Loading error had knock-on effects for rental property owner

Categories:
Lending restrictions
Summary:
Kiri bought a rental property with a loan from her bank. She later bought another property, again with a loan from her bank. Their certificates of title recorded their worth as $300,000 and $100,000 respectively. The bank didn't load the second title into its system because of an administrative error. Kiri found out eight years later and asked the bank to compensate her for adverse financial effects. The bank didn’t believe its error had caused any adverse effects, but offered $500 for inconvenience. Kiri was unhappy with this and complained to us.

Our investigation

Kiri said the bank had made lending decisions based on a higher loan-to-value ratio than was in fact the case because it had worked on a combined property value of $300,000, not $400,000. As a result, she said the bank:

  • refused to offer special low interest rates
  • used proceeds from the sale of one rental to reduce the loan on the other, forcing her to borrow from another lender to cover her wedding costs
  • declined her application to absorb her credit card debt into her home loan.

We asked the bank for more information about certain points. The bank came back and acknowledged it would have made different lending decisions if it had correctly recorded the loan-to-value ratio. As a result, we proposed that the bank:

  • refund the difference between the special low interest rate and the rate Kiri was charged ($1,400)
  • refund the difference between the interest she paid another lender and the money she would have saved by having access to the funds to reduce her home loan ($7,500)
  • reimburse all credit card interest and fees since the application
  • pay compensation for inconvenience ($3,000).

Kiri also said the bank charged her low-equity fees when she had enough equity to avoid the fee. She said it also declined loan repayment holiday and home loan applications. But the bank didn’t accept it acted wrongly, saying it had correctly charged her, but offered to reimburse $90 for the one low-equity fee it charged. It declined the loan repayment holiday application on the basis of commercial judgement and her ability to repay the loans, not on the loan-to-value ratio. After discovering the error, it had offered her a loan repayment holiday, but she declined it.

Outcome

Kiri accepted our proposal and the bank's offer.

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