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At a bank in Pennsylvania (USA) to get loan with house as collateral. This is for a small rental LLC with a couple of houses. While reading the agreement, much of it was commonsense, but a few things caught our attention.

  • Borrower...Authorizes...Clerk of any Court...For borrower (so any county clerk can an act on behalf of borrower)

  • The note contains a confession of judgement provision that would permit lender... Without advance notice. The undersigned...is knowingly..waiving these rights, including any right to advance notice.

  • Permit lender..again without advance notice..execute...by foreclosure

  • Waives all other duties of lender

The agreement also allows the lender to call for the entire debt to be due at any time. This is an interest only line of credit, the bank did not offer other LOC of options for commercial clients.

In short, this agreement would allow the bank at anytime to call for the loan to be due, declare it in default, ask the county clerk to act on behalf of borrower (LLC, cosigned by owners) and foreclose on the collateral house, all without advance notice.

The loan was not closed, it seems that assigning or waiving rights is a requirement of the loan.

Did we just pick the wrong bank, or is it standard practice for banks to require that you waive your rights before granting a loan?

Note: This loan was for well under the (low) appraisal on the collateral. Where all borrowers have good credit.

  • If it wasn't for congressional hearings on adaptation of the uniform FNMA/ FHLMC uniform instrument in 1971-2, personal mortgages would have a similar "lender has all the information and take it or leave it power" problem. The personal loan space has norms set by a weird non-socialism semi private monopoly socialism. Commercial loans are much more libertarian. It is on you to red line the terms you don't want in the contract, or shop around. – user662852 May 15 '16 at 13:32
  • why the down vote? – James Jenkins May 16 '16 at 0:28
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Yes, you picked the wrong bank. A loan requires payment, that the house is properly insured, maintained, and taxes paid.

Just the fact that they can unilaterally call the loan, even with warning, is enough reason to stay away and find another lender.

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I've never bought investment property (which is what this is), but I know of two instances where yes, in fact, the loan included a call provision like you mention. And I know of no instances where it doesn't.

Both cases were back in the early 90's. The case I'm more familiar with was my brother-in-law, who had bought a new property, was going to re-hab it, and turn it into a rental. After purchasing materials but before starting construction, financial difficulties at the lending bank came to light, and the bank was bought out. the new bank immediately called the loan, and ended up taking the property.

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