FranLab is getting evicted

[soldar]

The house was under hypotec (deed? I don't know the English term) by the bank until the very last day of the mortgage

German Hypothek is mortgage. A loan secured by real property.

[jancumps]

The whole notion of "giving the property back to the bank" is incorrect, as is the idea that the bank can sell the property and make a profit.

I think in reality it's the same. I used the word deed but lien may be the correct English term.

The bank does not own the property, but they can force a sale if you fail to pay back. Once the bidded price is higher then your outstanding costs and additional legal fees and interests read:never), you get the rest of the mony.
So the bank can not make a  gain. It stops when they have all their losses and costs back.

[soldar]

In the U.S., the mortgage holder (e.g., the bank) has NO ownership interest in the property. When someone buys property, they borrow money from a bank and then use that money (plus some of their own) to purchase the property. The property is then transferred to the new owner. When you get the mortgage, the bank is going to require that you give them a lien on the property. If you fail to pay the mortgage, the bank then has to go through the foreclosure process to take ownership of the property. Only then can they sell the property, and they are only allowed to keep as much money as necessary to pay off the outstanding debt, any extra goes back to the debtor.

The whole notion of "giving the property back to the bank" is incorrect, as is the idea that the bank can sell the property and make a profit.

Well said. A lot of people have a very loose and often mistaken idea of how mortgages work.

[nctnico]

The whole notion of "giving the property back to the bank" is incorrect, as is the idea that the bank can sell the property and make a profit.

I think in reality it's the same. I used the word deed but lien may be the correct English term.

The bank does not own the property, but they can force a sale if you fail to pay back. Once the bidded price is higher then your outstanding costs and additional legal fees and interests read:never), you get the rest of the mony.
So the bank can not make a  gain. It stops when they have all their losses and costs back.

That could depend on local law.

[jancumps]

Is it different in The Netherlands when you fail to pay back a mortgage?

[dnwheeler]

I think in reality it's the same. I used the word deed but lien may be the correct English term.

Not quite. The deed is the legal statement of ownership - that is typically in the name of the buyer. A lien is an "encumbrance" on the property. Basically, it prevents the owner from selling the property until the lien is removed. Even a carpenter remodeling a kitchen can get a lien on the property if the work isn't paid for.

More dry technical details:

Note that some states allow the use of a "Deed of Trust" instead of a mortgage. This then effectively "splits" the ownership, where the buyer holds the "equitable title" and the lender holds the "legal title".

The lien doesn't give the bank the right to sell the property. First, they must go through the courts to take ownership of the property through a foreclosure - this typically must be approved by a judge (depending on state law) and can be contested. Only after the foreclosure is complete, does the bank own the property and can proceed to sell it. Some banks will simply "sit" on a house if the market is down (although the ongoing maintenance costs to the bank add up). During the U.S. housing crisis, some banks were even letting people live in their foreclosed property for free as long as they maintained it, likewise many foreclosures were delayed indefinitely because the value of the house was below the amount due, so there was no benefit for the bank to take possession. It is also possible for the homeowner to purchase the property back from the bank after foreclosure, possibly for less than the amount owed (by being the high bidder at a real estate auction).

Some states (including California and Texas) allow for "power of sale" clauses which, upon default, permit the lender to sell the property even though they don't own it. They are essentially forcing the sale on behalf of the owner to satisfy the lien(s).

[jancumps]

Not quite. The deed is the legal statement of ownership - that is typically in the name of the buyer. A lien is an "encumbrance" on the property. Basically, it prevents the owner from selling the property until the lien is removed.

Yes, that Lien is what I wanted to say. I have the deed, the bank has the lien.
Not a native English speaker.

[nctnico]

Is it different in The Netherlands when you fail to pay back a mortgage?

No but it may be different in the US and other countries based on the 'English' law system.

[EEVblog]

The reason the bank wants a big down payment isn't so they get more money in a foreclosure and sale, it is to ensure that if they have to go through that process that will be able to sell the property quickly and for enough money to cover the debt. They also don't want to go through this process, so they want the borrower to be incentivized to make their payments (or sell the property themselves to pay off the debt).

Correct. I was not suggesting otherwise, the banks aren't in the foreclosure business, but it's a thing they have to deal with and factor in.
Bigger deposit = lower risk = better chance of getting a loan. It's a part of their risk formula.

The primary issue with self-employed borrowers is the bank needs to see consistent income for many months (typically 2 years). There has to be some assurance that the borrower will still be able to make the payments for the next 3-4 years (at which point, enough equity has been built up to mitigate most of the risk). Many sole proprietors tend to co-mingle their personal and business accounts (or simply don't keep business accounting records), or try to structure their income in such a way as to show little to no income (by writing off everything, typically for tax purposes). Unfortunately, you can't tell the IRS that you only make $10,000/yr and then try to tell a bank that you really make $100,000/yr. You also can't say I make $10,000/mo, if you can't demonstrate (with documentary evidence) that you actually receive (personally, as payroll income or cash taken out of the business, properly documented and taxed) this amount every month from a source that will continue at that rate indefinitely.

This is Fran's big problem, but I think she can work her way out of this issue.
Incorporate a company, get seriously back into Frantone where she has brand recognition, and make that the mainstay income source. FranLab income isn't going to cut it.

[EEVblog]

In the U.S., the mortgage holder (e.g., the bank) has NO ownership interest in the property. When someone buys property, they borrow money from a bank and then use that money (plus some of their own) to purchase the property. The property is then transferred to the new owner. When you get the mortgage, the bank is going to require that you give them a lien on the property. If you fail to pay the mortgage, the bank then has to go through the foreclosure process to take ownership of the property. Only then can they sell the property, and they are only allowed to keep as much money as necessary to pay off the outstanding debt, any extra goes back to the debtor.

The whole notion of "giving the property back to the bank" is incorrect, as is the idea that the bank can sell the property and make a profit.

Well said. A lot of people have a very loose and often mistaken idea of how mortgages work.

Here legally the bank does not have to go through the court system to repossess and sell your house. But for home owners they usually do that so that it gives a sheriff the power to come around and legally change the locks and physically evict you. They don't legally have to though, they can in theory just sell the house and have the new owner deal with throwing you out.
If the house is rented then the bank can take the repayments without a court order. Of course you can contest this in court and make them go through that process if you have the money to do that. But if you had that money you would have just repayed the loan.
Basically, the bank controls title on your home and can legally operate on the title without court order. In theory they could even legally do that whilst you are still repaying the loan, and it would be up to you to then sue them for breach of contract or some such.
https://www.legalaid.nsw.gov.au/publications/factsheets-and-resources/mortgage-stress-handbook/3.-can-the-lender-take-my-house-what-is-the-process

[james_s]

In the U.S., the mortgage holder (e.g., the bank) has NO ownership interest in the property. When someone buys property, they borrow money from a bank and then use that money (plus some of their own) to purchase the property. The property is then transferred to the new owner. When you get the mortgage, the bank is going to require that you give them a lien on the property. If you fail to pay the mortgage, the bank then has to go through the foreclosure process to take ownership of the property. Only then can they sell the property, and they are only allowed to keep as much money as necessary to pay off the outstanding debt, any extra goes back to the debtor.

The whole notion of "giving the property back to the bank" is incorrect, as is the idea that the bank can sell the property and make a profit.

Well said. A lot of people have a very loose and often mistaken idea of how mortgages work.

Ultimately I would say it doesn't really matter to the person buying the house. You get approved for a mortgage, you keep up on your payments and eventually own the property outright. If you fall far enough behind on the payments your loan can get foreclosed and the property is taken away, eventually to be sold.

The area where a lot of people could benefit is understanding the advantages of paying off excess principal faster than required. As soon as I earned enough to afford it I have paid a couple hundred bucks extra each month toward the principal and ultimately it is chopping off a significant amount and resulting in a very substantial savings. I found an online calculator years back and ran the numbers experimenting with different amounts of excess principal to pay and settled on a value where the benefit of paying more was starting to plateau.

[EEVblog]

The area where a lot of people could benefit is understanding the advantages of paying off excess principal faster than required. As soon as I earned enough to afford it I have paid a couple hundred bucks extra each month toward the principal and ultimately it is chopping off a significant amount and resulting in a very substantial savings. I found an online calculator years back and ran the numbers experimenting with different amounts of excess principal to pay and settled on a value where the benefit of paying more was starting to plateau.

Yep, it makes a HUGE life changing difference down the track.
Not only in reduced compounded interest, but in terms of forced saving and having equity you can pull out later.
Like I said before, I bought my own lab with zero approval required from anyone, and zero paperwork. I am my own bank. I simply took out the money stored in the home loan, and then payed off a commercial property at low home loan interest rates.
For those who don't know, if you think it's often hard getting a home loan, try getting a commercial property loan. At best (here in oz anyway), you need a 40% deposit and the interest rates are double home loan rates.

[rsjsouza]

For those who don't know, if you think it's often hard getting a home loan, try getting a commercial property loan. At best (here in oz anyway), you need a 40% deposit and the interest rates are double home loan rates.

When we moved houses, the year was 2010 and the banks were very shy in lending money without a minimum of 20% down payment, percentage of income, mandatory escrow^* and other things. We were able to workaround these requirements and get the lowest rate by giving a down payment of about 40% of the total value. This was high enough that the bank was comfortable in removing the requirements and low enough that the bank would still make good profit. Above 60% down payment and the interest rate would start to increase again.

^*For foreigners: escrow is when the money to pay taxes is added to every monthly payment. This is supposed to benefit the loaner, as he/she don't get a massive impact at the beginning of the year when the tax has to be paid. Since we are very responsible with money, we don't like this as the money generates zero interest for us loaners while the bank withholds this money scot-free.

[langwadt]

In the U.S., the mortgage holder (e.g., the bank) has NO ownership interest in the property. When someone buys property, they borrow money from a bank and then use that money (plus some of their own) to purchase the property. The property is then transferred to the new owner. When you get the mortgage, the bank is going to require that you give them a lien on the property. If you fail to pay the mortgage, the bank then has to go through the foreclosure process to take ownership of the property. Only then can they sell the property, and they are only allowed to keep as much money as necessary to pay off the outstanding debt, any extra goes back to the debtor.

The whole notion of "giving the property back to the bank" is incorrect, as is the idea that the bank can sell the property and make a profit.

Well said. A lot of people have a very loose and often mistaken idea of how mortgages work.

Ultimately I would say it doesn't really matter to the person buying the house. You get approved for a mortgage, you keep up on your payments and eventually own the property outright. If you fall far enough behind on the payments your loan can get foreclosed and the property is taken away, eventually to be sold.

The area where a lot of people could benefit is understanding the advantages of paying off excess principal faster than required. As soon as I earned enough to afford it I have paid a couple hundred bucks extra each month toward the principal and ultimately it is chopping off a significant amount and resulting in a very substantial savings. I found an online calculator years back and ran the numbers experimenting with different amounts of excess principal to pay and settled on a value where the benefit of paying more was starting to plateau.

maybe mortgages are different here, but afaik you can't just pay extra without fees or basically getting a new mortgage with a shorter period, which can only be done at certain intervals

[tooki]

maybe mortgages are different here, but afaik you can't just pay extra without fees or basically getting a new mortgage with a shorter period, which can only be done at certain intervals

In USA you definitely can make extra payments on a mortgage, though it's important to specify that one wants it applied to the principal and not the interest, otherwise the bank will apply it as is most advantageous for them, not for you! Doing so does not, however, delay or replace any of the regular scheduled mortgage payments due. (This has caught many people off guard, who sent in payments early, but without the proper payment slip, resulting in "missed" payments despite actually having paid early.) This is different from paying off the whole mortgage early in one transaction, which does often involve a fee of some sort.

The details of course vary by the terms in the mortgage contract.

[langwadt]

maybe mortgages are different here, but afaik you can't just pay extra without fees or basically getting a new mortgage with a shorter period, which can only be done at certain intervals

In USA you definitely can make extra payments on a mortgage, though it's important to specify that one wants it applied to the principal and not the interest, otherwise the bank will apply it as is most advantageous for them, not for you! Doing so does not, however, delay or replace any of the regular scheduled mortgage payments due. (This has caught many people off guard, who sent in payments early, but without the proper payment slip, resulting in "missed" payments despite actually having paid early.) This is different from paying off the whole mortgage early in one transaction, which does often involve a fee of some sort.

The details of course vary by the terms in the mortgage contract.

here a the bank is only doing the paperwork, mortgages are from separate institutions that does nothing else
but real estate mortgage bonds, I think the fee for paying extra is ~$100

but at the moment you where you can get fixed interest rates at close to 0% so does it really make sense to
pay off faster ?

 

[rrinker]

 I bought a house suitable to my needs - not "the biggest house the bank said I could afford based on my income". Doing so has allowed me to pay extra principal every month, and getting me under an 80% loan to value figure just over 5 years in to a 30 year mortgage (straight calculation based on the original amount borrowed - I also put 10% down at time of purchase). This is allowing me to remove the $120/mo cost of mortgage insurance, but since I am more than comfortable with my payment as is, rather than take a reduction in payment, I will keep paying the same and add that additional $120 to the principal payment. I don;t want to be paying a mortgage after I retire, I want to have this paid off. Of course - in the US, that STILL doesn't mean I own my home - if I fail to pay my taxes, they can take my home. Yup, fail to pay a tax of $5000 and they can take a house currently worth about $240k. As in - I get nothing, kicked out to the streets. This is where a lot of the flippers get their properties, from tax auctions, all the selling party is looking to get is the taxes owed plus auction fees, so you have extravagant properties selling for pennies on the dollar. Of course, it IS an auction so if there is much competition, the price could go way up.

 What Dave wants to do in regards to buying a house and making that the new EEVBlog Lab - that wouldn't work in most US communities due to zoning laws. No one generally says anything if you use a spare bedroom as an office and run a consulting business out of your house, or sell baskets or something as a side line. But unless the zoning allows commercial use of the property, you can't set up a full fledged business, even if the only difference is you might get a few more delivery trucks compared to the average person (yeah, so I order a lot from Amazon - big deal). Even if there is no noise, smells (well, so much for blowing up capacitors...) or constant coming and going disturbing the neighbors, it's simply not allowed in an area zoned residential.

 As for Fran's situation, without the verifiable income, she's out of luck. ANd many banks have limits on how much of your down payment can come from gifts rather than directly from your own savings. You will often need to produce documentation proving it truly is a gift, even from family members, and not a loan you are expected to pay back. This generally applies to significant sums - say your parents gift you $10k towards a down payment, most banks will require a signed letter from your parents stating that this is a gift, free and clear of an obligation.

 And I've said it before, In the city limits of Philadelphia is about the worst possible place to live. There is an extra sales tax above the state one. There is an extra income tax above the state one. There are other nearby places to live that you can also manage without a car, that do not have these extra taxes. There are also plenty of places in this state where no one will care about LGBTQ status. There are for sure places she would NOT want to live in this state, but downtown Philadelphia is NOT the only 'safe' place. Good example, not that housing there is cheap, for sure, but I'm willing to bet she'd find even MORE acceptance in New Hope, just a short distance north of Philadelphia. None of the extra taxes, but hosuing costs there are quite high, so it's not ideal across the board, but on the lifestyle issue, it probably doesn't get much better.

[james_s]

maybe mortgages are different here, but afaik you can't just pay extra without fees or basically getting a new mortgage with a shorter period, which can only be done at certain intervals

In USA you definitely can make extra payments on a mortgage, though it's important to specify that one wants it applied to the principal and not the interest, otherwise the bank will apply it as is most advantageous for them, not for you! Doing so does not, however, delay or replace any of the regular scheduled mortgage payments due. (This has caught many people off guard, who sent in payments early, but without the proper payment slip, resulting in "missed" payments despite actually having paid early.) This is different from paying off the whole mortgage early in one transaction, which does often involve a fee of some sort.

The details of course vary by the terms in the mortgage contract.

here a the bank is only doing the paperwork, mortgages are from separate institutions that does nothing else
but real estate mortgage bonds, I think the fee for paying extra is ~$100

but at the moment you where you can get fixed interest rates at close to 0% so does it really make sense to
pay off faster ?

I think my interest rate is 3.28%, it's very low but non-zero and when the principal is several hundred thousand dollars it doesn't take a very high percentage to add up to real money. Even paying extra I'm pretty sure I will ultimately pay more for interest than I do for the house.

[beanflying]

And we are now just a touch off topic 

Domestic housing loans to wage earners have little to ZERO relevance to the sole trader / self elmployed person getting a loan and in particular buying commercial property.

[EEVblog]

maybe mortgages are different here, but afaik you can't just pay extra without fees or basically getting a new mortgage with a shorter period, which can only be done at certain intervals

Here in Australia most loans will have one of two options, or both:
1) An "offset account" that is a bank account you put money into, the balance of which is subtracted from the loan remaining amount. So if your pay goes into this account you automatically reduce your interest. And you pay your bills and live your life using this transaction account.
2) A "redraw facility" lets you take out extra money you have payed into your loan account. e.g. if your repayments are $1000/month and you pay $2000/month, in a year you'll have $14,000 you can redraw from your loan to use for whatever you want. I used this to buy my old lab outright. of course your principle has gone down if you withdraw it so your interest goes back up accordingly.

As for "line of credit" type loans. Let's say you own your home, you set up a line of credit loan, on say a $1M house they will give you an account with $800k in it you can use for anything you want. if you don't take the money out, you don't pay any interest and it just sits there like an $800k bank balance.

[EEVblog]

Domestic housing loans to wage earners have little to ZERO relevance to the sole trader / self elmployed person getting a loan and in particular buying commercial property.

I don't believe Fran is buying a commercial property, I believe it's just a big residential apartment. I stand to be corrected though.
You usually can't live in a commercial property.

[EEVblog]

but at the moment you where you can get fixed interest rates at close to 0% so does it really make sense to pay off faster ?

In theory, no, but in practice yes, because it forces you to save instead of pissing your money away like most people end up doing.

[edavid]

Here in Australia most loans will have one of two options, or both:
1) An "offset account" that is a bank account you put money into, the balance of which is subtracted from the loan remaining amount. So if your pay goes into this account you automatically reduce your interest. And you pay your bills and live your life using this transaction account.
2) A "redraw facility" lets you take out extra money you have payed into your loan account. e.g. if your repayments are $1000/month and you pay $2000/month, in a year you'll have $14,000 you can redraw from your loan to use for whatever you want. I used this to buy my old lab outright. of course your principle has gone down if you withdraw it so your interest goes back up accordingly.

As for "line of credit" type loans. Let's say you own your home, you set up a line of credit loan, on say a $1M house they will give you an account with $800k in it you can use for anything you want. if you don't take the money out, you don't pay any interest and it just sits there like an $800k bank balance.

We don't have those options (offset or redraw) in the US.  If you pay down your mortgage, you lose the optionality.  We do have "HELOCs", but they are much more expensive than first mortgages.

I don't believe Fran is buying a commercial property, I believe it's just a big residential apartment. I stand to be corrected though.
You usually can't live in a commercial property.

You also can't have a light industrial business in a residential property 
In practice, you can get away with either.
(There are also properties that are legal live/work.)

[Bud]

With all her whining artistic talent all she needs to do is make another video. The donated money may be sufficient to use for a downpayment .

[TheSteve]

With all her whining artistic talent all she needs to do is make another video. The donated money may be sufficient to use for a downpayment .

Why wasn't the 44K last time used as a down payment?