Victor Hussein is a real estate lawyer here in the Waterloo region. He recently received this question from a client of his and was kind enough to share it with us. Enjoy....
QUESTION: We have been trying to sell our home privately for some time now. Although we have had a few buyers look through, we have not had any serious offers until now. The buyers, however, are having a hard time getting the financing they need and have asked if we would help finance their purchase of our home. Could you give us your thoughts on us lending money to would-be Buyers of our home?
ANSWER: Lending money to your potential Buyers is of course a risk. Beside the obvious fact that you do not know the Buyers well, you should first ask yourself why a lending institution (“bank”) will not finance them for the entire purchase, or worse, will not finance them at all?
Having said that, it is not an uncommon event for a Seller to lend some or all of the money needed to purchase his/her home. This is referred to as a Vendor Take-Back Mortgage. Simply, a Seller lends the necessary amount of money and then places a mortgage on title for that amount.
Depending on the particular situation, the Seller’s mortgage will either be a first mortgage (in the situation where a bank or another lender is not involved), or, a second mortgage (in the situation where there is a bank or another lender involved). A lending Seller’s rights are affected dramatically depending on whether he/she has a first, or, a second, mortgage on title. Legal advice is very important here.
Assuming you wish to lend money to the potential Buyers, below are three factors, amongst others, to consider:
1) Traditional Lender: Why are the Buyers not successful in getting any or all of the financing from a bank? There are a host of possible reasons such as bad credit history, low incomes, not having enough money for a down-payment, just graduated from law school and has not demonstrated a steady income stream and so on.
The reason the Buyers were declined for financing should be a major factor to consider before making your decision to lend money. I would suggest requesting your Buyers provide a written explanation from the banks they have approached delineating why their application for a mortgage was declined. Lenders are more than ready to provide a written explanation.
2) Credit History: Since you probably will not know the Buyers well, it is important to conduct a credit history check. This will provide a picture of the Buyers past behaviour with respect to debts -- do they have a history of late or missed payments, and so on.
The credit report will also be useful by allowing you to confirm if the Buyers have provided you with a complete and full list of their present debt situation. If they have disclosed all of their debts to you, then you should not find any new debts in the credit report. If, however, you find in the credit report a host of undisclosed debts, red lights should come on.
3) Verification: A third important detail is verification of information provided by the Buyers. This entails, amongst other things, verifying the employment record of the Buyers -- how long have they worked for one employer? What is their present income? All this information should be provided to you by the employer on the employer’s letterhead. Request copies of the Buyers tax assessment for the past three years to further confirm their incomes.
This verification process will not only serve to confirm the representations made to you by the Buyers, but will also provide insight as to how honest and up-front the Buyers have been about their financial situation.
Finally, lending money to potential Buyers is extremely risky. At the very least, make sure you have legal assistance to protect your interest. In fact, I do not recommend doing this at all without legal advice and assistance. We are dealing with a lot of money and this should not be the time to take unnecessary chances.
On a side note, in your particular case, I note you have been attempting to sell your home privately. You may want to consider listing your home with a licensed Realtor. By doing so, you will be exposing your home to a much broader market, which could translate into your finding a Buyer who does not require you to finance the transaction, in turn saving you the aggravation and risk of lending and collecting money. You would simply sell the home and move on. Best of Luck! [Victor Hussein is Real Estate Lawyer In KW and Cambridge, 519-744-8585.]
With the price of homes rising every day, many people are finding it difficult to purchase a new home. However, purchasing old homes that need repairs is a plausible strategy that can help you to get your dream home at reduced rates. These homes are usually referred to as fixer uppers, a term that clearly describes a property that ought to be reconstructed, redecorated and or redesigned to improve its status. Even though this kind of property can be occupied in its present condition, renovating it is likely to improve its value and make it more comfortable.
With the introduction of the purchase plus improvement program, there is no doubt that many people are going to afford homes. The program is offered by Genworth Canada and CMHC, two popular residential mortgage insurer in Canada. It gives the new homeowner the opportunity to carry out tailored improvements and renovations immediately after occupying the home. If you intend to purchase a fixer upper, the purchase plus improvement program is now your bridge to success.
The program is applicable for existing resale properties as well as residential houses that are already in the market. The dwellings have to be located in areas or markets that have a higher resale demand. Only properties with a remaining economy life of approximately 25 years and below are eligible. The maximum number of units allowed is four and one has to be owner occupied. In addition to this, new constructions that have a warranty are also eligible.
The purchase plus improvement program has come at the right time when the demand for houses is high causing the prices are escalating. It is a good opportunity to raise the potential value of the property either for the buyer to occupy it permanently or resale it later at a higher price. The program is increasingly becoming popular in Canada making newer homes to be available at low prices as more buyers shift their focus to fixer upper properties. The program is aimed at giving aspiring homeowners who have low down payments the chance to afford mortgages at reduced interest rates.
Nonetheless, buyers are advised to scrutinize the property before they can enroll for the program. The thorough examination will give buyers the insight about the cost of repairs that should be done in order to make the home livable again. In essence, there are many fundamental factors that inexperienced buyers tend to ignore. They include the factors such as the foundation of the home as well as the plumbing system. These can be invisible and in the end, thy will need a lot of contracting work that can be costly.
Indeed, it can plausibly be argued that homeownership is a now easy to access because of the introduction of this type of program. It is time to take advantage of this program and acquire a home that will only need few repairs and renovations to make it look as good as new. To find out if you are eligible for the program, visit our online application for a FREE pre-approval.
So I got an email yesterday from a past client asking whether a shed is deemed to be a fixture and whether it should be deemed to be included in a real estate transaction or not.
I asked a few more things about her question and she told me that an employee of hers sold their home and decided to take that shed because it was not included in the agreement and in fact, they removed it before the Buyers came back for their “final inspection”, and now the Buyer’s a suing them for over $2,000 for the cost of the shed.
I asked her if the shed was there when the Buyer’s initially viewed the home and made their offer and apparently it was.
So I told her that in my opinion I believe the shed is deemed to be a fixture and should have been left behind but it would have to be up to a Judge. She went onto say that the shed was not actually fastened down to its platform and that the Sellers actually removed the screws which would in turn deem it a chattel rather than a fixture. Furthermore the shed in question was actually only worth $700 and that the claim being made against them is excessive.
At this point it also came out that neither the Seller or the Buyer was represented by a Realtor and that it was a “private transaction”. “For Sale By Owner”
Well well well. Surprise, surprise. Obviously my opinion of this situation is biased but isn’t it interesting when people take the duties and responsibilities of a Realtor so lightly and think that “these buggers” are overpaid and that they can handle the sale and or purchase on their own.
Not only do they have to go through the hassles of going to “Small Claims” court, time off work and the possibility of losing. Did they actually really save any money at all in light of the property not being properly exposed to the market place?
A professional Realtor on either end of this situation could have prevented this entire mess.
It reminds me of the old saying, “If you think the services of professional are expensive, try the services of an amateur.”
Feel free to comment on this article and have yourself a great day!
Well the local Cambridge real estate mareket is still hot. The MLS has taken on 498 new residential listings and has reported 271 sales.
Interest rates are holding steady. Five year money is available for as low as 3.79% for five years.
Purpose built multi-unit properties are still hot. Some buildings selling with a cap rate as low as 5%.
Our new 40 unit condo propject in East Galt (10 Cheese Factory Rd) is starting to gain momentum. Many interested parties. Prices start at $187,100 for a 3 bedroom unit. If you know somebody looking for a great place to start as a first time home owner or investor, please make sure they check this project out. We'll be open this weekend both Saturday and Sunday from 2 to 4pm.
If you have any real estate or mortgage questions, don't be shy. Karen and I are here to serve you.
I've been involved in a few multiple offers this week which is a clear sign Buyers are out numbering Sellers. Especially in the multi-unit residential market. Purpose built units are getting some crazy money. If the building's in good shape, some investors are willing to settle for as little as a 5% cap rate.
One thing you should be careful on though is including the right clauses in the agreement of purchase and sale. Clauses such as getting a fire inspection, or asking the Seller to allow you to verify the legality of the use of the building ie: if it's a fourplex, is it's use legal. I had one offer where I was representing the Buyer and of course I included the required clauses and believe it or not the Listing agent scratched them out!
Sure as a Seller, you want to avoid as many conditions as possible, but believe me, these issues will only rare their ugly heads at closing, or NOt closing for that matter and land you in a pile of legal issues.
So if you're in the market for a multi-unit building, give me a call and put my 23 years experience to work for you.
Enough of that. I just want to wish you a happy "Victoria Day" long weekend. It looks like the weather is improving. Be safe, and I'll talk to you again soon
Happy spring! The sun is out, the birds are singing, and here in Canada, we probably only have one or two more surprise snowfalls before summer.
This is the time of year when we emerge from our dark rooms, stretching and blinking into the sun. We peel off our woolly layers and start thinking about what bikini we will flaunt this summer (yikes). And then we start going for long walks again and haul out the bicycles. Yes, spring is a time to open the windows, clean out the closets, flip the mattresses and sweep away the cobwebs.
While you are busy freshening up your home and garden, you might want to consider pulling out your wallet, blowing off the dust and giving it a good seasonal purge as well. Your finances are like anything else in life: after a while, you start to forget your good habits, and things tend to get sloppy, neglected and disorganized. So seize the spring, darling. Carpe ver!
Here are ten tips to organize your finances and clean up your budget:
1. Clean out the wallet! Lord knows what is lurking in there. Stuffed full of receipts and bank slips, expired discount cards, phone numbers with no names attached, business cards from your last three jobs. As our feng shui sisters might say, you must make space in the wallet for the money to flow to you.
2. Be an A-Lister. Dedicate space for lists in your BlackBerry or a notepad that you carry at all times. Lists are critical for clearing trivia out of your head and keeping you focused when it's time to spend. Mark down items you need as you think of them; that way, when you get to the grocery or department store, you won't get that overwhelmed, "why am I here?" feeling and end up with a cart full of cocoa puffs and tea lights.
3. Reality check. Fitness memberships are an essential expense to many of us. However, if your gym is $90 a month and you only show up three times a month, that's $30 a visit. Be honest with yourself and your schedule. You might be better off paying as you go, or finding a gym where you can buy 10 sessions at a time.
4. Subscribe to this. What is with that messy stack of unread newspapers and magazines on your coffee table? Don't you have enough to dust? Subscriptions are no bargain if you're not reading the products. Consider weekend-only newspaper delivery and buy magazines at the newsstands when you have time to read them.
5. Stay on season. Now that it's spring, we can look forward to fresh fruit and vegetables from local farmers. Check labels and choose food products from close to home — not only will they be fresher, but they won't be packed with big fuel and shipping costs.
6. Be a contrarian. On the other hand, when it comes to big-ticket items, it helps to be delightfully off-season. The end of February is the time to nab a Prada ski jacket in the clearance sales, saving you money to buy Swarovski Christmas tree ornaments in July and Pottery Barn patio furniture in September.
7. Friend and follow. Before you shop, check the website of your favourite store or mall for online-only specials and coupons. Sign up for the Facebook or Twitter accounts of your favourite retailers, restaurants or hotels, which often use their online profiles for giveaways, contests and special deals to their friends and followers.
8. Spring THAW. Remember that trip to Costco where you got 40 chicken breasts for four dollars? Take an inventory of your deep freeze and start planning meals around what you already have on hand. Or throw a dinner party and use up everything you bought more than three months ago. Buying on sale is a waste if you end up throwing out freezer-burnt food.
9. Get your Groupon. Clipping coupons gets stylish with deal-of-the-day sites such as Groupon. The site offers limited-time discounts on everything from $25 off at The Gap (NYSE:GPS) to half price scuba diving lessons. Going on vacation? Check the site for deals at your destination. When you're going out a lot, who wouldn't want to score a free plate of appetizers or two-for-one tickets to a show?
10. Cheap and cheerful. Fun doesn't need to cost nearly as much as you think. A morning with the whole family at the playground is just as rewarding as a day at a theme park and much cheaper than driving, parking and paying for family passes. A night in with the girls and a bottle of wine is every bit as fun and boisterous as going out to the newest hotspot. Bonus: by making it OK to have fun on the down-low, everyone feels better about hosting or getting together more often.
Well unless you’re living under a rock, you’re probably aware of the recent changes to the Canadian mortgage rules. If you’re not, no offence but here they are.
Effective March 18, 2011.
The maximum amortization period will decrease from its current 35 years to 30 years on all new “insured” mortgages with a loan to value ratio greater than 80%.
The maximum amount a Homeowner can refinance their properties has been decreased from 90% to 85%.
Mortgage insurance will no longer be available on secured lines of credit or otherwise known as HELOC’s. (Short for “Home equity line of credit”).
So what does all this mean?
First of all, let me start off with HELOC’s. What I found very interesting with this particular change was most of the lenders we do business with had stopped offering this option a long time ago. In all honesty, I wasn’t aware there were lenders still out there offering this product so really “who cares!”
As for lowering the amortization periods from 35 years to 30 years, I feel this was a very good move on the government’s part because…
It will help Canadians build equity in their homes faster.
It lowers the maximum amount someone can borrow without the need of jacking up interest rates.
So for example if you were borrowing $250,000 at 3.75%...
A 35 year amortization would leave you with a monthly payment of $1,065.50 (principle & interest).
A 30 year amortization increases the payment on that same borrowed amount to $1,153.69 (principle & interest) which is obviously a difference of $88.18 a month.
Makes sense so far right? Agreed, but where I have a problem is the concept of lowering somebody’s ability of refinancing their home from 90% to 85%. Why?
Well the governments answer is they don’t want Canadians to be able to re-finance our homes to buy boats and big screen TV’s.
Thanks for the advice on how to spend my money Mr. Flaherty but I don’t recall the government using that same element of prudence when it came to spending of $1 Billion on the G20 summit in Toronto that was nothing but a waste of time and a real embarrassment to our Country.
Hey, I’m all for practicing prudence but in my experience as a mortgage agent, I didn’t have people re-financing to buy toys. What they were re-financing for was to pay back the bandit banks and credit card companies because of the exorbitant amount of interest they charge and never mind the lack of regulations that don’t exist when it comes to obtaining this credit in the first place.
I equate this move to be equivalent to firing all the lifeguards in the public pools. Let’s face consumer credit is just too easily obtained and unfortunately people from time to time get in trouble with this easy access to credit. Their only saving grace was the fact that one could use the equity in their homes to pay those credit cards off and make life less stressful with such high payments.
But now that there’s less money available, I have to assume that this move will cause more people to sell rather than re-finance which will obviously create more listings in the market place and of course if the laws of supply and demand prevail, this will cause home prices to go down.
It would be nice to have a government that has the balls to stand up to the banks and demand them to change their policies on consumer credit as opposed to playing politics and trying to make it look like they’re acting for the greater good.
Posted on Fri, 31 Dec 2010, 04:56:33 PM in Personal
Just sitting in my home office a few hours before our New years eve's guests are to arrive and I'm looking back at 2010.
It was certainly an interesting year. I was able to enjoy a great family vacation in The Bahamas and Florida. Had a great time but the weather could have certainly been a little warmer.
We finally got the renovations done on our house that we've been talking about for the last 5 or 6 years. I'm pretty pleased with the outcome but as with any project, in hindsight I might of done a few things different but its all good. By the way, if you're looking for a good contractor, I would highly reccomend Hennink Contsruction. They're quality is top notch and they are true professionals.
I finally finished my book, "The RRSP Mortgage Investor" and it's selling online at www.rrspmortgageinvestor.com. It's a project I've been working on for the last 2 and bit years. I'm pretty proud of it. The book sales are not making me rich but hopefully the concept in it will help others get there. I've been investing this way for the last 9 or 10 years and I can honestly say it's done wonders to my RRSP portfolio.
My real estate sales were okay. It certainly wasn't a record breaking year for me but it was not bad. I would certainly love to thank my loyal past clients and new clients for that matter. It was a real growth year for me. I studied a lot and can quite honestly say I truly love the real estate business. It's exciting, forever changing and is in my opinion one of the most rewarding careers anyone can tackle.
There were all sorts of other things that happened this year that I haven't mentioned but the one thing I'll remember about 2010 was leaving my first born in Thunderbay for school. My oldest son Christian is going to Confederation College studying film production. Christian has had a camara in his hands since he was about 12 years old and there's never been a doubt in his mind as to what he wants to do with his life and that's making movies. I'm proud to say his marks are excellent and there's no doubt in my mind that he will be very successful.
Leaving a child behind just tears your heart out. I can honestly say it was one of the toughest things I've ever had to do. It really makes you appreciate how precious time is. It seems like only yesterday that he was born and now he's a grown man. As an old rock and roll fan, I knew the words of "Cats in the Cradle" would someday haunt me and they have. But I can honestly say, I did the best I could and I must have done a good job because Christian has become a great young man.
I have 2 more children, Corry 16, and Haille 14. And I know it'll only be a matter of time before they're gone. The two are great kids and I'm enjoyinhg their time here at home while it lasts.
I guess my message in all this is I've been working hard for the last 23 years in pursuit of the almightly dollar but my most precious possession is the gift of Fatherhood which is not yours to keep by the way, but only something God gives you to enjoy for a short time. So enjoy it while you can.
In closing I would like to wish everybody a very Happy New Year and all the best to you and your families in 2011.