Bank entitled to require loan reduction after property sale, but failed to clearly explain why

Categories:

Lending, Fees, charges & rates,

Summary:

Ella and Nico had loans with the bank secured by two properties. In January 2026, they sold one of the properties for $630,000. The bank asked them to put $71,000 of the proceeds towards repaying the loan, explaining that this was necessary so their equity in the other property met the minimum requirement of 20 per cent relative to the size of the loan and value of the property. Ella complained that the bank had not told them the legal basis for its request, nor had it explained how it had calculated the figure of $71,000. She also complained that the bank did not respond to her complaint for a month, causing her and Nico stress and inconvenience.

Published:

August 2026

Our investigation

The loan and security documents allowed the bank to treat both properties as security for the lending, meaning that when one property was sold, the bank was entitled to reassess the amount it had lent to the couple, along with the security for that money. Based on the value of the remaining property and the loan balance, the bank could require the couple to reduce the size of their loan to maintain 20 per cent equity in the property. On that basis, the bank had the right to require the payment of $71,000.

However, Ella and Nico withheld paying off the loan on the sold property for nearly two months while awaiting further explanation from the bank, causing interest to accumulate. Ella disputed the interest, but the interest costs were a direct result of their decision, rather than of any wrongdoing by the bank. The bank had simply acted in response to their declared intention to withhold payment in the meantime and was not responsible for the interest that accumulated.

We did, however, consider the bank failed to explain clearly enough why it needed to reassess the size of their loan. In particular, it did not clearly set out the contractual basis for the requirement or give a sufficiently detailed explanation of the calculation.

In the end, the couple did not pay the bank the lump sum because they refinanced with another bank, although they did have to pay the accumulated interest. The bank had earlier offered $250 in recognition of the delays in responding to their complaint and its inadequate communication and later increased its offer to $1,000.