Can lenders sell your house if your don't pay off your credit Cards?

[Scott Miller]

Hello people,

At work I'm having a great debate on whether credit card debt can be used as a reason for lenders to force a mortgagee sale to recuperate amounts of money owing. Of course we understand that the credit cards issued and the mortgage must be held by the same lending institution for this question to be asked.

The office is split down the middle, so can you tell me your thoughts.

Can a lender legally foreclose on your mortgage over credit card debt?

[cube]

Knowing the banks, I suspect that when you sign up for a CC, you are actually giving a personal guarantee for the debt, so I suspect that the bank can say 'pay up, or we'll make you bankrupt', even without the mortgage.

Further, I suspect that, deep down in a mortgage document, there would be a clause allowing the bank to call in the mortgage if it had knowledge that you were going to go bankrupt.....

However, the devil would be in the detail, and I haven't spent as much time as I should reading my mortgages!

cube

[krispedersen]

From memory the answer is yes

[Waveindigo]

Yes, they can, although its quite unlikely. Even though credit card debt is considered "unsecured", standard agreements allow the lender to use whatever available means to re-coup the debt in the event of non-payment. Occasionally this may be a Mortgage on a property owned wholly by said debtor. From another angle, a Mortgage allows a lender security (up to a priority amount) on a property. Allthough you may have only secured your home loans using this, if push came to shove you can bet your bottom dollar the lender will give it a go, though they would likely have additional legal costs.
Have you ever noticed that you will always be accepted for a higher credit limit on your credit card, if you also have a mortgage with that bank? Not a coincidence.
Interesting stuff.

[roseneath_rat]

It will depend on the specific terms & conditions for the particular credit card & the particular home loan. There is usually a catch-all clause in a home loan agreement to say that the house security can be extended to any funds outstanding to the bank.

[essence]

Rates demands

It is also a little known fact that City Councils can also put your house to a mortgagee sale for the unpaid rates.

There was a period in the late 90's early 2000's that the Waitakere City Council put several houses to mortgagee sale, and were successful in recouping their rates through the sale process.

[ream]

There is usually a catch-all clause in a home loan agreement to say that the house security can be extended to any funds outstanding to the bank.

Yep, I thought it was like this too. Another reason to spread ALL borrowing around between banks.

[Davo36]

As part of my real estate studies I have fully read a mortgage document. The standard form from the ADLS I think. It's a real eye opener - anyone in property investment should read a mortgage at least once. It's quite a sobering document.

Most people never read a mortgage document. You show up to the solicitors on settlement day, sit down and sign where they have indicated, there usually isn't the time or inclination to actually read all the documentation.

From memory, the bank have all sorts of powers. They can foreclose or demand extra money at any time for just about any reason (i.e. they don't have to give a reason). They can appoint themselves as your lawyer, the entity the local council has to deal with re rates, same with body corp, stop you from going to the property and on and on it goes.

It's a common misconception that you have to be behind in your mortgage payments for the bank to step in. This is not the case at all. If they believe you're a risky proposition (maybe because property values are falling) then they can ask for you to come up with more money or they'll foreclose.

And the thing is they don't necessary sell at the market value either. They will sell at a figure just high enough to get their money and expenses back. So if you have a $400k property with a $200k mortgage, they can sell it for $240k which will give them their original principal back, pay the agents etc. Your equity is wiped out and there's nothing you can do about it because you've signed something giving them permission to do it - the mortgage.

[Rolf]

Yes, always assume that the bank can do anything they like.

You just need to give them less incentives to do that, by paying on time and having a reasonable LVR. After all, the banks lend money to earn an income, and if they foreclose or otherwise loose a customer, they are also loosing all future income from that customer.

So as long as you keep them happy the risk is low.
But yes, they can demand anything they like in theory.

[ream]

From memory, the bank have all sorts of powers. They can foreclose or demand extra money at any time for just about any reason (i.e. they don't have to give a reason). They can appoint themselves as your lawyer, the entity the local council has to deal with re rates, same with body corp, stop you from going to the property and on and on it goes.

It's a common misconception that you have to be behind in your mortgage payments for the bank to step in. This is not the case at all.

Our lawyer actually (bless his cotton socks) took the time to mention this to us when we first signed a mortgage doc here - slightly shocking at the time IIRC but I guess they are lending us a large heap of cash and do hold all the cards.

[Perry]

But they don't have to hold the credit cards.

When banks want 'all your business,' they are
seeking more than just more profit from more
products. They're also seeking more guarantees,
even if not obviously so. That's why they often
offer 'incentives.'

We have a credit card with a bank that we do
no other business with, as personal entities.

I recommend it as a financial tactic for exposure/
risk minimisation. Or to put that another way, no,
lenders can't sell your house if you don't pay off
your credit card, so long as the house mortgage
lender and the credit card 'lender' are two different
financial institutions/entities.

[Julian]

Perry,
There's another equally safe measure that you forgot to mention - that of paying your debts in a timely way - unheard of I know, but if you look through the small print I think you will find it.
Julian

[roseneath_rat]

Perry,
There's another equally safe measure that you forgot to mention - that of paying your debts in a timely way - unheard of I know, but if you look through the small print I think you will find it.
Julian

Now thats just crazy-talk Julian... why do so many people not think of that one?

[Perry]

OK . . .

I'm presuming PTalkers are not part of the great unwashed.
(Did I err in that assessment?)

I.e. That they are likely to pay their debts in a timely fashion.

But, most financial institutions don't differentiate. They
have catch-all phrases that are outlandish, when viewed
dispassionately, from the other side of the counter.

It's just the nature of the world we live in. One where vicarious
penalties are becoming more-and-more the norm.