Category Archives: distress properties

Five things to do if you are over-extended on your mortgage

Mortgage default may be rare in this country, but nearly 9% of indebted households need 40% or more of their gross income to pay their debt service charges, says the Bank of Canada Financial System Review.

If you can see problems coming, then you can take action to avoid foreclosure, which happens when lenders run out of other alternatives and borrowers can do no more to pay their debts. Here are five options to consider when you are being crushed by mortgage payments:

1. Extend amortization: If the mortgage has been paid down to 10 or 15 years, then extending it to 20 to 25 years or even to 30 years will decrease payments. In a lot of cases this will work, says Elena Jara, director of education for Credit Canada Solutions, a Toronto-based non-profit organization which offers free credit counselling.

2. Seek better terms: You can go for lower interest rates with the same or a different lender but with a potential penalty, says Bill Evans, a mortgage broker with Mortgage Architects in Winnipeg.“If you are having trouble with payments with one lender, another may not want to take you on. But if you can present a case for a new income, you can go to a so-called specialty lender such as Home Trust or Optimum Trust for a fresh look at your problem and potential solutions,” Evans says. “If you just want to alleviate the problem, timing is crucial.”
3. Renew at a floating rate: There is more risk but lower interest cost in floating rate mortgages. If you are on a fixed rate mortgage with relatively high rates and want to go to a lower floating rate, perhaps by taking the mortgage to another lender, then there may be relief when it is time for loan renewal. The present lender may add a penalty, but over time, floating rates and the often attractive rate on a one-year closed loan can offer relief, Mr. Evans says.

4. Sell it and rent: In markets with high home prices as a result of speculative building, absentee owners will often rent at relatively low cost. That makes for good deals for renters.

5. Discuss a consumer proposal: The homeowner can avoid outright bankruptcy and foreclosure of the home by talking to creditors, suggests Bruce Caplan, trustee in bankruptcy for BDO Canada Ltd. in Winnipeg. “The homeowner can make a consumer proposal in which a settlement plan is devised for the creditors. Secured creditors such as the banks or private mortgage lenders can work out new terms such as reduced payments or a payment bridge for a period of time with the homeowner,” he suggests.

And number 6; Don’t suffer in silence until you lose control of the situation. Contact a mortgage professional who can review your circumstances and possibly offer you a solution to get back in control.

Source: The Financial Post Andrew Allentuck | November 21, 2013 12:40 PM ET

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Analyst: CMHC to blame for pending 40-50 per cent price correction

by MBN | 18 Mar 2015

A leading financial advisor is projecting a 40-50 per cent housing price correction and is laying the blame on the CMHC.

Puffed up by years of ultra-low borrowing rates, home values have bloated to levels so far out of sync with the underlying incomes needed to support them, it’s only a matter of time before one headwind or another blows over the house of cards.

According to Global News, a new book, When the Bubble Bursts, was released this month across the country, and is one of the most fulsome looks yet at the current state of Canada’s much-fretted over real estate market. Author Hilliard MacBeth says the Canadian real estate market is poised for a painful 40 to 50 per cent drop in value when the bubble pops.

“The availability of financing. Canada is unique in the world in the availability of government insurance through CMHC [Canada Mortgage and House Corp.], that’s allowed the lenders to lend a phenomenal amount of money. [Household] debt levels have gone from one trillion dollars to $1.8 trillion, just in 15 years,” the report says.

“I think the government has genuinely tried to encourage the housing market and home ownership, which started after the Second World War. But in the last 15 years it’s kind of taken on a life of its own. It’s this monster that nobody can really tame. The reality is, lenders don’t really take any risk, so they keep on providing more and more [loans].”

$500 US Detroit homes may be no bargain due to squatters and unpaid taxes

An abandoned house in Detroit, one of thousands of the city plans to foreclose this spring to auction off for $500 apiece. Just because it's boarded up, doesn't mean noone is living there.

Foreclosed homes may need extensive upgrades and come with hidden costs

The Associated Press Posted: Mar 11, 2015 2:47 PM ET Last Updated: Mar 11, 2015 5:09 PM ET

An abandoned house in Detroit, one of thousands of the city plans to foreclose this spring to auction off for $500 apiece. Just because it’s boarded up, doesn’t mean noone is living there. (Beth J. Harpaz/ Associated Press)

Sixty-two thousand properties have faced foreclosure in Detroit this year over unpaid taxes. About half will likely be auctioned for $500 apiece this fall.

Buying homes or vacant lots for $500 might sound inviting, even in a city as troubled as Detroit. After all, look at New York: Decades of crime and decay gave way to a real estate boom that has gentrified even outlying working-class neighbourhoods. Properties that sold for thousands in the bad old days are now worth millions.

But there are no guarantees. “The opportunities are there but there are huge challenges,” said Dang Duong, a law and business student at the University of Michigan who has bought and renovated several dilapidated homes in Detroit. “If you’re under the impression you can buy a property for $500 and wait a few years until Detroit has recovered, that’s going to be difficult.”

Here are five things to consider before buying property in Detroit.

1. The house may be occupied

Are you prepared to evict former owners, longtime tenants or even squatters? Loveland Technologies, a mapping company that has surveyed every property in Detroit, estimates that half the properties facing foreclosure are occupied, housing about 100,000 Detroiters.

Critics question the morality of buying occupied homes and fear the program may increase Detroit’s homeless population. They say many owners stopped paying taxes because they weren’t getting city services in return.

Detroit has the highest property taxes of any U.S. city and the market value that sets the level of taxes is based on a years-outdated assessment. For long-time Detroit homeowners, many of them marginally employed or jobless, that can mean they face years of back taxes they can’t hope to pay.

Darin McLeskey, who moved from an engineering career to buy, sell and develop real estate in Detroit, says sometimes “people want out. They can’t afford the home or are tired of the city. Mentally they may have moved on, and sometimes physically they have moved on.” In one case, he made a “cash for keys” deal with a squatter in an uninhabitable home: “I gave him $300, he signed a document. It was cheaper, easier and more amicable than an eviction.”

2. The hidden costs of updates and back taxes

Demolishing dilapidated properties and building from the ground up can be cheaper than rehabbing. But some buyers choose renovation to save historic architectural details found in much of Detroit’s early 20th century housing stock: turrets, gingerbread trim, pillars and antique woodwork amid broken windows and sagging rooftops.

Dilemma Over Squatters Detroit

Demolition crews found a middle-aged woman living on the second floor when called to tear down this house in southwest Detroit. (Carlos Osorio/Associated Press)

​Duong bought a house in Detroit for $1,100 and spent $100,000 on roofing, wiring, plumbing, appliances, drywall, flooring, and new bathrooms and kitchens. He speaks reverently of preserving the 100-year-old maple floors, and wanted a quality renovation to attract good tenants. It’s located in a privately patrolled neighbourhood near a hospital, so he sees it as a good investment.

But beware of hidden costs and scams. Properties may come with liens, water bills and back taxes totalling thousands of dollars, in addition to renovation costs. It’s also not unusual to hear of homes sold to buyers in other states and countries, with purchase prices rising with every flip.

3. No absentee landlords

If you buy a home through the Detroit Land Bank, you have six months to bring it up to code — nine months for historic properties. The policy discourages speculators from buying and leaving property unattended.

Duong got a call before one of his projects was complete, but he said “if you are a legitimate landowner, they are easy to work with. They want people to either renovate or sell to someone else who can do it. That goes a long way to removing blight.”

Looting and vandalism are also major problems. Homes under renovation risk having fixtures ripped out and tools stolen if the property is not lived in and secured. McLeskey moved tools into a townhouse and returned the next morning to find the door knocked down with a battering ram.

It helps to buy in populated areas. The more neighbours you have, the more secure it is.

Combatting blight also means maintaining vacant lots. McLeskey mows nearly all of his 40 vacant lots in the summer.

4. City services not quite up to standard

Garbage pickup, snow removal, water service, and police and fire department responses have improved in the last 18 months, but may still be less reliable than what you’d expect elsewhere.

5. Detroit’s uncertain future

Are you willing to wade into controversy?

Supporters say foreclosure sales help the city recover by forcing homeowners to pay up or move on. Auction buyers then decide what’s salvageable.

Detroit sprawls over 140 square miles, and officials would like to concentrate the population of 690,000 (down from 1.85 million in 1950) into a sustainable area by demolishing abandoned buildings in far-flung neighbourhoods. Theoretically, new property owners will pay taxes, the revenue will support city services, and property values will recover.

But critics say foreclosures may increase blight. Repossessed properties often don’t sell at auction and they deteriorate faster once occupants leave.

Need more information or advice on #mortgage_qualification, contact the The Ray McMillan Mortgage Team

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Builders warn of danger of using ‘cash’ contractors

Builders warn of danger of using ‘cash’ contractors

by Jamie Henry | 09 Mar 2015

Source: Mortgage Broker News

A program to help Canadians who are having a home built or renovated has been extended for three years. The Canadian Home Builders Association in partnership with the federal government will continue the Get it in Writing initiative to help consumers with topics such as hiring a contractor and the dangers of using illegal ‘cash’ operators.

Kevin Lee, CEO of the CHBA warns: “Cash operators threaten the financial security of homeowners, the physical integrity of their homes, harm the businesses of legitimate renovators, and undermine the well-being of all Canadians by evading taxes that support the government services we all depend on.”

Home renovation and repair represent more than half of all residential construction investment—over $60 billion each year. The industry supports over 500,000 jobs and nearly $28 billion in annual wages and Mr Lee says as well as damaging this part of our economy the savings are not worth the risk: “Homeowners who think they are getting a deal when they agree to pay cash for a lower price often end up paying far more when things go wrong, and they have no way to hold the contractor accountable.”

Genworth warns of rising losses on mortgages from oil-sensitive Alberta

File photo of ‘For sale’ signs in front of homes in Calgary. (TODD KOROL For The Globe and Mail)

The country’s largest private mortgage insurer says it expects rising losses on its portfolio of Alberta mortgages this year and is more heavily scrutinizing new applications from oil-sensitive regions of the province as low crude prices weigh on Western Canada’s housing market.

Genworth MI Canada Inc. is raising its target loss ratio, a measure of claims paid compared to premiums earned, to a range of 20 per cent to 30 per cent, up from 15 per cent to 25 per cent, on expectations of rising unemployment and a 3- to 5-per-cent drop in Alberta home prices.

“Clearly, the current environment, specifically the low oil prices, will put some pressure on losses and potentially the size of the housing market in Alberta,” Stuart Levings, Genworth’s president and CEO, prices, told analysts during a conference call to report its fourth-quarter earnings Wednesday Alberta represents a fifth of the company’s mortgage insurance business, although the province accounted for 27 per cent of new insurance premiums written last year. The bulk of Genworth’s Alberta portfolio consists of insured mortgages dating back to 2012 and now average 20 per cent equity, offing a buffer against “a moderate downturn in house prices,” chief risk officer Craig Sweeney said.

For the $8.8-billion worth of outstanding Alberta mortgages from the last two years, however, the borrowers tended to have relatively high loan-to-value ratio, with equity averaging just 16 per cent in 2013 and 9 per cent in 2014, due to slow home price appreciation and borrowers paying off less of the principal on their mortgages in those years, the company said.

It is also watching the Ontario housing market, where it sees “a modest degree of overvaluation” in prices of single-family homes.

Genworth is focusing on stemming losses in Alberta by more closely examining new applications, looking at whether borrowers will be able to afford their mortgage and conducting more detailed reviews of the home values supporting the loan.

It has been monitoring news of job losses in the oil patch, combing its databases to see where borrowers are employed. When Suncor Energy Inc. announced last month it was laying off 1,000 workers, the insurer scoured its portfolio for Suncor employees it thought would be potentially affected and contacted them with offers of modified payment plans and other programs.

Even as it braces for a rocky year in the Prairies, Genworth said the current downturn bears little resemblance to the financial crisis of 2009, when the company’s loss ratio soared to 42 per, with half those losses coming from Alberta. Underwriting standards have improved since then, many of the more risky products, such as no-downpayment mortgages and 40-year amortizations, are a thing of the past. The average credit score in Alberta is 21 points higher today than it was in 2007.

The company, which controls an estimated 30 per cent of the country’s mortgage insurance market, reported fourth-quarter net operating income of $84-million, down $9-million from the previous quarter, but up 39 per cent from the previous year, driven by a jump in the price of new insurance premiums. Losses on claims also rose 7 per cent in the fourth quarter to $37-million, although they were down 22 per cent for the year as a whole. Annual premiums rose 25 per cent.

Genworth Canada’s stock has plummeted 25 per cent since November, when ratings agencies began downgrading the company’s major shareholder, U.S.-based Genworth Financial, to junk status.

Tax warning for real estate investors

Real estate investors should be prepared for the tax authorities, as the Canada Revenue Agency and Revenue Quebec may be scrutinizing GST/HST and QST compliance areas relating to the real estate sector in 2015.

KPMG issued a tax warning last week advising companies in the real estate industry that the tax authorities are expected to focus their audit reviews on the following types of entities:

  1. Nominee corporations or bare trusts in joint-venture arrangements, including those that took advantage of a temporary administrative tolerance period.

The policy, which some participants in joint ventures were able to benefit from on a temporary basis, was available for the reporting period ending on or before December 31, 2014. With its expiry, KPMG expects auditors to focus on this area in 2015.

“Organizations that complied with the policy by implementing changes to their joint-venture arrangements and GST/HST and QST reporting obligations may want to review any underlying documentation and test the new processes,” said KPMG.

  1. Certain other nominee corporations or bare trusts that account for GST/HST and QST.

The temporary policy did not apply to GST/HST and QST accounting in other structures involving nominee corporations or bare trusts. For example, where a single beneficial owner of a commercial property registers the title in the name of a nominee corporation or bare trust, the administrative policy is that the owner should register for purposes of the commercial activities relating to the property and account for the GST/HST and QST.

  1. Partnerships, real estate investment trusts (REITs) and entities with agency agreements where the wrong entity may be accounting for tax or there is a lack of supporting documentation.

Different GST/HST and QST rules apply to various types of entities, structures and legal relationships. KPMG added: “To help protect yourself against indirect tax challenges, partnership, REITs and agencies should ensure that the proper entity is accounting for tax and that all supporting documentation is in place.

  1. Real estate companies that must meet documentation requirements to support relationships, valuations, input tax credits, and transfers of rebates.

There are numerous circumstances where the CRA and Revenue Quebec will deny a real estate company’s ITCs and ITRs based on a failure to meet the documentary requirements. Because this is a significant compliance issue in the real estate industry, where purchase invoices may be in the name of an agent or buying representative, it is an area often targeted by auditors.

Panic hits Calgary’s luxury real estate as oil takes its toll

“It was one of the busiest Decembers that I’ve ever had just because people were selling their homes right before the market was really starting to crash,” says Mr. Keeper of Tink International Real Estate, who specializes in Calgary’s luxury home market. “I’ve never had that happen. Who lists their home before Christmas?”

“Calgary’s housing market took a sharp downturn last month, with sales plummeting 35 per cent compared with the same time last year, while new listings surged 40 per cent. The number of homes on the market across the city jumped from 3,100 to 4,400 in the span of three weeks, Mr. Keeper says. Average prices, however, have stayed largely flat compared to December and realtors say it will likely take several months of rising listings and sinking sales before sellers acknowledge their homes aren’t worth what they were just a few months ago.”

It’s a different story for the city’s luxury market, which is already in the midst of meltdown, with some sellers slashing their prices by hundreds of thousands of dollars in a desperate bid to appeal to nervous buyers. Sales of homes above $1-million fell 43 per cent in January compared with a year earlier, the Calgary Real Estate Board said. There were no sales above $1.75-million last month, compared to 10 sales last January, even though there were nearly 300 homes for sales in the price range.

It’s a dramatic reversal of fortunes for the city’s luxury housing market, which broke new records for prices and sales last year. More than 850 homes sold for above $1-million last year, up 16 per cent from a year earlier, according to Sotheby’s International Realty Canada. Much of that growth came toward the end of the year, with sales soaring even as oil prices began their downward slide. But luxury buyers rang in the new year with a sense of panic as major oil producers began slashing jobs and scaling back spending on new projects.

Nearly half of the luxury properties in Calgary’s most prestigious neighbourhood, Mount Royal, have dropped their prices by $100,000 or more, with many homes that were selling well above $1-million now languishing on the market in the six figures. The average detached house in the neighbourhood sold for more than $2.6-million last year, but the neighbourhood hasn’t seen any sales since before oil prices began plummeting in November.

“If somebody had told me you could buy a home in Mount Royal for $900,000 a year ago I would’ve said they were lying,” Mr. Keeper said.

After pouring thousands into granite countertops, hardwood floors and new appliances, Sandra MacKenzie listed her 102-year-old house on a corner lot in Mount Royal for $1.4-million in November, just as oil prices were collapsing. Similar houses in the neighbourhood were selling for $1.5-million in the summer, but after weeks with little interest from buyers, Ms. MacKenzie recently slashed the price to $900,000. An open house last weekend brought 30 people, but no takers.

“I just can’t go any lower than that, but everybody is so scared to buy now because of the oil prices,” said Ms. MacKenzie, whose parents had taken out a reverse mortgage on the property, leaving her little equity amid falling prices. “I would even sell to a builder at this point. I hate saying that because it’s a beautiful home, but I’m getting desperate.”

Nearly a third of all new listings above $1-million in the city are for brand new, builder-owned attached houses on infill lots, said Colin Kehler of Re/Max. Several are from small developers who had torn down older single-family homes to build high-end attached houses that appeal to younger buyers wanting to live closer to downtown. Many are now sitting empty in a cooling market.

“You’d have to think they can’t carry them for too long,” Mr. Kehler said. “I think there’s going to be some motivated sellers.”

Even as sellers such as Ms. MacKenzie have dramatically slashed their prices, many others refuse to come down on the asking price, leading to a stockpile of luxury homes for sale. Mr. Keeper predicts prices on high-end homes could eventually come down another 10 per cent because of a build-up of unsold inventory before skittish buyers decide to get back into the market.

“If oil does continue to stay where it is, I would say by the spring you’re going to see a lot of buyers out there trying to take advantage of the fear in the market,” said Sotheby’s Canadian president and chief executive officer Ross McCredie.

Months ago, Calgary real estate agents could stick a luxury house on the Multiple Listings Service and sit back and watch it sell. These days, they’re having to work much harder just to get prospective buyers in the door. Mr. Keeper has reached out to contacts in the U.S. hoping American buyers will be enticed by falling house prices and a sinking loonie. “You have open house after open house,” he says. “If a buyer calls you at 10 in the morning or when you’re sitting down for dinner, then you drop what you’re doing and you go,” he says. “And if a buyer wants the couch with the house, they get the couch.”