Refinanced, but the bank is holding my funds

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Sep 26th, 2020 9:09 am

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Sep 23rd, 2020 4:39 pm

easybee [OP]: Newbie; Mar 9, 2020; 11 posts; 1 upvote

Sep 23rd, 2020 4:39 pm

Refinanced, but the bank is holding my funds

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?

EDIT: my bank is a regional credit union in Ontario. Apparently my agreement states they can cease doing business with me at their discretion should I become a member not in good standing (unclear what that means), meaning my mortgage becomes due suddenly?

Last edited by easybee on Sep 24th, 2020 8:29 am, edited 1 time in total.

10 replies

Sep 23rd, 2020 5:28 pm

Jimmykirky: Banned; May 3, 2020; 77 posts; 73 upvotes

Sep 23rd, 2020 5:28 pm

your first mistake was telling the bank the truth.

which bank is this by the way?

usually after the closing date the funds are deposited into your accuont... if they had questioned about how those funds were to be used, those should have been conditions in the deal.. if they aren't there then tell them u want to speak to manager/etc..
if not reoslved, speak to ombudsman

+1

Sep 23rd, 2020 7:20 pm

CNeufeld: Deal Guru; Mar 23, 2008; 11496 posts; 7778 upvotes; Edmonton

Sep 23rd, 2020 7:20 pm

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?

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

+2

Sep 23rd, 2020 10:58 pm

Jon Lai: Deal Expert; May 30, 2005; 44549 posts; 5114 upvotes; Richmond Hill

Sep 23rd, 2020 10:58 pm

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

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.

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+1

Sep 24th, 2020 8:16 am

easybee [OP]: Newbie; Mar 9, 2020; 11 posts; 1 upvote

Sep 24th, 2020 8:16 am

Thanks CNeufeld for replying. No, the 80% loan to value is based off of the appraisal. I am not sure it would even be legal to provide a mortgage based on an estimated increased value from renovations, but I'm not a lawyer.

Were the terms surrounding the release of funds articulated in your agreement? Was it a verbal agreement?

Also, I don't think a HELOC would have been the better choice at all. I considered one prior to deciding on a cash out refinance -- doing the reno under a HELOC would come with a higher interest rate, and be subject to more risk, as the bank could at any time decide we are no longer suitable for that credit and close the HELOC without our consent. My understanding is that if you know you have large expenses, roll them into the mortgage and use a HELOC for unforeseen expenses.

Last edited by easybee on Sep 24th, 2020 8:24 am, edited 1 time in total.

Sep 24th, 2020 8:23 am

easybee [OP]: Newbie; Mar 9, 2020; 11 posts; 1 upvote

Sep 24th, 2020 8:23 am

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.

Sep 24th, 2020 11:25 am

CNeufeld: Deal Guru; Mar 23, 2008; 11496 posts; 7778 upvotes; Edmonton

Sep 24th, 2020 11:25 am

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.

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

Sep 24th, 2020 8:29 pm

Jimmykirky: Banned; May 3, 2020; 77 posts; 73 upvotes

Sep 24th, 2020 8:29 pm

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.

No it was 100% serious.
Bank asking you for refinance details "what will use the funds for", say: I'm buying a car.
seriously.
by telling them you are renovating your property this changes the banks stance from refinance, to "oh shit, he might gut his house, and our collateral is going to lose value/is at risk".

+1

Sep 24th, 2020 8:31 pm

Jimmykirky: Banned; May 3, 2020; 77 posts; 73 upvotes

Sep 24th, 2020 8:31 pm

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

you're mixing up different things.
buying with additional funds for a renovation was part of a CMHC deal not long ago. I'm not sure if it's still offered anymore.
The OP is straight refinancing their home. It's not a construction loan/renovation loan etc.. This is why the bank is getting cold feet at the last minute...
Basically the advisor that did the deal with the client F'd up and is now back tracking to cover their ass.. hence the "what are these funds for".
As it's a shitty credit union and not a real bank, they fix their shit more "in house" than at the corporate level..
If a major bank refinanced your house and didn't put a condition of the renovation being completed/steps as it's completed - to release funds, then those funds would be 100% yours.

Sep 25th, 2020 3:42 pm

nx6288: Deal Addict; Jul 29, 2006; 4091 posts; 905 upvotes

Sep 25th, 2020 3:42 pm

call the branch manager and tell them this experience has made you re-consider your relationship with their bank. Expect funds in your account in 48 hours.

Sep 26th, 2020 9:09 am

NeilJoseph: Member; Aug 20, 2020; 347 posts; 60 upvotes; Scarborough

Sep 26th, 2020 9:09 am

There are Purchase Plus Improvement & Refinance Plus improvement products offered by various lenders where the appraised value is the post-renovation value of the home. Up to 95% (purchase) or 80% (refinance) of the cost of improvement would be held back by the lender until the inspection is completed. In either case, the borrower does not get access to 100% of the cost of the improvement (ever) as the rest is the required borrower contribution.

HOWEVER, IT DOES NOT APPEAR LIKE ANY OF THESE PRODUCTS (and associated restrictions) ARE APPLICABLE IN THIS CASE.

Was a lawyer involved in this transaction? Is this a collateral charge mortgage?

Neil Joseph
Mortgage Agent, Broker Lic #10530

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