Refinanced, but the bank is holding my funds

easybee wrote: ↑ Looking for advice or comment by anyone that has any knowledge or experience with the matter.

I refinanced our first home to 80% loan to value, taking money out to consolidate debt and update the bathrooms and kitchen (and a few other small projects). We closed the deal a month ago and there was a conversation at the time about the use of the reno funds, as the bank wanted to assure themselves that I would make prudent use of the money and complete the reno (I even had to submit a detailed reno budget). They would hold the reno funds and release the money as I presented invoices and receipts.

I have submitted two receipts by now, and both had issues. The first one "lacked necessary details"; this was resolved by me pointing out all the "missing details" on the document submitted. The next one was "too small" -- I was asked to batch my receipts and submit them all together. I objected that I don't want use my credit cards to carry debt and suggested a petty cash system using a savings account for me to draw from freely, to be replenished once documentation is provided accounting for the funds, while large items would be dealt with outside of this fund, preventing the banks time being wasted by multiple small submissions. This was declined because "the bank needs to control these funds. (The funds currently sit in a savings account with a hold on the entire amount.) An anecdote was presented about a couple that used their funds irresponsibly and failed to complete a basement reno. When I said that it sounded like the bank does not trust me to spend my money responsibly the agent relented (on the matter of this one receipt, and agreed to process, sounding RATHER annoyed at doing so.

I have reviewed the agreements we signed, and this "control over funds" is not addressed in any document. It occurs to me that while I complete this reno, they bank has my funds and can profit from them. I would rather profit from them over this time.

Without a signed agreement to this nature, what right does the bank have to hold my money? Can I simply withdraw my consent to this arrangement and demand my money released? Should I negotiate with them, or hire a lawyer? What are my rights here?

CNeufeld wrote: ↑ Was you “loan to value” ratio calculated based on your new and improved value, or your old value?

When we did our mortgage, we had an extra chunk (30 to 50k, forget the exact amount) added on for renos. We were reimbursed in 3 chunks. First was plumbing, and we had to have the rough inspection done. Second was electrical, same conditions. Finally, drywall. In all cases we had to show the invoices we were requesting reimbursement for. If we didn’t end up spending the full amount allocated, our broker told us that the money wouldn’t be released to us, it would just be applied to the mortgage principal. And yes, we got the same reasoning as you did. Too many people saying they were going to redo their basement, but going off on holidays and otherwise not adding value to the home, which meant the loan to value ratio of the mortgage got screwed up, which made the banks uneasy.

In your case, perhaps a HELOC would have been a better option, but that ship has likely sailed. No idea what your options are now. I’d probably try a sit-down discussion with a bank manager/supervisor and try to get some clarity.

C

Jon Lai wrote: ↑ So just because the value of the refinance was done with an extra 30K, the banks would hold onto the entire refinanced amount (even the amount over 30K)? That sounds a bit overreaching to me.

easybee wrote: ↑ Jimmykirky, I don't understand how being dishonest with the bank would have improved my situation in the slightest, so I will assume that was a joke.

I will edit the original post, but this is a Credit Union in Ontario. Aside from this particular issue with mortgage related funds, the have been great to deal with. Unfortunately, from reading the agreement, if we become members not in good standing (unclear what that means, could be arbitrary?) they can cease to do business with us and the mortgage becomes due immediately.

I am hoping to resolve this without making waves, but I do think there may be a visit to the manager in my near future. At this point I am looking to see if there is any reason I should not pay for a consult with a lawyer. It seems to me I am in the right, but the law may disagree.

CNeufeld wrote: ↑ In our case, it wasn't a refinance, it was a purchase. For example, house listed and bought for 500k, we borrowed an extra 30k on top of that. That 30k wasn't accessible to us at all until we submitted receipts, then it was transferred into our account.

And @easybee , I don't recall if it was in the documents or not, sorry. It was 4 years ago. It was made clear to us up front what the conditions for getting the money would be. As far as the HELOC goes, yes, you'd be paying a slightly higher interest rate, but you could pay that off in an accelerated manner, which would mean in the long run, you'd pay less interest. Most people (not all) are more likely to pay down their HELOC before paying down their mortgage, I'd wager. It's why refinancing your mortgage and using the money to buy a car (as an example) is a bad idea... In the end, you pay interest on that for the next 20 years, even if you only own the car for the next 5.

I'd talk to the manager first, and then take it to a lawyer if you can't resolve it. No sense going to that expense if you don't need to. As far as "not in good standing", I would guess that has more to do with keeping your accounts current and paid up, rather than pissing off an agent.

C