What “lease-to-own” or “rent-to-own” promoters won’t tell you

Over the past several years, “lease-to-own” programs, also known as “rent-to-own” programs, have become very popular. They are frequently offered as a second option for alternative financing. Whether the program is promoted by mortgage brokers, telemarketers or individuals, this option seems interesting on the surface, as it allows you to remain in your home while also being able to buy it back in the future at a predetermined price, oftentimes the financing price plus 5% per year.

An uncertain buyback

In addition to the numerous clauses in the contract that can eliminate your ability to buy back your home (ex. default on payment) there is another factor that the client doesn’t control: the financial stability of the property purchaser.

You can lose your life savings

Below is a real case which was told to me by a client less than a month ago.

             Mr. Paradis had financial problems and his financial institution had sent him a 60 day notice. He risked losing his home at any moment. After being advised by a mortgage broker who was a member of a large Quebec-based brokerage firm, he opted for a “lease-to-own” program.

             On completing the sale to the notary, Mr. Paradis met Mr. Bélanger, the real-estate investor who acquired his property in order to “temporarily” rent it to him to then allow him to buy back his home. Mr. Paradis believed that the property would be repurchased by a recognized company, not an individual. After having been reassured by the mortgage broker, he went forward with the transaction and sold his property, worth $250,000, for $150,000, with the option to buy it back the following year for $157,500.

             Then the unexpected happened. A Revenue Quebec legal mortgage for the amount of $153,453 was registered on Mr. Paradis’ property. In reality, Mr. Bélanger, the real-estate investor, had not paid his taxes relating to previous real-estate projects and did not have the means to pay them in full. Now in financial difficulty, Mr. Bélanger ceased his monthly payments on the mortgage and the bank sent a notice of exercise of hypothecary right in order to seize said property.

 In addition to losing the full equity that he had in the property, Mr. Paradis and his family once again faced the risk of eviction…

Renter’s recourse

In the majority of cases similar to this one, the only recourse available is to sue the owner. Given that the owner is in financial difficulty, it would most likely be impossible to recover the lost amounts.

Why would obtaining alternative financing have been a better option?

Obtaining refinancing or a second mortgage with an alternative mortgage lender would have allowed the client to keep their home in their name and avoid being exposed to the risks that occurred in the case cited above.

If you have additional questions about alternative mortgage financing, or if you are currently looking for alternative mortgage financing, please contact me at maxime.st-laurent@financierevictoria.com or by telephone at 1 (877) 220-7738 Ext. 101. 

Conventional Banks, The Interest Rate War Is Open!

Interest rates on conventional mortgage are going down!

For those who have access to conventional financing, this is the good news we were all waiting for. On March 18th, the Bank of Montreal has announced a rate cut for its 5 year fixed-rate mortgage loan. We anticipate that most of the banks will follow over the next week. The Bank of Montreal deal cuts its rate of 2.99 per cent to 2.79 per cent. Toronto-Dominion quickly followed by cutting its 3.09 per cent rate to match Bank of Montreal’s new offer.

How does it impact people having a private mortgage with a private lender?

When refinancing with a conventional bank, the interest payment charges are very important in the calculation of your payment capability. With lower interest rates, it will be easier to refinance your property as the interest payment charges will be lower.

 

Do you have additional questions related to private mortgages, or are you currently looking for a private mortgage? Contact me at maxime.st-laurent@financierevictoria.com

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Second mortgage: 3 reasons why you should use it to consolidate your credit card debt

2 obvious reasons to opt for a second mortgage versus refinancing your first mortgage

Looking for a mortgage? Make sure that you have paid your income taxes!

Mortgage lending and income taxes – how do they relate? Being current with your income taxes is very important as it affects your ability to qualify for a mortgage in Canada. Most of the time, unpaid income taxes will result in a rejection of your mortgage application.

Superpriority Claim regulation – what is it?

The Canada Revenue Agency has Superpriority Claim rights, which simply means it can make a claim on all your assets if you don’t pay your income taxes, including foreclosing on your property!  Mortgage lenders don’t like that as it puts them in second place to get paid back and there may not be enough equity left on the property for that.  Note that neither the Canada Revenue Agency nor the mortgage lender will care about your particular situation under those circumstances. They are just going to fight over who gets the property and the Canada Revenue Agency is going to win.  Therefore, mortgage lenders, private or institutional, will not lend you money if you cannot prove you are up to date with your income taxes!

The potential existence of a Superpriority Claim is very scary and unfair for all mortgage lenders since they can find their mortgage securitization completely wiped out. However, with some vigilance, mortgage lenders can minimize that risk by verifying a debtor’s notice of assessment before signing a mortgage. The effect of the regulation will not apply if the mortgage loan is registered before any amounts become due to the Canada Revenue Agency.

How do private lenders normally handle clients with unpaid income taxes?

Private lenders may agree to finance you, but they will require that a part of the disbursement be applied to be used to pay any legal lien published by the Canada Revenue Agency or Revenue Québec.

Recent article: 2 obvious reasons to opt for a second mortgage versus refinancing your first mortgage