Tag Archives: mortgage default

Mortgage Fraud In Canada: What Millennials Should Know

When striving to achieve a big goal, like buying a home, it’s not uncommon to submit to a temptation to cut corners, find loopholes, and even tell white lies. If we think such dubious tactics will help our chances, we will rationalize our behaviour as a victimless crime or even an act of admirable perseverance in an unforgiving financial system and hostile real estate market.

Equifax, the global data, analytics and technology company, released a survey on mortgage fraud and the results were startling, particularly among millennials. Nearly 23% of millennials “believe it’s acceptable to inflate your income when applying for a mortgage,” according to the survey. That’s a shocking admission of dishonesty and almost double the percentage of the general population when asked the same question (12%).

So why are young people so inclined to embellish their financial qualifications as a means to attaining a mortgage? Perhaps it has to do with Canada’s increasing impenetrable real estate markets in big cities like Toronto and Vancouver, where getting your foot in the door can take years if not decades. By that view, it’s hard not to be sympathetic with those looking for an edge.

But mortgage fraud – defined as a deliberate misrepresentation of information to obtain mortgage financing that would not have been granted if the truth had been known – is a dangerous game. It can lead to overextended credit situations, causing you stress and the potential to default on payments, which will impact your credit score.

As Julie Kuzmic, Director of Consumer Advocacy at Equifax Canada, says, “What some may see as a little white lie during the mortgage application process could have legal consequences or become a very hard lesson for people to learn if they cannot keep up with their mortgage payments.”

Is mortgage fraud a victimless crime?

With 23% of millennials, and 16% of all respondents, saying mortgage fraud is a victimless crime, the Equifax survey tells us that this technically illegal act is being viewed in a similar light to jaywalking or highjacking your neighbour’s Wi-Fi signal. Nobody is getting hurt right? Wrong.

The reality is the victim will usually be the one committing the fraud. Inflating your income or withholding important financial information might get you a bigger mortgage, but you’re going to be on the hook for repayments that might be beyond your means. This could cause daily stress on you and your family. Not to mention impacting your overall financial health for a long time.

Don’t be persuaded by shady lenders or brokers who want your business and don’t care about your long-term future. If they encourage you to be less than truthful in a mortgage application, walk away or report them to your province’s financial regulatory body. Conversely, if a broker or lender suspects you of fraud, you could be reported and have your credit tarnished, affecting future applications. You don’t want that Scarlett letter, so to speak.

How to avoid mortgage fraud – start with your credit score

The Equifax survey also revealed a high number of mortgage applicants are not checking their credit scores going into the application process. That’s a mistake to think that claiming an inflated income is enough to secure a mortgage; you usually need a decent credit rating too. The survey had 60% of respondents saying they did not check their credit scores before approaching a lender.

Doing due diligence on your credit score will give you insight into how successful your mortgage application will be. Ideally, a lender or broker wants to see good credit behaviour, which is represented by a number between 300-900. According to Equifax, a credit score rated above 660 is considered good by most lenders. You can check your Equifax credit score for FREE using Borrowell.

Credit Score Range Canada

Build your credit profile

As discussed, it usually takes more than the required income level to successfully obtain a mortgage – you also will usually need a history of good credit behaviour. That may not be realistic for everyone, but there are always ways to rehab your credit rating. In fact, Fresh Start Finance has written a guide to

Basically, you start the process by obtaining your credit report and checking it for errors. You never know what mistakes were made in the bureaucratic world of credit ratings. Some other quick wins include increasing the credit limit on a credit card or line of credit. That might seem counterintuitive, but it improves what’s called credit utilization, meaning the more credit you are not using, the better it looks. Try to keep balances at about 30% of your total credit limit.

Another tactic is to keep credit cards open even if you’re aren’t using them (putting credit cards in the freezer, for example, is good way to put them out of use). Credit history is a key factor that affects your credit score – 15% to be exact.

Those are the quick and easy ways to improve your credit score. Now here’s the long hard road – pay down debt and don’t ever, ever miss bill payments. Punctuality is vital in building a solid credit profile. In fact, it accounts for a whopping 35% of your credit score.

Pro tip: Set up automatic payments where possible, so you’ll never forget to pay a bill again.

How is your credit score calculated?

Consider a side hustle to improve your mortgage chances

Instead of lying on mortgage applications and living like a criminal in the shadows of society consider pumping up your income the legit way. More and more young people are turning to side hustles to augment their incomes.

Although it is the primary reason, the advantage of a side hustle isn’t just added revenue. It also breaks up the monotony of your main source of income. If it’s something you’re passionate about, even better, because it can elevate your spirit to know your energy is being invested in something that matters to you. Plus, it will make you feel less “trapped” in your workaday life.

Can’t afford a home right now? Give it time.

Even if you’re not immediately ready to qualify for a mortgage, a broker will work with you and help you prepare for homeownership when the time is right. Just remember to be honest with your mortgage broker. A home could be the biggest purchase of your life – you don’t want it crashing down on you like a leaky roof.

 


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Millions of Americans still trapped in debt-logged homes ten years after crisis

EAST STROUDSBURG, Pa., 2018 (Reuters) – School bus driver Michael Payne was renting an apartment on the 30th floor of a New York City high-rise, where the landlord’s idea of fixing broken windows was to cover them with boards.

Click here to hear Payne’s story. 

So when Payne and his wife Gail saw ads in the tabloids for brand-new houses in the Pennsylvania mountains for under $200,000, they saw an escape. The middle-aged couple took out a mortgage on a $168,000, four-bedroom home in a gated community with swimming pools, tennis courts and a clubhouse.

“It was going for the American Dream,” Payne, now 61, said recently as he sat in his living room. “We felt rich.”

Today the powder-blue split-level is worth less than half of what they paid for it 12 years ago at the peak of the nation’s housing bubble.

Located about 80 miles northwest of New York City in Monroe County, Pennsylvania, their home resides in one of the sickest real estate markets in the United States, according to a Reuters analysis of data provided by a leading realty tracking firm. More than one-quarter of homeowners in Monroe County are deeply “underwater,” meaning they still owe more to their lenders than their houses are worth.

The world has moved on from the global financial crisis. Hard-hit areas such as Las Vegas and the Rust Belt cities of Pittsburgh and Cleveland have seen their fortunes improve.

But the Paynes and about 5.1 million other U.S. homeowners are still living with the fallout from the real estate bust that triggered the epic downturn.

As of June 30, nearly one in 10 American homes with mortgages were “seriously” underwater, according to Irvine, California-based ATTOM Data Solutions, meaning that their market values were at least 25 percent lower than the balance remaining on their mortgages.

It is an improvement from 2012, when average prices hit bottom and properties with severe negative equity topped out at 29 percent, or 12.8 million homes. Still, it is double the rate considered healthy by real estate analysts.

“These are the housing markets that the recovery forgot,” said Daren Blomquist, a senior vice president at ATTOM.

Lingering pain from the crash is deep. But it has fallen disproportionately on commuter towns and distant exurbs in the eastern half of the United States, a Reuters analysis of county real estate data shows. Among the hardest hit are bedroom communities in the Midwest, mid-Atlantic and Southeast regions, where income and job growth have been weaker than the national norm.

Reuters Graphic

Developments in outlying communities typically suffer in downturns. But a comeback has been harder this time around, analysts say, because the home-price run-ups were so extreme, and the economies of many of these Midwestern and Eastern metro areas have lagged those of more vibrant areas of the country.

A home is seen in the Penn Estates development where most of the homeowners are underwater on their mortgages in East Straudsburg, Pennsylvania, U.S., June 20, 2018. REUTERS/Mike Segar

“The markets that came roaring back are the coastal markets,” said Mark Zandi, chief economist at Moody’s Analytics. He said land restrictions and sales to international buyers have helped buoy demand in those areas. “In the middle of the country, you have more flat-lined economies. There’s no supply constraints. All of these things have weighed on prices.”

In addition to exurbs, military communities showed high concentrations of underwater homes, the Reuters analysis showed. Five of the Top 10 underwater counties are near military bases and boast large populations of active-duty soldiers and veterans.

Many of these families obtained financing through the U.S. Department of Veterans Affairs. The VA makes it easy for service members to qualify for mortgages, but goes to great lengths to prevent defaults. It is a big reason many military borrowers have held on to their negative-equity homes even as millions of civilians walked away.

A poor credit history can threaten a soldier’s security clearance. And those who default risk never getting another VA loan, said Jackie Haliburton, a Veterans Service Officer in Hoke County, North Carolina, home to part of the giant Fort Bragg military installation and one of the most underwater counties in the country.

“You will keep paying, no matter what, because you want to make sure you can hang on to that benefit,” Haliburton said.

These and other casualties of the real estate meltdown are easy to overlook as homes in much of the country are again fetching record prices.

 

But in Underwater America, homeowners face painful choices. To sell at current prices would mean accepting huge losses and laying out cash to pay off mortgage debt. Leasing these properties often won’t cover the owners’ monthly costs. Those who default will trash their credit scores for years to come.

DREAMS DEFERRED

Special education teacher Gail Payne noses her Toyota Rav 4 out of the driveway most workdays by 5 a.m. for the two-hour ride to her job in New York City’s Bronx borough.

“I hate the commute, I really, really do,” Payne said. “I’m tired.”

Now 66, she and husband Michael were counting on equity from the sale of their house to fund their retirement in Florida. For now, that remains a dream.

The Paynes’ gated community of Penn Estates, in East Stroudsburg, Pennsylvania, is among scores that sprang up in Monroe County during the housing boom.

Prices looked appealing to city dwellers suffering from urban sticker shock. But newcomers didn’t grasp how irrational things had become: At the peak, prices on some homes ballooned by more than 25 percent within months.

Slideshow (19 Images)

Today, homes that once fetched north of $300,000 now sell for as little as $72,000. But even at those prices, empty houses languish on the market. When the easy credit vanished, so did a huge pool of potential buyers.

Eight hundred miles to the west, in an unincorporated area of Boone County, Illinois, the Candlewick Lake Homeowners Association begins its monthly board meeting with the Pledge of Allegiance and a prayer.

Nearly 40 percent of the 9,800 homes with mortgages in this county about 80 miles northwest of Chicago are underwater, according to the ATTOM data. Some houses that went for $225,000 during the boom are now worth about $85,000, property records show.

By early 2010, unemployment topped 18 percent after a local auto assembly plant laid off hundreds of workers. At Candlewick Lake, so many people walked away from their homes that as many as a third of its houses were vacant, said Karl Johnson, chairman of the Boone County board of supervisors.

“It just got ugly, real ugly, and we are still battling to come back from it,” Johnson said.

While the local job market has recovered, signs of financial strain are still evident at Candlewick Lake.

The community’s roads are beat up. The entryway, meeting center and fence could all use a facelift, residents say. The lake has become a weed-choked “mess,” “a cesspool,” according to residents who spoke out at an association meeting earlier this year. Association manager Theresa Balk says a recent chemical treatment is helping.

 

“A gated community like this, with our rules and fees, it may be just less attractive now to the general public,” he said.

Source: Reuters.com – Reporting by Michelle Conlin and Robin Respaut; Editing by Marla Dickerson SEPTEMBER 14, 2018

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Walking Away From A Mortgage in Canada

If you are over-mortgaged and facing negative equity in your home, can you walk away from your mortgage in Canada?  We explain what you can do when you can’t pay off the entirety of your mortgage loan after a sale or bank foreclosure.

How does a mortgage shortfall happen?

If you’re a homeowner and your mortgage is higher than the equity or the market value of your home, you are by definition, underwater. Meaning, if you sold your home today, you are not likely to get the full mortgage paid out by selling. Put another way, you have negative equity in your home.

Causes of a mortgage shortfall:

  • Price decline: you bought at the peak with a high-ratio mortgage, and the market dropped. For example, you bought a condo or a house for let’s say a million dollars with 10% down. The market subsequently flattens, and the list price is now $800,000, so you’re underwater by $100,000 plus selling costs, real estate commissions and potential mortgage penalties.
  • Debt consolidation: our typical homeowner client has more than $50,000 in unsecured debt. If you consolidate this through a second, or even third mortgage and the market softens, you can easily find yourself with less equity in your home that the total of all your mortgage debt.
  • Negative investment cash flow: you may have purchased an investment property and are funding the rental shortfall via a secured line of credit. If the market does not increase sufficiently to cover your accumulated cash loss, you may find yourself facing growing negative equity.

Canada has full recourse mortgage laws

A theoretical shortfall is not a real shortfall. You don’t have to sell. If you can keep your mortgage payments current, and expect that the market will return before you intend to sell you can hold tight.

If you are in default your lender will begin proceedings to collect. If you do not respond and cannot catch up on missed mortgage payments, your bank or lender will likely begin proceedings to sell your home through a power of sale.

If you sell with a shortfall, or your bank forecloses, you still owe your mortgage lender any deficiency between the money realized from the sale and the balance owing on your mortgage.

Should you sell your home for less than you borrowed and find yourself unable to repay the shortfall, in Ontario, your lender can pursue you to collect the difference, as they have full recourse:

Full recourse means that a lender can pursue you if your house is underwater and you sold your home, and there’s a shortfall … your mortgage lender can come after you legally for that debt in Canada.

How do I deal with an unsecured mortgage shortfall?

Like any debt, you are expected to make payments on it. If you are unable to pay back this shortfall, your creditors will pursue legal actions like a wage garnishment. In the case of CMHC, while it may take some time, they can also seize your tax refunds.

In Ontario, any mortgage shortfall after the sale of your home becomes an unsecured debt. Initially, your mortgage lender was a secured creditor. However, because the security, your home, has been sold, there is no longer any asset attached to the debt, and they are now an unsecured creditor.

If your mortgage was subject to insurance because you had a low down payment, your first step might be to draw on your CMHC Insurance. In this case, CMHC pays your original lender. However you still owe the debt, it’s just that now CMHC is now your creditor.

The good news is you have options to deal with mortgage shortfall debt:

  1. Make a settlement offer through a consumer proposal,
  2. File for bankruptcy to eliminate what you owe faster and get a fresh start.

The best place to start is to speak with a licensed debt professional about your relief options.

I think the big myth buster here is that if you have a shortfall on a house that someone’s pursuing you for, a consumer proposal or a personal bankruptcy actually takes care of that. And that’s where I think a lot of people are pretty surprised about Canada’s legislation around this stuff.

For a more detailed look at how to deal with mortgage shortfalls and how lenders can pursue you to recover a mortgage shortfall in Canada, tune in to today’s podcast or read the complete transcription below.

Source:  Hoyes.com (Hoyes – Michalos) By 

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How To Buy Foreclosures at Auction

 

Sales of distressed homes usually come in several forms. First, there are short sales or pre-foreclosures, deals where an owner who can no longer afford the property tries to work out a purchase with a buyer, subject to the approval of the lender. If that doesn’t work, the lender may start foreclosure proceedings, and the home may be put up for sale at a public auction. If the highest bid at the auction is insufficient, the lender then gets title to the property and holds it as a bank-owned (or REO) property.

The purpose of a foreclosure auction is to get the highest possible price for the property, in order to mitigate the losses a lender suffers when a borrower defaults on a loan. If the sale amount covers the outstanding mortgage debt and various foreclosure costs, then any surplus goes to the borrower. Bidders, on the other hand, are looking for investment bargains, so many homes sold at foreclosure auctions ultimately sell at something of a discount compared to traditional properties.

Preparing for a Foreclosure Auction

Foreclosure auctions differ substantially from a typical residential sale. There are no terms to discuss, no haggling over paint or appliances. The property is sold as is, where it is, and with any existing faults and limitations. The property may be sold on an absolute basis (the highest bid wins, even if it’s for a tiny amount) or with a reserve or minimum bid (the property has to sell for at least a given price, otherwise the lender gets title).

The condition of the property may range from wonderful to awful, and it may or may not be occupied. Some properties are “zombie foreclosures,” a situation where the borrower has abandoned the property before the foreclosure has been completed. In all cases, bidders should review disclosures with care and seek as much information as possible about the property.

It’s important to visit the property before the auction, if you can, especially if you live locally. Does it seem occupied or not? How does the exterior condition appear? Be aware that trespassing and Peeping Tom rules may limit access unless you’re invited onto the property. Some bidders drive by the property just before the auction to ensure that its condition hasn’t changed since the disclosure papers were written. In some cases, you may be able to see a virtual tour or even attend an open house.

Lastly, real estate values are related to local economies. How much would a given property be worth if it was in pristine condition? What rental could you expect? Is there a lot of local sale and rental demand—or a little? Speak with local real estate brokers to better gauge the market.

Your Foreclosure Auction Questions, Answered

As with any real estate purchase, there are a variety of expenses associated with a foreclosure auction. Charges, fees and costs vary widely, so it’s important to understand these expenses before you bid. Here are some questions people often ask about financing and buying a foreclosure at auction:

Before the Auction

Since it’s the lenders that are selling houses, why don’t they just finance the foreclosure sale? That usually doesn’t happen. The division of the lending institution that sells foreclosure properties and the division that does real estate financing are two separate organizations.

Are foreclosures riskier than existing home purchases? It depends on which foreclosure and which existing home. All real estate investing—like all stock market investing—implies some level of risk. But there are some inherent risks involved in buying a foreclosure home—like the inability to do a thorough internal inspection. People who buy these properties hope that the risk will be offset by the kind of discount prices often available on these homes.

Will I have to register to bid? You bet. As with a rental car reservation, you’ll typically have to provide a credit card number and expect the auction company to take a given amount to hold. Why? They want the money in case someone bids and wins, but doesn’t close the deal. How much will be taken out? It depends, so ask the auction company for details.

Will I have to qualify? Yes. The auction company wants to be sure that you have the funds to close the transaction. Most foreclosure auctions are all-cash transactions. The term “all-cash” generally means the ability to put down a deposit immediately after a successful bid and close within a short timeframe.

Do I always need the full amount in cash to buy a foreclosure? This depends to a great degree on the laws in your state. Most foreclosure auctions require payment in cash (or a cashier’s check) within a relatively short time after the auction. Technically, it doesn’t matter if the funds come from you or a lender. What does matter is that successful bidders have the financial ability to close the deal on time and in full. Ask auctioneers about financing and pre-approval requirements.

What’s the best way to learn about auctions before actually buying? Register for auctions and attend the bidding. Learn the mechanics of the auctioning process in your community. Get to know local auctioneers, brokers, attorneys, repair specialists and appraisers who specialize in foreclosures.

During the Auction

Is it better to go to absolute auctions or sales that require minimum bids? People debate this question, but it’s largely a matter of personal preference. With an absolute auction, one bidder will win, while with a reserve sale, it’s possible that no bid will be sufficient. However, if you attend a reserve sale and the lender takes title, then speak with the lender after the auction about an REO purchase. The overwhelming majority of foreclosure sales are conducted using a reserve, since lenders are trying to capture at least a minimum amount of money to offset their losses.

Can I bid $1 more than the next bidder and win the property? Probably not. There are typically minimum bid increments in place.

If I win, do I get title then and there? Not usually. The seller—usually a lender—must approve the bid. Typically, they have 15 days to do so. Once an answer comes through, there’s an additional period required to arrange closing, which may take several weeks.

After the Auction

After closing, do I own the property? In some jurisdictions, there may be an equity of redemption right that allows the borrower who defaulted to regain title to their property under certain conditions. Speak with a local attorney for details before bidding.

Will there be any liens that will become my responsibility after the sale? Most liens are sublimated (or wiped out) by a foreclosure sale. But there are exceptions. Real estate tends to attract liens, so it makes sense to get title insurance for the property with the insurer you prefer.

How much should I set aside for repairs? Each property is unique, so repair requirements can vary widely. Estimating repairs can be difficult because if the property is occupied, the residents may not want visitors. If it’s unoccupied, the utilities may be turned off. The best approach is to get as much information as possible before in the auction. In some cases, you may be able to find utility records that can help you better understand property issues.

What if I have owners or squatters on the property? If the residents won’t move, you may need to contact an attorney who can obtain an eviction notice and arrange for a sheriff to clear the property.

For more details and specifics, you and your broker should contact the auctioneer. Happy bidding!

Source: Auction.com // November 15, 2018 – By Peter Miller

 

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Can you walk away from your home?

The fluctuating housing market can make purchasing a house a bit of a gamble. If you buy when prices are high and the value of your home goes down, most homeowners can just wait it out. Houses are long-term investments and eventually with time you know the market will rise again.

“If you bought at the market high and prices drop, you could be underwater on paper, which means you owe more than the home is worth. If you’re not planning to sell and you can meet your payments, you don’t lose,” says Scott Terrio, manager of consumer insolvency for debt relief experts Hoyes, Michalos & Associates. “It becomes a problem for someone who discovers they can’t carry the mortgage payment plus all their other debt, especially if they’ve lost a job, dealt with an illness or they’ve simply run out of credit.” In those instances, it may make fiscal sense for the homeowner to abandon their mortgage and walk away. The home goes into foreclosure — the home is turned over to the lender, who attempts to recover their investment by forcing the sale of the home and using the money to pay off most of the debt.

If you have lots of debt and you’re not meeting your payments, can you simply choose to pack up your belongings and walk away from your high-priced mortgage?
If you have lots of debt and you’re not meeting your payments, can you simply choose to pack up your belongings and walk away from your high-priced mortgage?  (CONTRIBUTED)

This happened frequently in the U.S. during the financial crash in 2008; lenders were forced to absorb the unrecovered debt. Could this happen in Canada? It’s not quite as simple here. “In Ontario and most other provinces, there are full recourse rules, which means you can’t walk away from your mortgage obligation without recourse from the lender, who can pursue mortgage shortfalls in court,” explains Terrio. However, homeowners can file a proposal or bankruptcy, which makes any shortfall unsecured (like other debt such as student loans, payday loans, car loans, line of credit and credit card debt). “Once a proposal or bankruptcy is filed, you can’t be sued for any shortfall, which is the difference between what you owe and what the lender can get for the house.”

What is the difference between filing a proposal and filing for bankruptcy? They’re both solutions to resolve debt and provide legal protection from creditors (for example, creditors stop wage garnishments). In bankruptcy, you surrender certain assets in exchange to discharge debt. When you file a proposal, you make an offer to settle debt for less than you owe.

“Proposals are filed more frequently with our clients now than bankruptcy,” explains Terrio. While you have to make a better offer to your creditor than what they would get if you filed bankruptcy, “it has less impact on your credit long-term and you can keep your belongings, which makes it a very realistic and favourable option for many.”

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