Can The Note Be Called?

Sean is worried. He's never been late on his mortgage, but he thinks the bank might call the note and start foreclosure. Should he worry?

QUESTION: Sean and his wife have had their mortgage for about 5 years, never been late on the payments and always paid extra. He has heard that, to be safe in a depression, people should own their properties free and clear. Is there any risk of a mortgage being called even if you’re not late on the payments?

ANSWER: You wouldn’t be taking out the loan for an adoption; you’d be taking out a loan to avoid cashing out your stock. You don’t need to be in single stock anyway. Finish your adoption fund by cashing this out, and then you’ll just be sitting there waiting for the baby. Cash out the Exxon stock and put it in an emergency fund and an adoption fund. When those are fully funded, if there is any left, I’d put it in mutual funds.

There is no risk at all of your mortgage being called. You have a contract and that contract will stand. Mortgages are written completely different than they were in the Great Depression. The reason my stuff got called 20 years ago when I went broke was because I was stupid. I had a lot of short-term 90-day notes that had to be renewed every 90 days because I was buying property, fixing it up and reselling it. If I hadn’t sold it by then, I’d pay the interest and renew it for another 90 days until it sold, and that worked fine until the banks decided they didn’t want to do that anymore. That is, in effect, calling the note.

Some of the home equity loans have that provision, where a home equity loan needs to be renewed once a year. You can get yourself foreclosed on with one of those, but a traditional mortgage; you have zero risk on that. I wouldn’t worry about it at all.