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Scary letter received from Wells Fargo

We lived in our last house for 6 years and did a lot of updating over that period. I received a call from a mortgage banker friend in July of 2012 telling me he had came across a great deal and that I should refinance. I looked into his deal and agreed with him, so we did refinance. Well...fast forward 6 months to January of this year. My wife and I were not house hunting at all, but kind of ran into a house that had everything we could ever hope for in a home. BEFORE I did anything as far as an offer goes, I checked with Wells Fargo Mortgage customer service and asked them if it would be okay for me to keep and rent my home. On the phone they made it sound like it was no big deal and something they do everyday. They basically told me just let them know when I was going to move and they would update my mailing address. Because it sounded like no big deal I did not record the person's name or anything, but felt I had done due diligence. My realtor even told me that I was under no obligation to tell them, but I felt as though I should so, I did. We put an offer in on the new house and it was accepted. I went about finding renters and that proved to be easy also. So...now we are all moved in the new house and our renters move in this weekend (23 Feb). Last night in the mail I received a rather ominous looking letter that basically says "Thanks for providing us your new address, but you are not allowed to rent your home without our permission. If we do grant permission it will only be for a short time and you have to have a legitimate reason for the request (military orders, death in the family, work causing a move etc..). So, I am in a real pickle now and have an appointment with an attorney. My wife and I both have very good credit and have never been late on a house payment. I am very confused as to why we received this letter and so is everyone else I have spoken with today. (realtors, mortgage company that funded both by new home and "old" home before selling it to Well Fargo) They all say they have never seen something like that happen. I have not called Well Fargo yet since receiving the letter last night (a little affraid to). I will let the attorney talk with them. We are not in a financial position to sell or even refinance the "old" house at this point. I am wondering how this will turn out and hoping for the best. by gjenne_908_650 from Bremerton, Washington. Feb 22nd 2013 Reply


Michael Patterson (MichaelPatterson)
#52 ranked lender in Washington - 73 contributions

In the terms of the Promissory Note for loans on Primary Residences, there is usually a requirement that you'll live in the home for at least one year. After the 12 months, the home could be rented out. (I'm certain the customer service person you talked to either wasn't aware of this, or possibly didn't dig into it that deep.) Violating the terms of the Promissory Note COULD result in the lender to escalate the terms of the loan and require it to be paid off. (aka Escalation Clause). We've run into this where a client had done a recent refinance within the last 12 months and they were not able to obtain another primary residence loan on a purchase. Extenuating circumstances such as a job relocation or death of a wage earner in the household would be considered... which matches up to what Wells Fargo is saying. I'm honestly very surprised that the lender on your new home didn't catch this, because Fannie / Freddie guidelines only allow 1 primary residence transaction within a 12 month period. That loan is in place now so the risk is more on the lender who originated and possibly sold the loan. (An exception would possibly be what we call a "portfolio lender" where they won't sell the paper but will keep the loan completely on their books. They can go outside of Fannie / Freddie guidelines and have their own.) Normally, if you're converting a primary residence into an investment property the underwriters will hit you with both payments and require 6 months of payment reserves unless you have 30% equity in the home and can use rental income to offset the mortgage liability on the old home. This is where it all starts to unravel if the existing home was refinanced within the last 12 months... It's actually one of the first questions we ask if we see recent refinances on the credit report. Now, most lenders really don't want to exercise escalation clauses because they can end up as a non-performing loan on their books. However, if it affects their ability to sell the loan to Fannie / Freddie or ABC Investor and they have to buy the loan back, they may get heated about it and move forward. If the Wells Fargo loan escalation clause did in fact get exercised, they give a period of time to be paid in full... either from a sale, refinance or loan payoff. If you have enough equity in that home, the rents could be used to offset the additional expense in your debt ratios so a non-owner occupied refinance might be possible. I'm not providing legal advice in any way, shape or form so obtaining legal counsel would be very important. I'm not the litigious type either, but I could possibly see a bit of negligence on the side of the lender for your new home since their activity helped to put you in this situation as well. I find it hard to believe that they didn't realize your recent refinance had occurred. They should have known that this scenario could have an affect on the promissory note on your former primary residence.

Feb 22nd 2013
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Dave Metsker (DaveMetsker)
#36 ranked lender in Oregon - 2,318 contributions

Michael gave you an excellent response. Work with your attorney, using this information. Good luck.

Feb 22nd 2013
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William J Acres (William_Acres)
#73 ranked lender in Arizona - 8,728 contributions

If you look at your "Deed of Trust" you will see on item 6.Occupancy. Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower's control. So, you should have had them put something in writing before you moved forward with your purchase... .. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Feb 22nd 2013
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Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 4,468 contributions

Sorry to hear of your trouble, but they are correct. You signed documents stating you were going to live in the house at least one year. This allowed you to refinance at the lower owner occupied interest rates versus the higher investment property rates. You are in violation of the terms of your mortgage. THE LESSON HERE is to understand who you are doing business with. When you talked to the Wells Fargo person, you spoke with an unlicensed bank clerk. Bank Loan Officers are NOT required to have any state or federally mandated education or testing to be a loan officer. They could have started yesterday... 85% of loan officers fall into the same category.. UNLICENSED. When obtaining a mortgage, it is wise to only worked with a LICENSED loan officer. How do you know the difference? Go to http://joemetzler.com/lendershopping.htm and read the article.

Feb 25th 2013
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Oh, by the way...I did again review my loan docs last night after receiving the letter. There is nothing in the documents that says I can never rent the home. There is the standard blurb that says "you plan on this home being your primary residence". At the time we signed the documents that was indeed our plan. As I said, we were not even house shopping when we ran across this new "dream home".

Feb 22nd 2013
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Fred Chamberlin (whidbeyloanguy)
#63 ranked lender in Washington - 8 contributions

Unfortunately, with the number of people during the real estate bust that did buy new homes shortly after refinancing their current home, it is not surprising that Wells Fargo would react like this. I believe it will be a case of showing them that your intention at the time your refinance was to remain in the home as your principal residence and they may back down. If not, I think the worse thing would be that they would want to raise the interest rate to a comparable investment property rate. Getting a lawyer involved is probably a good idea. Good luck and be sure and post what happens.

Feb 22nd 2013
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Eileen Hebert (EHebert)
#64 ranked lender in Washington - 9 contributions

Hi, This is unfortunate. However it is all about your "intent" at the time you signed your Note and Deed of Trust. Your intent was to stay in that home as your primary residence. Life happens, things change. You did not have the intent of renting it out when you originated the loan or signed the closing docs and that's what your attorney will need to stress. The worst case is Wells Fargo may increase your interest rate to match that of an investment property. I would get an attorney and stick with what your "intent" was at the time. Wells can not proove otherwise. The very best to you! PS Did you finance the new home purchase through Wells Fargo?

Feb 22nd 2013
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Joe Shamie (Joe Shamie)
#4 ranked lender in New Jersey - 1,412 contributions

In your closing package when you refinanced you signed an occupancy affidavidt that says you intend to occupy the home. Once you told them you were no longer occuprying it, you breached your agreement. Most people who do what you did dont tell the bank. As long as the payments are made on time, they will not bother you. Have your attorney go theru your loan documents carefully and see if you can work something out with them

Feb 22nd 2013
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Sara Deere (Mortgagequeen2)
#16 ranked lender in Missouri - 608 contributions

I agree with the previous answers submitted. The worse thing Wells Fargo could do would be to raise the interest rate on your old home comparable to an investment property rate.

Feb 22nd 2013
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Peter Savino (855411LEND)
#100 ranked lender in New Jersey - 332 contributions

What seems to have happened is that your original mortgage with Wells Fargo was as a primary residence. Now that you have moved to another home and have rented your old home they will want to change your mortgage to a Non owner occupancy loan. One way you can fight with them is based on the loan to value of the rental. They will want to know how much equity you have in that property. The reason for this is many home owners have moved from one house to another house which may be in a better area or they got more for their money and let the rental property go into foreclosure while keeping the rent until the bank takes back the house. This strategic foreclosure actually can be profitable short term. Many also go into Bk to get out of any liability from the rental. You should be able to fight this, and at worst case they will move your rate up a little to rewrite the loan with out you having to do a refi. Good luck ,

Feb 22nd 2013
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In response to "Joe" "In your closing package when you refinanced you signed an occupancy affidavidt that says you intend to occupy the home. Once you told them you were no longer occuprying it, you breached your agreement. Most people who do what you did dont tell the bank." I was simply trying to be upfront and honest when I called them to check on turning the property into a rental property. When they made it sound like it was not a problem, silly me...I thought it was not a problem. At the time I did all that I still lived in the house and I was simply trying to make sure all my t's were crossed and i's were dotted going through this process. My insurance company has changed my home owners policy to a rental policy and there were no issues with that at all (not even sure they notified Well Fargo when they made the change). Lastly, when my wife and I signed the loan documents we did have every intention of that house being our primary for many years to come. We knew that in the current market we could not sell it for what we had in it. We had no idea our "dream house" would materialize and we would be approved for another loan.

Feb 22nd 2013
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Michael, thanks. Now I am even more worried. We have no real equity in the "old" house (maybe even about 15K upside down). The really bad part about what you typed is this. The re-fi and the new home purchase were done in the same office/same company. We talked about the re-fi several times but it was never raised as an issue at all. I am starting to think this may turn out badly....

Feb 22nd 2013
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Michael Patterson (MichaelPatterson)
#52 ranked lender in Washington - 73 contributions

Totally unfortunate that you were trying to do the right thing and it backfired. Verbal agreements aren't binding, but I can understand you thinking you were in the clear after talking to WF customer service. Why would you doubt it, right? Those people aren't originators or underwriters though so that question should have really been escalated to a person in higher authority. I would scour the promissory note to see if it has language in it about occupying the residence for 12 months. That is the kicker on it... owner occupied loans have better interest rates and are underwritten and sold to investors in a different risk class than investment properties. Intended or not, it can have a financial impact on Wells Fargo's loan. I had another deal where the husband was the only one on the loan for their existing home. They had refinanced it prior to the wife going back to work from maternity leave. Since he was the only one on the loan, his wife was able to qualify on her own for the new purchase. Kind of a grey area, but the underwriters and the MI company ok'd it. They didn't like it, but it fit in the guidelines for conventional financing. These clients were in a similar situation. They had no intention of moving when they had done the refinance, but then due to a change in their son's schooling needs, they needed to find a home in a different area. Still a very voluntary move type of situation though. After I explained everything to him and was very adamant that he understood the risks and limitations, the gentleman made it a point to not rent out the old home for the remainder of his 12 month commitment and planned to document that thoroughly with not having any rental income on his tax returns, etc... just so he could prove that he hadn't rented it out and violated the terms of that refinance loan. In essence, they turned their old home into a 2nd home for a few months until he could convert it to a rental and not violate that 12 month commitment. Although the odds of his existing lender discovering it were slim, the 4 or 5 months of rental income wasn't worth the risk of an escalation of their loan. Better to take the high road. Sorry you were attempting to do the same and be up front about your intentions. You should have been given correct information from a variety of sources it seems. I suppose not renting that house out for 12 months would be a financial issue so I'd see what the attorney says on it right away. Hopefully prior to getting the renters in there... It's much tougher to evict someone who is already moved in. Don't wait for that conversation & get on the phone with them immediately. If you need a second set of eyeballs on the promissory note you can send it over to me via email. Again, not taking the place of legal advice on this... just reiterating my experience. Hope this helps.

Feb 22nd 2013
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Michael Patterson (MichaelPatterson)
#52 ranked lender in Washington - 73 contributions

Just read your 2nd post... I'm definitely not trying to freak you out, but some of the "hey, the worst case is" answers are not 100% accurate in my opinion if you really read the terms of your note. In practice like I said, very few lenders really want to escalate the loans because they could end up in foreclosure. I have never had it happen to a client, but have heard of it happening. THAT truly is more of the worst case situation. I'm sure other remedies might be possible. Wells Fargo could be willing to modify the terms of the note to change it to a non-owner occupied loan, but that's not a guarantee. It all depends on the details of that refinance. Side question... Since you were upside down in value, was that a HARP loan by chance on the refinance? Tell you what... I'm super busy today and missed 3 calls since I started looking at this... (probably can't tell by how much I've typed here today I bet!) but I'm definitely empathetic to your cause. There's a lot of moving parts on this and potentially more than could be answered in a forum board. If you like, I would be willing to chat with you totally pro-bono to see if I could help in any way. You can reach me at michaelp@landhomenw.com or 425.289.1102. Not a plug for business here people so don't flag this post!

Feb 22nd 2013
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Charlie Sparks (CharlieSparks)
#8 ranked lender in New Mexico - 401 contributions

The lender that approved you for the refinance should be held accountable. They had information on your credit report that you had just taken out a recent mortgage on your (now former) primary residence. This should have been a red flag to them that additional questions should be asked and documentation obtained to justify the purchase of a new primary residence. If this wasn't addressed by the loan officer it certainly should have been a concern by the underwriter that signed the loan approval. I would hold them accountable to pay any increased interest as they know the current rules and are obligated to approve loans that comply with them.

Feb 22nd 2013
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Thanks Charlie, we will see where this all leads. Really hate being in this situation, but I guess I put myself here and now will have to do whatever is necessary to clean it up (with advice from an attorney). -Glenn

Feb 22nd 2013
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I have a similar question. I have lived in my house for 5 years. Recently, we decided we want to move to be located closer to my work since I commute w two small children 40 mins both ways. The value of the house has plummeted, so I am upside down. My husband applied for a loan, we found a house, he put an offer on it, and it was accepted. In the occupancy clause on my loan, it says 12 months, do I need to & should I notify my lender of my new intentions to rent? What are possible consequences either way?

Jan 10th 2015
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