Read the fine print when buying into a strata property

Home-buying homework

After a few recent escapades with condo purchases, I want to talk about doing your homework when purchasing a strata property.

Strata properties can offer the convenience of shared maintenance costs, security, benefits like pools and workout rooms and in some cases, a more attractive price point. For people with busy schedules who don’t have the desire to spend time on yard work or shovelling snow, strata properties can be a great fit.

Strata properties are usually managed by strata councils. There are legal requirements with respect to meetings, finances and insurance, record keeping, maintenance and upkeep, as well as bylaws and rules.

But not all strata properties are created equal. People don’t realize the importance of taking the time to read through the strata documents when they are considering buying a strata property.

From a financing perspective, there are several pieces that lenders look for. Lenders and insurers (CMHC, Genworth, Canada Guaranty) will read through strata documents, particularly meeting minutes, financials and depreciation reports. They are looking to see if the building(s) have been well maintained and if there are adequate funds in the strata’s contingency reserve fund (CRF) to cover any upcoming projects or unexpected issues.

They will look to see if the strata has planned and budgeted for ongoing maintenance and updates to ensure the buildings stay in marketable condition. Lenders also look to see if there is a rental pool or if there are rental restrictions. They are looking to see if there are any age restrictions.

So how does this affect you as a potential buyer? If buildings have not been properly maintained or have had significant structural issues, they are sometimes flagged by mortgage default insurers. That means those insurers won’t cover new mortgages for people trying to buy into the complexes until those issues have been rectified or remediated.

If the building has been flagged, it can mean that you are unable to find mortgage financing to purchase a unit in that building. It can also mean increased strata fees to cover big repairs. That may also lead to special assessments. Special assessments are used by stratas to raise significant funds relatively quickly to deal with major expenses.

Over the last year, I’ve talked to clients who have had to deal with special assessments of $23,000 and $10,000 respectively. Neither client was in the position to come up with the cash, so they are both on payment plans. In both situations the additional monthly payment has created financial distress.

Increased strata fees and special assessments can happen in any strata complex but if you are looking at purchasing a unit in a complex that has ongoing issues or minimal funds in the contingency reserve fund, you need to think about what that may look like down the road for your finances.

Having said that, just because a building has had issues in the past does not mean you should cross it off your list of potential purchases. Do your homework. Check to see if the strata has dealt with any outstanding issues, and if it has documentation to confirm that.

I was recently able to obtain approval in a complex that insurers flagged. For more than two years the building was flagged due to maintenance issues. In that case, any units sold were sold to cash buyers as lenders wouldn’t touch the complex. Major work was done and an engineer’s report was ordered to confirm the damage had been dealt with.

Both the lender and the insurer went through all of the documents and approved the financing because all issues had been dealt with and the strata has taken steps to rebuild its contingency fund and ensure necessary maintenance was planned for in the future.

It felt a bit cautionary. The intent of this information is not to scare you off of purchasing a specific property but rather to encourage you to do your homework and learn about the strata you are buying into. Your realtor will be able to help you find answers to your questions, and it is important to have your lawyer or a notary review the strata documents before you move forward with your purchase.

The spring market appears to be picking up. If you are looking to get into the housing market, a strata property might be the ideal fit.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Sometimes a second pair of eyes helps solve a mortgage problem

A fresh perspective

Working mortgage 'miracles' at the last minute

Finding mortgage financing

Last week, I had a panicked call from a realtor I work with on a regular basis. One of her sellers had a sale that looked like it was going to collapse. The seller was counting on the sale of the home for the down payment of her next home.

The realtor called at mid-day last Wednesday. The sale was supposed to complete on Friday.

She asked if I could talk to the purchaser and potentially arrange financing for her.

Before you read the next part, this is not intended to single out any particular bank or mortgage person. It could just as easily be a mortgage broker or a branch employee.

The back story is the purchaser had been working with a mortgage specialist from one of the chartered banks since mid-December. The specialist gave the client the go-ahead to remove her financing subject on Jan. 17.

The specialist then said they needed to extend the closing date by a week and then, by another week. Then she told the client she would have to come up with 20 per cent for his down payment. The client scrambled and came up with the additional money needed for her financing to be approved.

I might not have believed this story except I did see the email chain. So what actually happened? My guess is the mortgage specialist did not have an approval in place with the insurer or her bank when she gave the client the OK to remove her financing.

The client had not seen, nor signed, any mortgage paperwork before removing her financing subject. She trusted her mortgage person had things well in hand, being as she was told she was approved and things were fine. The buyer in this case a first-time home buyer and did not know anything different.

I have pulled off the odd miracle in my days but I had serious doubts about being able to help this client in one day, especially as she was buying in a smaller remote community so we had fewer options.

We were working on her application and at 6 p.m. on Wednesday received word that the bank she was originally working with had come through and would send mortgage instructions to the lawyer the following morning (we were now at the day prior to closing).

When you are purchasing a home and applying for mortgage financing, I feel it is so important to work with a team of professionals who have your back.

As someone who has never bought a home before, or maybe hasn’t done so in many years, it’s important to do your homework and understand the process. If you think things are going sideways with your financing, please make sure you ask questions to better understand what’s happening. If you have a feeling that something is really wrong, don’t wait until you have no other options.

When you choose a mortgage professional to work with (and a realtor for that matter) do a bit of homework. Ask your friends who they have used and what their experience was like.

Buying a home is stressful enough on a good day but what this poor client went through could have been avoided had she had a better idea of what the home-buying process was supposed to look like.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

A cautionary tale about private lender mortgages

Borrower beware

The easy fix isn’t always the right fix.

I wondered how long it would take to see the fallout, as clients who were paying really low interest rates have their mortgages come up for renewal.

We have all experienced a steep increase in the cost of living. Even though interest rates are now are sitting where most clients who qualified with the “stress test” when they originally got their mortgages, for many people, life happened in the meantime.

What do I mean by that? Often, clients have to push right to the top of what they qualify for just to get into the housing market. As we go through the mortgage approval process, we talk about keeping big consumer purchases (financing a car or furniture as examples) to a minimum because additional loan payments reduce borrowing power.

Once clients are into a home, life does indeed happen. The older car dies and a new car is necessary. Little ones come along and that can affect family income and add a daycare bill to the bottom line. Property taxes increase. Grocery prices skyrocket. You know the list. Balances start creeping up on credit cards or lines of credit.

There are lots of different mortgage products to help with consolidation of debt. Lately, the challenge has been that even if clients have significant equity in their homes, with the increased interest rates they may not qualify with traditional lenders.

Alternative lenders and private lenders come into play as options in those cases.

I’ll leave the alternative lenders to another day because I have a cautionary tale about private lenders but not all private lenders are created equal.

I have several I work with when my clients need a solution in the private world. There is a time and a place where a private mortgage is the ideal fit. As long as you have an exit strategy (a plan as to how it will be paid out in a relatively short time frame ie: one year) this can be a great option for clients.

Then there is the private lender that hurts my heart. Heavy, catchy marketing bombards us from multiple venues. Its jingle is running through my head as I write this. For it, the bottom line is if you have adequate equity in your home you are approved.

That fixes the immediate problem. However, more times than I like to think about, it can creates far bigger problems for people.

Despite the fact you have equity in your home, you still have to make the payments on those private mortgages. Interest rates are usually around the 14% mark, so payments are high and you are not making any headway with paying down the mortgage. If there is no significant increase in your income, you struggle and find yourself in a financial bind again. They set up another mortgage with an even higher rate.

When you sign on for a private mortgage your are responsible for covering your legal fees, the lender’s legal fees and there is also a lender fee that is included. Even a small private mortgage can end up costing almost $10,000 to put in place.

If you couldn’t cover expenses with your first mortgage (at reasonable rates), guess what happens when you start adding in more and bigger payments on top of your normal expenses? For most people the only out at that point is selling their home.

That is a very hard conversation for me to have with clients, especially when they’ve been in their home for many years.

If you are finding there is more month than money, sitting down and reviewing your expenses is the first step to take. Are there any areas where you can cut back? Do you have any options for increasing your income?

If the answer is no, talking to a mortgage professional sooner rather than later may help identify some options before you end up in a never-ending cycle of sleepless nights and missed payments.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.