy.available@my.webpage), February 28, 2000.


Most banks loan money under a different name. You deposite your money into bank XXX and they loan the money to Joe Sixpack via mortgage company YYY even though Joe went to the XXX bank to get it. So if bank XXX goes under the mortgage company YYY is still in business.

Sorry. Justthinkink

-- justthinkin com (justthinkin@money.com), February 28, 2000.


As a historical footnote, most mortgages issued prior to WWII, were 5 year loans, with a ballon payment due at the end. People would roll over the note for another 5 yeat period. When the Depression set in, many banks refused to renew the mortgage, even to good pays, because they were fearful of liquidity problems. Actually, more people lost their houses through non-payment of property taxes when failure to renew their mortgages. The problem with a deflation scenario, is that your prior commitments are payable in increasing more dear terms, while your income is being slashed. The banks do not reduce the amount to reflect the increasing value of money.

-- Sure M. Hopeful (Hopeful@future.com), February 28, 2000.

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