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Home >> Lending >> Home Mortgage
Bank Waffles on Construction to Permanent Loan
I have a house and property for which I am currently paying. About three years ago, I asked a bank if I could build a pool and shop at this property. They did an appraisal and said there was enough equity to do this and approved a three month building loan. They handed me a check and I had it built. At the end of the loan, they told me that they could not place the loan for a permanent loan and to go to another bank. They have had it on forebearence ever since and just keep charging me interest every month, which I pay, nothing to principal. This all happened as the housing market fell and no one wants to talk about it except to say this bank should handle it. All this bank will say is that we shouldn't have given the loan go to another bank. Is this right or legal, what should I do.
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 If the bank made no loan commitment (in writing) then you have a loan owed them. You agreed to the terms and have to live by them. While they may be accepting interest only now, at one point they will be forced to ask for a principal reduction. They cannot have a perpetual loan. That reduction may be anywhere from a small percentage of the balance, to the entire balance. If there is no reduction at all from you, and they demand it in full, your hands will be tied. You are responsible for paying the bank.
You should seek alternative financing, combining your loans with a lender, or asking the existing lender to renew it so that you have a definite payment schedule and maturity date. You may need to offer some additional collateral if your property value is less than what is owed.
The new loan may be a three or five year balloon if the lender doesn't want a longer term loan. If you are unfamiliar with these types of loans, ask your lender what is offered. In any event, be proactive and address this now. Waiting until the lender says you have thirty days to pay it in full is too late. Yes, this can happen; yes, it is legal.
Published on BankingQuestions.com 9/01/10
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