Rack up debt. Declare bankruptcy. Repeat. And repeat again. How thousands of Canadians are doing it and costing the rest of us.

Clockwise from top left, repeat bankrupts Stéphane Flynn, Jacques Bélanger, Joseph Cloutier and Charles Rotenberg.
Clockwise from top left, repeat bankrupts Stéphane Flynn, Jacques Bélanger, Joseph Cloutier and Charles Rotenberg.

It was his fourth in 10 years, during which time he had relied on Canada’s insolvency system to rid him of more than $100,000 in debts.

This time, the buck was going to stop. The judge overseeing the case had had enough. Nantel, she ruled, did not deserve yet another fresh start.

“He’s shown no reluctance of using bankruptcy to be freed from his debts,” the judge, known as a registrar, wrote in a 2012 decision. “His past conduct demonstrates a contempt for the rights of his creditors.”

Discharging Nantel of his fourth bankruptcy — liberating him of the debt that led him into insolvency — would undermine the integrity of Canada’s bankruptcy system, the registrar said. She denied his application.

Nantel, who refused to comment for this article, persisted.

Four years after the 2012 ruling, Nantel, now working as a mechanic and living 120 kilometres east of Montreal, went before a different registrar and received a discharge from that same bankruptcy.

And eight days after that, he declared bankruptcy for a fifth time, owing more than $37,000 in new debts.

Nantel is one of a staggering number of Canadians who are washing themselves of their debt by re-using a bankruptcy system meant to rehabilitate honest but unfortunate debtors, a joint investigation by the Toronto Star and La Presse has found.

Bankruptcy system insiders and observers are surprised at the magnitude of the nationwide problem revealed in the investigation’s data analysis.

One in five Canadians who filed bankruptcy in 2018 was doing it for at least the second time. That works out to 11,500 debtors who filed their second, third, fourth or even fifth bankruptcy, according to data obtained from the Office of the Superintendent of Bankruptcy.

“One fifth-time bankrupt is probably one too many,” said Thomas Telfer, a law professor at Western University who has authored the country’s most detailed research on repeat bankruptcies.

“It shows that the bankrupt has not received the message.”

In cases of repeat bankruptcies, the courts have said focus is expected to shift from rehabilitating a debtor to protecting the public and the system from being abused.

Yet, despite the courts’ stern rhetoric, government data shows the vast majority of completed proceedings end with the person released from their debts.

The Star and La Presse have interviewed dozens of debtors and insolvency experts, including the trustees that administer bankruptcies and retired court registrars who previously presided over bankruptcy cases.

Many repeat bankrupts are people marred by bad luck, their lives sideswiped by job loss, divorce, illness or other tragedies that catapulted them back into insolvency.

Others, however, rack up the same kinds of debt over and over, then turn to bankruptcy for what the courts have called a “fiscal car wash.”

“In some segments of society, it’s become almost a game. People take advantage of the system and they take advantage of the leniency of the registrars,” said Yoine Goldstein, a retired Canadian senator and lawyer who led a task force advising the government on potential reforms to Canada’s insolvency laws.

Unpaid taxes owed by repeat bankrupts make up a portion of the nearly $4 billion the Canada Revenue Agency has written off since 2009 because of consumer and commercial insolvencies. In Quebec, the provincial tax agency has lost nearly $2 billion to insolvencies in the last five years alone.

Meanwhile, credit card lenders absorb the cost of bankrupts who do not pay their bills by charging high interest rates to their customers who do pay their debts.

The Star/La Presse investigation has also found the problem of repeat bankruptcies is greater in Quebec, home to an overwhelming number of the country’s third-, fourth- and fifth-time bankrupts.

In some cases, such as Nantel’s, four- and five-time bankrupts have shed their debt more quickly and easily than had it been their second bankruptcy.

When a person declares bankruptcy, a trustee sells whatever assets are available and distributes the proceeds to creditors (some assets, such as clothing and registered retirement savings that are more than one year old, are protected).

In some cases, when the bankrupt’s income exceeds what a government formula deems necessary to maintain a reasonable standard of living, the debtor must make “surplus income” payments, increasing the amount of money creditors recoup.

The bankruptcy is over when the person gets discharged — a release from the legal obligation to pay back what was owed, though it does not cover certain debts such as child support or alimony.

Unless someone such as a creditor opposes, a first bankruptcy is automatically discharged in nine months or 21 months. The second bankruptcy can be automatically discharged in two years or three years.

Subsequent bankruptcies go to court, where the judge can grant a discharge or refuse it. If granted, the discharge is completed after a delay, known as a suspension, or with conditions, such as the debtor having to prove he is up to date with his taxes. Often, a discharge comes with both a suspension and conditions.

Although the total number of consumer bankruptcies is going down year over year, the percentage that are repeat bankrupts has steadily climbed.

Third-time bankrupts have become common in some provinces. Fourth and fifth bankruptcies, once almost unheard of, are now “a scourge,” registrars have said, and “a clarion call to systemic integrity and to the court’s role in it.”

Repeat bankrupts include real-estate agents, roofers, restaurateurs, tax lawyers and drywallers.

With each bankruptcy, they are required to take two financial counselling sessions. Some debtors, however, take away the wrong lesson.

“They go through bankruptcy and they learn, frankly, how easy it is and how forgiving it is. Then think, ‘Gosh, why don’t I do it again?’ ” said John Owen, whose previous business helped credit lenders pursue claims against insolvent consumers.

Owen testified in 2003 before a Senate committee reviewing Canadian insolvency laws, and he warned of the country’s disproportionately high rate of repeat bankruptcies.

At that time, about 10 per cent of bankruptcies filed were repeats. That rate has now doubled.

“There’s a cost to it. No question. There is a societal cost,” he said.

It’s unknown how much lost tax revenue can be attributed to repeat bankruptcies. One thing, however, is clear: The government, sometimes, only recoups pennies on the dollar, if it gets anything at all.

Three-time bankrupt Jacques Bélanger has racked up mountains of tax debt to the CRA and Revenue Quebec. After the Laval man’s meagre assets were picked over in his most recent bankruptcy, filed in 2014, the CRA, owed more than $101,500, received just $59.20 — less than Belanger spent a month on cigarettes.

Three-time bankrupt Jacques Bélanger has racked up mountains of tax debt to the CRA and Revenue Quebec.

“I want to make clear that I never exploited the system. I was just unlucky,” Bélanger said in an interview.

There are few debts more important than the payment of taxes by those enjoying a good income, said registrar Nathalie Champagne in 2017 when faced with Charles Rotenberg, a former Ottawa tax lawyer. Rotenberg, who surrendered his licence after the law society found he misappropriated a client’s funds, was on his third bankruptcy, this latest leading the CRA to write off $313,000. “The Bankrupt before me has enjoyed a good income and he has not paid his fair share of taxes which is unfair to the rest of the tax-paying public.” She refused his discharge.

Rotenberg travels every year and lives in a five-bedroom house bought by his wife and works as a consultant, Champagne noted in her decision, adding “his life and lifestyle have been seemingly unhampered by his third bankruptcy.”

Rotenberg told the Star he drives a Honda. The other car in the driveway, a dark grey 2018 Cadillac sedan, is registered to his wife, vehicle records show. He said that when he travels, it is to visit family. The money that the law society found he misappropriated has been paid back, he said. His consultancy’s website says he helps clients with “Dispute resolution with the Canada Revenue Agency.”

Rotenberg said he assumed substantial liabilities from a business partner who had been managing the books which, coupled with serious health problems, left Rotenberg unable to work and continue to pay creditors and led to his third bankruptcy. He said the court will not let him re-apply for his discharge until 2021.

Charles Rotenberg, a former Ottawa tax lawyer, is on his third bankruptcy, this latest leading the CRA to write off $313,000.

The courts can refuse a discharge when the debtors’ behaviour has been particularly reprehensible.

In 2015, a Quebec court decided it was the best way to handle the fifth bankruptcy of Stéphane Flynn. In an interview, Flynn blamed his bankruptcy on runaway costs in his construction business and clients who didn’t pay on time. In reviewing the case, the judge saw a man with more than $500,000 in debts who treated bankruptcy as a way to escape his debts.

“It is extraordinary that he has been allowed to do so multiple times without opposition to his release,” registrar David Cousineau wrote in his decision to refuse Flynn’s discharge.

Except it was not extraordinary. Discharge has become routine for repeat bankruptcies.

Of the 395 proceedings involving fourth- and fifth-time bankruptcies that were completed between 2011 and 2018, just 21 resulted in a discharge being refused, according to federal data. That’s five per cent.

In every other case, registrars gave a conditional or suspended discharge. (The majority of fourth- and fifth-time bankruptcies filed during these years have not yet had a discharge ruling, according to the data).

The willingness to grant discharges marks a notable shift from how courts historically treated repeat bankruptcies, their decisions guided by an often-quoted judgment that a “third bankruptcy is one too many.”

Stéphane Flynn blamed his fifth bankruptcy on runaway costs in his construction business and clients who didn't pay on time. In reviewing the case, the judge saw a man with more than $500,000 in debts who treated bankruptcy as a way to escape his debts. The discharge was refused.

“Third-time bankruptcies are of grave concern, often demonstrating a degree of irresponsibility that justifies simply refusing a discharge,” Manitoba Justice Colleen Suche said in 2012 in upholding a decision to deny a three-time bankrupt a release, forcing him to re-apply in a year.

Michael Bray, a retired registrar in New Brunswick who presided over insolvency hearings from 1999 to 2013, said the stigma surrounding bankruptcy has diminished. He said stiff sanctions can be used to dissuade a debtor from returning to insolvency.

“It used to be that most people that came for their first-time bankruptcy…a lot of them never wanted to be here again. I think that feeling is gone now,” he said.

“If the courts don’t impose a good sanction, then it’s not difficult to be a three-, four- or five- (time bankrupt).”

Canada’s Superintendent of Bankruptcy, whose office regulates and supervises the insolvency system, would not be interviewed for this article.

In written answers, her office said insolvency laws contain “safeguards against potential abuse,” and the decision to discharge a debtor with three- or more- bankruptcies is a matter of judicial discretion based on the circumstances of each case.

Some trustees say the court’s shift stems from repeat bankruptcies becoming more common and, as their shock value dissipates, registrars are growing more sympathetic to how financially tenuous many Canadians have become.

Another theory is that registrars, aware that creditors almost never attend court to oppose discharges, are asking: If the people owed money don’t care enough to be here, why should I dole out a harsh penalty?

“That was the frustrating part of that job. You’re supposed to be somewhat of a gatekeeper but no one is complaining,” said Scott Nettie, a registrar in Toronto bankruptcy court from 2005 to 2012 with a reputation of coming down hard on debtors who misused the system.

“I know there are registrars across the country who, in those situations where no one is there (opposing discharge) and no one is complaining, they’re like, ‘go forth and sin no more,’ ” Nettie said. “Then there are others, and I was one of these, who struggled with: ‘But it’s not right.’ ”

Among the least engaged creditors, according to Nettie and other trustees and registrars, are credit card companies.

Scott Nettie, a registrar in Toronto bankruptcy court from 2005 to 2012 with a reputation of coming down hard on debtors who misused the system.

Credit lenders rarely oppose a discharge and once discharged, many repeat bankrupts have little trouble securing more credit.

A Nova Scotia man filing his fifth bankruptcy had amassed more than $20,000 in credit card debt, even though two of his earlier bankruptcies remained on his credit report. A businessman from Collingwood, Ontario, had 10 cards in his wallet and owed more than $64,000 when he filed his third bankruptcy in 2014.

Those credit card companies may only recover a portion of what they’re owed.

“They don’t care,” said Nettie. “They’ve already costed the price of losing that part of the business completely into what they charge the rest of the paying customers. Why would they pay good money after bad to pay someone to come (to oppose in court).”

A spokesperson from the Canadian Bankers Association said the country’s banks are prudent lenders that only offer credit to borrowers they believe can and will repay the loan.

Losing money to a four-time bankrupt was not something Dieter Gauger could easily absorb. In 2013, Gauger, a retired millwright, and his wife Edith hired a Hamilton contractor to renovate their Stoney Creek townhouse.

The contract said the work would cost $65,000. But after collecting $60,000, the contractor, Stephen Monahan, left the house unfinished and unliveable, Dieter said. The Gaugers drained thousands from their retirement savings to pay someone else to complete the renovations while they stayed in a Super 8 Motel. The Gaugers took Monahan to court, where in 2015, they got a default judgment for nearly $36,400.

But Gauger does not expect to see any of that.

Two months after the court order, Monahan filed for bankruptcy, his fourth. Described by one registrar as “a menace to credit system,” Monahan told the court his first three bankruptcies were his own fault, the consequences of poorly managing his business. His latest, with nearly $93,000 in debts, was the result of cancer, he said. He said his prognosis is grim.

“I’m very sorry to the people I owe money to and I’m sorry for my failures,” he told the court at his October hearing. Citing his poor health, the court issued Monahan a suspended discharge. He can be free of the debts as early as summer 2020, as long as he pays roughly $1,600 in outstanding administration costs.

For Gauger, it doesn’t feel just.

“I lost $36,000,” the 76-year-old Gauger said. “The system worked for Monahan but not for me.”

The problem of repeat bankruptcies is particularly prominent in Canada’s eastern provinces.

Since 2011, Nova Scotia has had the most repeat bankruptcies per capita in the country with 75 for every 100,000 residents — more than double the national average.

The high rates are likely fueled by a combination of low wages, an unstable job market and a high cost of living, especially in places like Cape Breton, said Rob Hunt, a trustee with Grant Thornton based in Nova Scotia.

“We find people have then relied on credit to bridge their income,” he said. “People finally get to the boiling point where they’ve exhausted their credit and they can’t afford to keep making the monthly payments.”

More than half of the roughly 9,360 Canadians who filed their third bankruptcy between 2011 and 2018 lived in Quebec. For fourth-time bankruptcies, Quebec’s portion climbs to 74 per cent.

And of the 88 Canadians who declared bankruptcy for a fifth time, almost all of them — 90 percent — lived in Quebec.

Insolvency experts within Quebec say they are stunned by the numbers but offer a variety of possible reasons.

Quebec is the only province going back to the late 1980s that has consistently had higher rates of consumer bankruptcy per capita than the national average.

The province has among the lowest rates of disposable income per resident in the country, which could mean fewer Quebec debtors can afford to settle their debts through scheduled payments under a consumer proposal and instead opt for bankruptcy. A consumer proposal, another form of insolvency, is a settlement in which a debtor repays a percentage of what is owed and is an alternative to bankruptcy.

Research has found French-speaking Canadians scored lower on financial literacy than their English counterparts.

The Quebec numbers are also partially due to inconsistencies in the sanctions imposed on bankrupts from courthouse to courthouse and province to province.

How it is supposed to work is spelled out in the Bankruptcy and Insolvency Act. A first-time bankrupt will be automatically discharged after nine or 21 months, unless there is opposition. Changes introduced in 2009 allow for automatic discharges for unopposed second bankruptcies with a waiting time of two or three years. Subsequent bankruptcies must go to court where a judge decides on sanctions.

This is where the system’s consistency unspools.

In Toronto, trustees say the court will postpone the discharge hearing of a third-time bankrupt for at least three years, then delay a discharge for another nine or 12 months.

“The court is of the opinion that a third-time bankrupt shouldn’t be able to get out faster than a second-time bankrupt,” said trustee Mark Morgan from David Sklar & Associates.

But that’s not how it works across the country. In 2018, a labourer living in small-town Quebec was discharged from her third bankruptcy just two years after she filed it. A year later, she again declared insolvency, this time filing a consumer proposal.

Consumer proposals have overtaken bankruptcies as a preferred way to handle debt, particularly in provinces such as Ontario. However, the federal government says it does not track repeat proposals, meaning the rate of repeat insolvencies may be much higher than the data suggests.

The government’s 2009 changes also inadvertently softened oversight, shielding debtors from the scrutiny of the courts until they arrive before it for a third time, according to some trustees and one former registrar.

“This may signal that going bankrupt twice is not as serious as it is. This may be in part what’s led to an increase in recidivism,” Morgan said.

Joseph Cloutier is a 48-year-old drywaller in Toronto who, at his peak, could bring in $4,000 a week. But he never put money aside for taxes. When he filed his first bankruptcy in 2008, he owed the CRA $22,000; during his second, in 2011, he owed $60,000. He received automatic discharges both times.

In 2016, Cloutier again filed for bankruptcy. His CRA debt: $124,000.

“I’m terrible at managing money. I’ve been terrible all my life,” Cloutier said. “I’m one of these people with an addictive personality. If you’re going to give me a million dollars, I’ll spend it all by next week.”

Joseph Cloutier is a 48-year-old drywaller in Toronto who, at his peak, could bring in $4,000 a week. But he never put money aside for taxes. Tax debt drove all three of his bankruptcies.

In November, a Toronto court ruled that Cloutier could be discharged from his third bankruptcy in 15 months with conditions, including that he first pay the CRA debt that had been mounting since he filed his latest bankruptcy.

Law professor Thomas Telfer said the law should be tightened so cases like this, in which a second bankruptcy is filed within three years of the first one being discharged, do not qualify for automatic discharge. Instead, the debtor would go to court where a registrar can determine whether the debtor is honest but unfortunate or abusing the system.

A decade ago, trustee Mark Morgan co-wrote an article about “the revolving door of bankruptcy” and the rising rates of recidivism. Still, he says it “blows his mind” to learn from the Star and La Presse that 88 Canadians have declared bankruptcy five times since 2011.

“It shouldn’t be that easy,” Morgan said. “They’re basically thumbing their noses at the system. I know you can’t do anything to me because you haven’t the first, second, third or fourth time.”

His article outlined strategies to stem what he saw as a growing problem. They included more financial education for youth and new Canadians, more consistent sanctions and expanded counselling, as the two sessions required under the Act aren’t enough to fix “a lifetime of bad” financial behaviour, he said.

“Recidivism will continue to be a problem as long as society, creditors, the courts and the insolvency community allow it to be,” Morgan warned.

In May 2016, seven years after Morgan’s call to action, Kenneth Nantel was again seeking to get liberated from more debt.

It was Nantel’s fifth bankruptcy in 16 years, filed just eight days after he was discharged from his fourth. Much of the $37,000 he owed was to the government, and he blamed his money problems on a loss of income.

He was earning roughly $3,300 a month as a mechanic, enough for him to make surplus income payments to increase the amount of money his creditors would receive.

“If it was his second bankruptcy, the debtor would have to pay a total of $17,748 over 36 months,” Nantel’s trustee noted in his submissions.

Even though it was his fifth bankruptcy, the registrar ordered Nantel to pay only $5,916.

When reached by phone, Nantel refused to comment. “I’m not really interested in talking about what happened in the past,” he said before hanging up.

Nantel can be discharged from his fifth bankruptcy as early as September 2020.

Source: Toronto Star – JESSE MCLEAN DECEMBER 09, 2019

This investigation was done in partnership with Katia Gagnon and Marie-Eve Fournier of La Presse.Data analysis by Andrew Bailey.With reporting contributions from Bryan Meler and Jaye Williams of the Ryerson School of Journalism

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THIS Is Hands Down the Best Way to Buy Property

house key in woman hand and green leaves background

Did you know that I start every single conversation with a seller with the exact same question? Probably not. I mean, how would you know?

Well, I do, and it is one of my favorite parts about real estate investing. The question I ask every seller is: “Will you do owner financing?”

Owner financing is the crown jewel of real estate (in my opinion). It affords you the ability to get into a deal a heck of a lot easier and much faster.

What Is Owner Financing?

Put simply, owner financing is when the owner of a property sells it to a buyer but acts as the lender and holds a “note” against it. Instead of paying a normal bank every month, the buyer pays the original seller every month. Going into the agreement, the seller and buyer have an agreed upon payment amount and term length, just like a buyer would with a regular bank.

Owner financing terms are normally much shorter than your standard 15- or 30-year bank mortgage. Before the agreed upon term expires, the buyer must pay off the seller with a lump sum payment, which is typically obtained through a refinance with a regular bank.

 

business colleagues meeting in boardroom going over paperwork

The Benefits of Owner Financing

Less Scrutiny

Well, what is probably the worst thing about real estate investing? I would say it is the process of acquiring a mortgage from a regular bank lender. They want your left leg and your first-born child. Or, put dryly, they want 90 days of bank statements for all your accounts, your last two years of tax returns, a personal financial statement, and your credit score. Throughout the process of gather all of this, they’ll send 43 emails, leave 31 voicemails, and ask you to sign 27 or so different forms.

With owner financing, you effectively avoid almost all of this. Mr. or Mrs. Seller, more than likely, will not run your credit and pour over your personal and financial affairs. In my experience, the most a seller is looking for is that you are a trustworthy person and do, in fact, have the ability to pull money out of your own account or get it from someone or something else in order to provide the down payment (if required) and the monthly payments.

Please do note that while Mr. or Mrs. Seller may be more relaxed with the underwriting, you do absolutely want to be sure that you can pull this off. It does not do anyone any good to tie up a seller and then not be able to execute. The seller will normally have the power to foreclose on you just like a bank would if you start missing payments (via the governing agreement for the transaction).

Quick Closing

You can close the deal quickly. Once you have agreed on a price and terms and the governing contract has been looked over by your attorney, you are effectively a brand new owner of a property.

No or Low Down Payment

Ah yes, the dreaded down payment. Mr. or Mrs. Seller, in most cases, will not hold you to the normal 20 or 25 percent down that most banks want. Most likely, he or she will not be calculating your debt-to-income ratio as it relates to your down payment and the effect it has on your monthly obligations.

Is this not what most people struggle with when buying with traditional financing? Instead, with owner financing, all of the terms are up to the buyer and the seller. You determine what is required to be handed over up front, if anything. Maybe the seller really wants a used Prius, so they require $10,000 down. Maybe he or she has $7,800 in credit card debt that they’re looking to get rid of.

With owner financing, it is important to figure out the seller’s motivation. From there, you can start to craft the terms of the deal.

close up of two men shaking hands one light skinned one dark skinned laptop in background

What Buyers Should Know About Down Payments

Here is some bonus information about down payments: If you want to borrow the down payment, go for it. Can you do with a bank? Maybe. But when I have tried in the past, I was shut down. When I did it with an owner-financed deal, nobody even blinked.

What Buyers Should Know About Interest

In addition, you have complete free range to negotiate the interest rate. On one of my first deals, I had a 10 percent interest rate—not my best negotiation. But for my second owner-financed deal, I was at 5 percent. Getting better!

Example of Owner Financing

I found an off-market deal in Connecticut. The market was smoking hot in this particular area and I knew the town like the back of my hand. I knew he was asking about $50,000 too little. I jumped on it.

Come to find out, he did have a personal loan or two that were really bothering him. The total of those loans was about $22,500. That amount ended up being the down payment. The agreed upon purchase price was $170,000. That is 13.2 percent down a far cry from the 25 percent down banks want.

It took 30 days to close. That did run a little bit long. It was due to our attorneys going back and forth with all the legalese. But I suppose it is important to make sure the contract is done right and is fair to both parties.

If you are looking for another way to get into the game without losing the shirt on your back or the girth of your wallet, take a close look at this strategy. Ask the same first questions of sellers that I ask. What is the worst that can happen?

Source: BiggerPockets.com By Ryan Deasy Aug 10, 2019

 

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Can You Qualify For A Mortgage After A Consumer Proposal?

 

After you file a consumer proposal, the last thing on your mind might be a new mortgage, but you may be a lot closer than you think.

Maybe you wish to buy a home, or you own a home and are interested in refinancing your mortgage. Let’s first talk about purchasing a home.

When Can You Buy A Home After A Consumer Proposal?

Actually, this question comes up often. People want to know how soon can they buy. Sometimes they ask right after they file their consumer proposal, and other times it’s more than five years later, after they’ve paid it off in full.

First things first: pay off your consumer proposal completely before you take on major new mortgage debt.

If you have at least a 20% down payment, you may even be able to buy as soon as you complete your consumer proposal! As in, immediately.

Alternative lender adviceYou will almost always be working with either a B-lender or a private lender, but it is doable. But it’s more than just a matter of having finished your consumer proposal. Make sure you have been rebuilding your personal credit historywith new credit facilities and by cleaning up reporting errors. (There are ALWAYS reporting errors after you file a consumer proposal)

If you have less than 20% down payment, you will be looking for a high-ratio mortgage, which has default insurance, from one of CMHC, Genworth or Canada Guaranty.

In that case, you will need at least two years of clean, new credit since you completed your consumer proposal. But it’s best if you have at least two tradelines (credit card, loan, line of credit, etc.) with limits greater than $2,000.

Worst case scenario, three years after you completed your proposal, or six years after you filed your proposal (whichever comes first) it will fall off your credit report and whether or not you qualify for a mortgage to purchase a home will depend on the usual mortgage qualification criteria we all face.

When Can You Refinance Your Home After A Consumer Proposal?

This, too, can happen very quicklyin fact, we have helped numerous homeowners refinance their homes so they could complete their consumer proposal early. In some cases, it was as soon as the terms of their proposal were ratified in court.

This is what we call a lump-sum consumer proposal, and can be a very attractive way to settle your debts if you are a homeowner.

Should You Pay Off Your Consumer Proposal When You Refinance?

Actually, there are a few private lenders who will allow you to leave your proposal unpaid while you extract equity from your home. But unless there are specific, logical reasons to doing this, it’s not something I recommend.

refinancing to pay off a consumer proposalI prefer refinancing to completely pay off the remaining balance owing on the consumer proposal. There may also be other things you need money for at the same timelike a home improvement project or a child’s higher education, or other family debts.

CRA debt crops up quite a lot too, particularly for those who are self-employed. You can take care of all these at the same time, provided you pay off the consumer proposal.

Why Would You Pay off Your Consumer Proposal Early?

1) Fear of the mortgage renewal. This concern is very real if your mortgage lender had a credit card or loan product included in your consumer proposal. They might have no interest in offering you a renewal when your current mortgage matures. So, you need to get in front of this issue as soon as you can, if your situation allows for it.

2) A strong desire to rebuild your personal credit history. Once you file your CP, your credit score is going to take a major beating. All debts included in the proposal will be reporting as R7s on your personal credit report.

Worse than that, some of them will be erroneously reporting as R9swritten off completely.

confused mortgage consumerAnd some credit cards may say they were included in a bankruptcy, even though that is not true.

A few credit cards even report ongoing late payments after the proposal was filed. And sometimes even after the proposal is completed!

If you want to fix the damage to your personal credit report resulting from your consumer proposal, you are going to have to wait until it is paid in full and you have a completion certificate from your trustee. Here is additional information on rebuilding credit after a consumer proposal.

3) Wish to be normal. When you have bad credit, everything in life seems tougher and more expensive. Even if you wish to rent a home, not buy one, the landlord will usually ask for a copy of your credit report.

And if you want a new smartphone, or lease or finance a new car, bad credit will make all this that much harder.

If you allow your consumer proposal to run the full five years, that means it could be in your credit history six years altogether. It falls off three years after you complete, so keep that in mind. You can significantly shorten the waiting time by paying the consumer proposal off early.

4) Improve cash flow. In nearly all cases when we refinance a home where the owner is paying off a consumer proposal, they see an improvement in their monthly cash outflows. In a society where half of us are living paycheque to paycheque, this is attractive.

How Do You Refinance To Pay Off A Consumer Proposal?

First, your mortgage broker will do a thorough assessment of whether or not this is even doable. S/he will assess the marketability of your property, the amount of untapped equity, the reasons behind you filing your consumer proposal, as well as all the normal stuff lenders look at when reviewing a mortgage application.

An important consideration is your current first mortgage. Was it just renewed, or is it nearing maturity? Which lender is it with, and what might the prepayment penalty be if you were to break it and refinance to a new first mortgage with a B-lender?

Plan BAnother consideration is whether or not your first mortgage is registered as a collateral charge, and if so, to what amount is it registered? We wrote about this a few months ago it can make things difficult.

If refinancing the current mortgage makes sense, your broker will present your application and a presentation to the B-lenders most likely to entertain a file like yours. And s/he will bring back quotes for your consideration. If you choose to proceed, most of the time the entire process can be wrapped up in four to six weeks.

We actually see that happen less often than the other approach,which is to first apply for a private second mortgage.

In this scenario, the first mortgage is left intact and a new lender is found who will lend enough money to cover the proposal balance, any other debts and needs, and all the expenses associated with the mortgage.

During the term of the second mortgage (usually one year), we take the opportunity to cleanse all the reporting errors from the credit report, and also to strengthen the borrower’s credit profile with new healthy credit.

After a year, (longer if that makes sense) we then refinance the two mortgages into a single first mortgage.

It would be normal to expect this new replacement mortgage to be with a B-lender, since the consumer proposal is still fairly fresh. Here are some insights into how to do this.

The Wrap

Ultimately, the goal is to take the homeowners back to the world of A-lenders. That is usually possible after three years, but we have seen instances where it happened much sooner.

But it was never going to happen if the clients didn’t first make the decision to pay off the consumer proposal ahead of schedule.

Source: Canadian Mortgage Trends – ROSS TAYLOR

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How to Buy a Second Home (Hint: It Won’t Be Like Your First)

As a home buyer, you braved the real estate buying circus when you bought your first home, and you have a great place to show for it. You’ve trudged through the open houses, experienced exactly how stressful closing can be, and dealt with legions of moving trucks. And still, a part of you wants something more: an escape in the mountains, a beach cottage, or a pied-à-terre in the city. You want to buy a second home.

With current mortgage rates at a historic low, you might be tempted to jump in. But beware; buying real estate as an investment property or second home won’t be the same as your first-time home-buying experience. Here are some differences and advice to keep in mind.

First things first: Can you afford to buy a second home?

If you scored a sweet deal on a mortgage for your primary residence, don’t expect lenders to give you the same offer twice.

“Second-home loans generally require more down payment and a better credit score than owner-occupied home loans,” says John Lazenby, president of the Orlando Regional Realtor Association.

You may have to pay a higher interest rate on a vacation home mortgage than you would for the mortgage on a home you live in year-round, and lenders may look closely at your debt-to-income ratio. Expect a lender to scrutinize your finances more than when buying a single-family primary residence.

“Lenders look carefully to ensure that second-home buyers are financially capable of paying two mortgages,” Lazenby says.

Make sure to review your budget with a second mortgage payment in mind, and make adjustments if necessary after you know what interest rate you will receive. And make sure you can afford the real estate down payment—a healthy emergency fund and cash reserves are essential if an accident or job loss forces you to float two mortgages at once.

Evaluate your goals

Understand exactly how you plan to use the property before you sign on the dotted line.

“Buyers should consider their stage of life and that of their children to ensure they are going to actually use the home for the amount of time that they’re envisioning,” Lazenby says. “A family with young children may find that their use of a second home declines as the kids grow older and become immersed in sports.”

If you’re certain you’ll get enough use and enjoyment out of your new purchase, go for it—but make sure to carefully consider the market.

For most homeowners, a second home shouldn’t be a fixer-upper. Look for homes in high-value areas that will appreciate over time without having to sacrifice every weekend to laborious renovations on your “vacation home.”

Buying in an unfamiliar area? Take a few weekend trips to make sure it’s the right spot for you. In the long term, you’ll want it to be a good investment property, as well as a place to play. Pay close attention to travel times, amenities, and restaurant and recreation availability, otherwise you might spend more time grousing than skiing and sipping wine. And make sure to choose a knowledgeable local real estate agent who will know the local real estate comps and any area idiosyncrasies.

Understand your taxes

You may be familiar with a bevy of home credits and tax breaks for your first home, but not all of them apply to your second.

For instance: You might be planning on using your new home as a vacation rental when you’re out of the area. If that’s the case, you need to calculate the return on your investment property purchase price that you can expect over the course of a year. How much can you charge per night or per week for your rental property? How many weeks will you rent out the property? And what expenses will you incur?

“Property tax rules and possible deductions for second homes used as rentals are complicated and vary widely, depending on both the number of days per year that the owner occupies the home and the owner’s personal income level,” says Lazenby.

vacation home offers more flexibility to buy based on your potential property tax burden—for instance, if you’re looking to buy in an area of high real estate taxes, consider widening your real estate search to another county, which can save you thousands of dollars. Your real estate agent should be able to help you find property you as a buyer can afford.

Lazenby recommends consulting with a tax professional about tax implications, especially if you’re planning on renting out the house.

A vacation home you use part time and also rent out may be considered rental property for tax purposes, depending on personal-use days as the homeowner, and the number of days you rent it out. If you rent out the vacation property for more than 14 days in a year, you must report the rental income on Schedule E of your individual tax return, and you can deduct the rental portion of expenses such as mortgage interest and property taxes. However, renting out your home as a short-term vacation home for 14 days or less in the year means you cannot deduct rental expenses, but the income from your renters is tax-free.

Jamie Wiebe writes about home design and real estate for realtor.com. She has previously written for House Beautiful, Elle Decor, Real Simple, Veranda, and more.
Source: Realtor.com –  | Aug 28, 2019
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New short-term rental regulations you need to know if you own property in Toronto

New short-term rental regulations you need to know if you own property in Toronto Image

The City of Toronto will be moving forward with the new short-term rental regulations that were proposed and approved back in late 2017.

The Local Planning Appeal Tribunal recently dismissed the appeal of the City council-approved zoning regulations for short-term rentals, so Toronto will soon have a different rental landscape.

“This is good news for Toronto residents and a step in the right direction when it comes to regulating short-term rentals and keeping our neighbourhoods liveable,” said Mayor John Tory in a release. “When we approved these regulations in 2017, we strived to strike a balance between letting people earn some extra income through Airbnb and others, but we also wanted to ensure that this did not have the effect of withdrawing potential units from the rental market. I have always believed our policy achieves the right balance which in this case falls more on the side of availability of affordable rental housing and the maintenance of reasonable peace and quiet in Toronto neighbourhoods and buildings.”

There are a few new rules that will be implemented soon. Short-term rental will be permitted across the city in all housing types, but only in principal residences (and both homeowners and tenants can participate). If you live in a secondary unit, you can rent out your home short-term, but only if the secondary unit is your primary residence.

You’ll be able to rent up to three bedrooms or your entire residence. If renting your entire home while you are away, you can do so for a maximum of 180 nights a year. If you are renting out any part of your home, you must register with the City and pay a $50 fee.

For companies like Airbnb, they will have to pay a one-time fee of $5,000 to the City, plus $1 for each night booked. This way, the city is benefitting from the success of a company that is leveraging local housing to make a profit.

There will also be a Municipal Accommodation Tax of 4% that you will have to pay on any short-term rentals less than 28 consecutive days. Companies like Airbnb will be able to volunteer to collect and pay the MAT on behalf of their users.

It seems like these changes will mostly impact the condo rental market. Most investors renting their condo units through companies like Airbnb are not renting out their principal residence; it’s usually a secondary residence. Without short-term rental income as an option, we could see a slight drop in investors in the new condo market. Fewer investors means less sales and more supply for end-users. This could result in price moderation or even a price drop in the pre-construction market.

We could also see some condo units hitting the resale market and long-term rental market, as investors look to other options to profit off their properties.

There will be a transition period as investors figure out what to do with their condo units, but in the long-run, this change seems to make sense in that it delivers more supply to the people who are living in the city, as opposed to just visiting.

Source:  Newinhomes on Nov 20, 2019

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Is investing in Canadian real estate still viable?

When a series of tax and mortgage rules was introduced in Canada in 2016 to prevent a housing market bubble, activity slowed down significantly in the years that followed. Given the current circumstances, is it still viable to invest in property?

In a think piece in Macleans, market watcher Romana King said even with fears of a global recession, real estate is still a smart way to invest.

“For investors, the key to making strategically smart decisions is to consider the underlying economic factors that impact your investment,” she said.

King said the housing market could climb out of negative growth forecasts this year. Citing figures from the Canadian Real Estate Association, she said the national sales activity was on target to increase by 5% in 2019 and could expand further by 7.5% in 2020.

“Canada boasts strong population growth, and government budgetary decisions are acting as stimulants for the national housing market, all of which point to a healthy future for Canada’s real estate market,” she said.

Investing in real estate, however, is not without risks. For investors, it is crucial to know some strategies to lessen the potential risks, King said. The first is to be aware of additional debt. Investors must keep an eye on their credit scores and pay bills on time.

“Most investors will require a mortgage to purchase rental real estate. This can alter your debt ratios, which can impact whether or not you get the best mortgage or loan rates. Talk to an advisor before applying for new credit or renewing a current loan,” King said.

Another must-have strategy is budgeting. King said investors need to control how much they spend on maintenance and repairs to ensure that their rental properties are cash-flow positive.

“An investor needs to budget for a contingency fund. If the anticipated monthly rent covers all monthly expenses, including a repair fund, then the property is cash-flow positive, which is fundamental for a good investment,” she said.

Getting insurance could also mitigate the risks of catastrophic events.

“Virtually all insurance policies will cover a catastrophic loss of a building, but as a real estate investor, you must also consider the loss of income due to damage or destruction. A comprehensive rental policy will provide a landlord with income to replace lost rent at fair market value,” she said.

Overall, investors need to treat real estate investing as a business. Citing Edmonton-based investor Jim Yih, King said the key to successful real estate investing is positive cash flow, and not just the purchase price and the potential sale price.

Source; Canadian Real Estate Magazine – by Gerv Tacadena 12 Nov 2019
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    Toronto to enforce new Airbnb regulations after tribunal rules in favour of stricter bylaws

    Short-term rentals were technically not permitted in Toronto while the proposed regulations were being appealed. But the rules were not implemented due to multiple appeals made to the province’s Local Planning and Appeal Tribunal. (Cole Burston/The Canadian Press)

    Bylaws were held up for nearly 2 years after lengthy appeals process

    A provincial tribunal has ruled in favour of Toronto’s plan to put stricter regulations on the city’s short-term rental market.

    The Local Planning and Appeal Tribunal (LPAT) made its decision Monday, nearly two years after the city first approved the bylaws.

    Under the rules, Toronto will require short-term rental operators to live at the home they list on sites such as Airbnb.

    Operators will also be allowed to rent a maximum of three bedrooms in their home or their entire property. They will be required to register with the city to rent out space in their homes.

    In his ruling, adjudicator Scott Tousaw described the regulations as “good planning in the public interest.”

    “This is good news for Toronto residents and a step in the right direction when it comes to regulating short-term rentals and keeping our neighbourhoods liveable,” said Toronto Mayor John Tory Monday in a written statement.

    The regulations are essentially designed to increase the availability of long-term rentals by decreasing the number of homes eligible to be listed on sites like Airbnb and VRBO.

    However, the rules were not implemented due to multiple appeals made to the LPAT, formerly known as the Ontario Municipal Board. The appeals were launched by several short-term rental operators seeking to challenge the city’s bylaws.

    The LPAT ruling means the city can now move ahead with the regulations.

    Ana Bailão, Toronto’s deputy mayor and housing advocate, said the ruling strikes a fair balance that will benefit both tenants and homeowners looking to leverage their properties.

    Ana Bailão@anabailaoTO

    LPAT rules in favour of City’s short-term rental by-law: regulation is a “reasonable balancing…has a solid basis and planning rationale.” After a long appeal, we can now move forward protecting long-term rental suites while still allowing short-term rentals where reasonable.

    Airbnb and other companies operating in the short-term rental market will now be required to pay a one-time license fee of $5,000, plus $1 for each night booked through their platform.

    Rental operators will also be charged with a four-per-cent municipal accommodation tax on all rentals that last less than 28 consecutive days.

     

    Thorben Wieditz of Fairbnb, a coalition that represents the hotel industry, along with property owners and tenants, called the decision a “major victory for tenants across Ontario.”

    The LPAT decision notes that some 5,000 units could return to the long-term rental market with the new regulations, though that number may also be somewhat lower, depending on how operators respond to the changes.

    “Whatever the number, one fact is indisputable: each dedicated [short-term rental] unit displaces one permanent household. That household must find another place to live,” Tousaw wrote.

    “This phenomenon is occurring in increasing numbers in Toronto’s residential areas, the very places that are planned, designed and built to provide housing for residents.”

    Source: CBC.ca – Nick Boisvert · CBC News · 

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