Managing Mortgage Arrears and Default

 

Managing Mortgage Arrears and Default

 

One of the situations that no homeowner or real estate investor with a mortgage ever wants to find them self in, is unable to meet their mortgage payment obligation. And while most borrowers will do everything to avoid this, sometimes life just happens. 

 

Mortgage arrears and mortgage default aren’t the same thing. But mortgage arrears if not managed properly can lead to mortgage default and eventually mortgage foreclosure or power of sale. Mortgage arrears occur when the contractual payment agreement as shown in the Standard Charge Terms or Deed of Trust are not met by the borrower. The Standard Charge Terms or Deed of Trust will clearly indicate the amount of the monthly payment along with the frequency. That frequency can be weekly, bi-weekly, semi-monthly, or monthly on a specific day or date. Failure to make the payment on the contractual payment day or date will put the mortgage into arrears and can in most cases incur penalties and fees.

It is very important when a homeowner with a mortgage finds themselves in a situation of mortgage arrears or payment difficulty to communicate with their lender. Ignoring the situation doesn’t make it go away and silence will usually not allow the lender to help you work towards a solution. And there are solutions to dealing with payment difficulties which may cause arrears on a mortgage. These could be:

1.  Skipped or deferred payments to allow the borrower to catch up on any short term cash flow issues.

2.   Renegotiating the mortgage term or product to either extend the term, or amortization, reduce the rate or a combination of all three to reduce the payments and improve cash flow and mortgage affordability.

3.  Make interest only payments, which will reduce the monthly payment and increase cashflow providing relief to the borrower.

4.  Refinance to consolidate other debt if any and free up much needed cash to meet mortgage obligations.

5.     Working diligently on a household budget to reduce random spending.

6.   Selling the home and downsizing or moving to a less expensive neighbourhood. This is sometimes one of the most difficult decisions for home owners to make.

7.   If the property is a rental or investment property, examine the ability to increase rents to a level that the market dictates. This is very necessary for investors who have had long term tenants that may be paying below market rents.

    8.  And for home owners with a mortgage over the age of 55, consideration of mortgage     products such as a reverse mortgage may provide the option of staying in your home                with out all the financial stress of unaffordable or increasing mortgage payments. 

 

Once the borrower has exhausted all options and is unable to pay up the arrears and put the mortgage back into good standing, the lender could at that point start default proceedings. This will usually mean sending the file to their legal counsel to protect their interest in the property and starting the process which can include foreclosure or power of sale. This process, while it can be remedied, usually gets very expensive and stressful for the borrower. It is advisable at this point that the homeowner retains legal counsel to communicate with the lender’s solicitors on their behalf along with retaining the services of an experienced mortgage professional to explore workable solutions.

Now while mortgage arrears are perhaps the most common occurrence to trigger a mortgage default, there are a few other situations that many homeowners or real estate investors may not be aware of that can also cause a mortgage lender to commence default proceedings. These include but are not limited to:

1.  Property tax arrears. Yes, nonpayment of property taxes on the subject property is a breach of the mortgage contract and gives the lender the right to start default proceedings.

2.   Nonpayment of condominium fees. This is very similar to nonpayment of property taxes. And exposes the real estate to liens which could reduce the lender’s equity stake in the real estate. As such the lender could start default proceedings.

3.  Nonpayment of property and/or home insurance. This is one that lenders take very seriously. Why? Any damage to the property be it through fire, flooding or any other natural disaster or an accident will usually leave the homeowner/borrower unable to provide a solution from their own resources and exposes to lender to significant monetary loss and possibly a prolonged litigation with the borrower.

4.  Extensive home renovations without advising the lender or receiving their permission. Many may question this. But if the homeowner or real estate investor starts doing extensive renovations on a property and then runs out of money to properly complete them, this could negatively impact the value of property and affect the lender’s interest in the real estate.

If ever in doubt of what constitutes mortgage arrear or mortgage default, reference your mortgage approval or commitment or take a very close look at the Standard Charge Terms or Deed of Trust. The answer is usually I one of those documents. And remember, don’t ignore the situation or try to fix it yourself. Seek the counsel of a competent and experienced real estate lawyer and mortgage professional and have them work on a remedy that is agreeable and satisfactory to both you and the lender.

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Can you make money flipping houses?

 

Can you make money flipping houses?

Many people can and do make money flipping homes. However, many well-meaning flippers have bought real estate only to be blindsided by the daunting task they found in actually preparing the house for sale. Do not expect to find easy money without any challenging work, but if you are willing to do what needs to be done, you can get a handsome return.

A house flip can also be risky. If you find out that your property requires far more work than you anticipated, you will be on the hook to fix it. Another thing that could happen is changes in markets affecting your ability to make a profit.

This happened to some this past year when the price of lumber spiked far above its usual rate. For people expecting to do work on their home, they were faced with a choice to either pay extra or hold off and pay property carrying costs for longer. You could also buy just before a significant drop in home values, meaning you will struggle to sell for a profitable amount.

It is also worth noting that house flipping is a very short-term investment compared to other real estate purchases. In the Toronto real estate market, home values are remarkably high and rising. Simply owning Toronto real estate is a way to make major gains in equity or collect a handsome cash flow through rentals. If you have the cash to flip a house, it may just be a better investment to buy and maintain an investment property instead of selling off your property as soon as possible. This is a longer-term investment strategy that builds equity, while a flipped house will pay out usable cash much quicker.

Two types of house flipping

There are two major types of house flipping – retailing and wholesaling.

Retailing is what most people think of when they hear about house flipping. A real estate investor buys a house that needs repair and fixes it up to sell for profit. This method can make you a lot of money, but you also need a lot of knowledge to optimize your return. The profit in flipping comes from selling at a price higher than your sale price plus your renovation costs. After applicable taxes, any amount above that figure is profit.

The other form of flipping is wholesaling, which though being easier offers lower returns. Wholesaling is agreeing to buy a property at one price, then quickly offering it to another investor for a higher price. This can be a risky maneuver as you are not adding any real value to the property and are reliant on finding a buyer higher in a short amount of time.

As a wholesaler, you will be dealing with distressed homes and selling to the people who do the actual repairs and renovations. Therefore, you make a small profit, and they still get to profit after they renovate and sell. In this article, we will primarily cover retailing.

How do I start flipping homes in any real estate market?

Determine your budget

Before looking for any property it is best to determine how much you can spend on your flip project. Remember, this does not begin and end with the house's price.

Firstly, there will always be additional fees upon closing, particularly with flipping where you may need an extra thorough home inspection. Then you also need to consider the price of repairs. Often, quoted prices on repairs and labour costs can come in far higher than expected when the project hits a snag. You need to account for unforeseen expenditures in your budget and have some extra money to deal with them.

Alternatively, you can spend as much money as you need on repairs and then simply add whatever you spent on to the final sale price once you put the home on the market, but you still need to make sure you do not overspend, or the value of the house will be too high to attract buyers.

Do not forget about selling costs

Finally, there are also selling costs to consider. Usually, this does not factor too much into a homebuyers purchase as they plan to hold their property for many years. However, as a flipper, you have to keep in mind these additional fees when you are working out your budget.

Financing your flip

In general, it is best to finance your flip property with your own cash rather than taking out a mortgage loan. This gives you better options when it comes time to sell and can make the purchase process easier.

Research the market where you want to buy

It is crucial that you look beyond the walls of the home you plan to improve and learn about the surrounding areas.

Firstly, you need to know the average price in the area, so you know not only if you are getting a good deal on your property, but also how much you can eventually ask for when you are finished repairing the home.

You also need to consider what types of homes people are looking for in the area. If you buy a property in a regular suburb and renovate it to be a luxury vacation home, you will not find a lot of interested buyers.

You should also learn about the direction of the market. When home values are on an upward trend, you can hope to make a nice return on your purchase. However, if you buy and then prices suddenly fall, you may struggle to make a profit or even risk losing money.

There is no worse scenario for a flipper than having to sell and lose money even after all of the money spent on renovations. You can never know exactly how things will go, but doing your research is the best way to protect yourself from a fluctuating market.

Find a real estate agent or broker familiar with the area

Once you have a budget and an area you are interested in, your next step should be to contact an agent or broker in the area who can help you find the right property for you. Not only do real estate agents have the most up-to-date and in-depth knowledge of the area, but they also may be able to provide you with exclusive deals and access to properties that otherwise you would not be able to find.

Agents will also be experienced in recognizing potential issues and opportunities when it comes time to view properties. And it is helpful to begin forging a relationship with a realtor as they can help you later on when it comes time to sell your property.

Purchase the property and begin investing in repairs

With everything above completed, you should be ready to pull the trigger on a flip property. Once you have found a property you want to put an offer on, strongly consider having a home inspector and contractor visit before closing to give you an idea of what sort of repairs will be needed to get the house to the market.

Inspectors can also help point out any significant issues with the property that might make you change your mind on the purchase. You will have to pay for these inspections, but they will be worth it eventually.

It is also worth considering if this is your first-ever flip to go for a property with minor improvements needed. The profit will not be as high, but you will learn much better skills to help you succeed later, rather than burning out on your first property.

Once you have possession of the property, you can really start getting to work. That contractor from before may be the best person to now come in and begin working on your renovations.

You also have the possibility of doing some of the work yourself. Things like painting or basic flooring are easy enough for anyone to do, but when it comes time to do something like install windows or fix plumbing, it is highly advisable to hire a professional.

Poorly done work is not going to help you sell your home, and in the case of something like electrical work, it can be extremely dangerous to work on yourself.

Besides strictly necessary renovations, there are some quality of life features that are optional for a house but will add a lot of appeal for buyers. Do some research or consult a professional on interior design and see what simple changes you can make to attract more discerning buyers willing to pay bigger bucks. There is no need to fully gut the house and do everything from scratch, in fact, repairing or improving existing features can save you lots of time and money, particularly in expensive areas like bathrooms and kitchens.

Remember, not all improvements will cost exactly as much as they add to the value of the home. Some features may be expensive but add little to the final sale price. You should always prioritize those upgrades that offer the greatest return on investment in the end.

That does not mean however that you should be cheap with your repairs. Some less serious flippers have made a bad name for the practice and flip houses are now notorious for poorly thought out and executed repairs. Always ask yourself: would you be okay with this level of workmanship if you were planning on living in this house?

Stage, sell, and repeat

Just because you are selling a flipped investment property, does not mean you should ignore the importance of staging. Potential buyers do not want to just see the house, they want to be able to imagine themselves in it. Professional staging can make all the difference in getting them excited about your property.

Work with your realtor to stage your home properly and add any final changes to make it look as good as it can be. Remember, a little money spent here can go a long way. If you pulled it off properly, you should have no problem selling your property, and hopefully making some profit. Now it is time to flip the next!

Is flipping right for me?

Besides just having the capital to buy and repair homes, flipping takes a certain kind of person. The most ideal candidate has attention to detail to make their flip the highest quality possible. You will also need some leadership and management skills to oversee all the work being done by your team of contractors and workers.

Finally, you need to be willing to work fast to get your house on the market and maximize profit. You also need to be willing to accept some risk on your investment, as even the easiest flips can come with unforeseen surprises.

If you sound like the kind of person that can do well at flipping and have the cash to make it work, try it!

 

10 GREAT REASONS TO USE A MORTGAGE BROKER

 

10 GREAT REASONS TO USE A MORTGAGE BROKER

 

1.    Get independent advice on your financial options. As independent mortgage professionals, we are not tied to any one lender or range of products. Our goal is to help you successfully arrange your mortgage financing.

2.  Save time with one stop shopping. It would take several weeks for you to organize appointments with all the mortgage lenders. We work directly with several lenders, and save you time, and can quickly choose the one that suits your circumstances best.

3.    We negotiate on your behalf. Many people are uncertain or uncomfortable negotiating mortgages directly with their bank. As mortgage professionals, we negotiate mortgages each and every day on behalf of homebuyers. You can count on our market knowledge to secure competitive rates and terms that benefit you.

4.   More choice means more competitive rates. We have access to banks, credit unions, trust companies and private lenders.

5.   Ensure that you are getting the best rates and terms. Even if you have already been pre-approved by your bank, let us investigate to see if there is an alternative that better suits your needs.

6.    Get access to exclusive deals and add-ons. Many financial institutions would love to have you as a client, which is why they offer incentives to attract credit worthy customers. These include retail points programs, discounts on appliances and more.

7.    Things move quickly. Our job isn’t done until you close your mortgage transaction. We will help ensure your mortgage transaction takes place on time and goes smoothly.

8.    Get expert advice. When it comes to mortgage rates and the housing market, we will speak to you in plain English. We can explain the various mortgage terms and market conditions so you can choose confidently.

9.    No cost to you. There is no charge to you for a typical residential mortgage for credit worthy clients. We get paid a referral fee when we introduce trustworthy, dependable customers to a financial institution.

10. Ongoing support and consultation. We are always available to answer all your mortgage financing questions. We are happy to be of help when you need it.

REAL ESTATE and TITLE FRAUD

 

REAL ESTATE and TITLE FRAUD

 

Recently in the news we have been hearing about cases of homes being sold by other parties without the knowledge of the real owners. Many of us are scratching our heads wondering how this can be possible. Much easier than you think. In my almost three decades in the lending and mortgage industry, I have seen my fair share of dubious mortgage finance and real estate transactions. As a professional, in real estate or mortgages, you have to be extra vigilant because the reward for real estate and title fraud to the fraudsters can be quite beneficial.

In a recent publication by the Canadian Broadcasting Corporation, they identified as much as thirty properties that have been sold or mortgaged without the owner’s knowledge or consent. The article also alluded that the frauds may be work of organized crime syndicates.

 

“CBC Toronto has learned that a handful of organized crime groups are behind these real-estate frauds — in which at least 30 homes in the Greater Toronto Area (GTA) have either been sold or mortgaged without the real owners' knowledge. Those revelations come from a private investigation firm working for a title insurance company to try and get to the bottom of the scams, which are costing insurers millions in claims.” (“How organized crime has mortgaged or sold at least 30 GTA homes without ...”)

 

Real estate or title fraud occurs when fraudsters get access to the personal information of homeowners; name, birth date, social insurance number and copies our information of the property’s title usually found on the deed. The more common type of fraud is usually to arrange mortgage financing on a property that is free and clear (mortgage free) or has a small mortgage. The individuals who have assumed the identity of the real owners, will sign all the lender documents and required documents with the solicitor’s office and access all the funds from the new mortgage. The victims of this type of fraud are usually elderly individuals and property owners who may live out of province or state or out of country.

The process of selling a home fraudulently is very similar to acquiring a mortgage fraudulently but may perhaps require much more detailed coordination as the process involves third parties that may or may not be a party to the fraud, along with the fact the listing and selling process can take several months.

So how do we protect ourselves from this type of fraud?

• 1.    The first would be to check your credit profile frequently on all the credit reporting agencies; Equifax, TransUnion and Experion. This would alert the homeowner to any credit inquiries that they did not authorize.
• 2.    Also, you can also put alerts on your credit profiles where a text message or email is sent to you to acknowledge the credit inquiry before it can be done.
• 3.    Be extremely careful who has access to your identification and other personal information.
• 4.    Destroy old copies of property deeds that are no longer relevant and keep current copies in a safe and secure place.
• 5.    Have title insurance – this is an insurance property that protects homeowners and (mortgage lenders) against losses related to the property's title or ownership, including from title fraud.
• 6.    Have someone you trust register a small mortgage against your home. This could be a trustworthy family member, friend, or a lawyer. Any new mortgage financing or property sale will require this mortgage to be discharged and will trigger an alert.

As our world becomes more digital, the access to personal information could easily get into the wrong hands causing us significant grief and financial loss, not to mention the amount of time it could take for the innocent part to remedy the situation.

COACHING Vs MENTORING – Which Is Right For You?

 

COACHING Vs MENTORING – Which Is Right For You?

 

As Zig Ziglar said, “A lot of people have gone further than they  thought they could because someone else thought they could.” 

(“What's the Difference Between a Coach and a Mentor? - Forbes”)

 

In today’s world, it may seem that there may be coaches for any and everything. When we originally used the word coach, it was used to reference those who coached sports teams – hockey coaches, football coaches, tennis coaches – you get the drift. Today we have life coaches, money coaches, marriage coaches, executive coaches, entrepreneurial coaches, and the list goes on.

Having a career coach can help you to become laser focused on your specific discipline and achieve success and growth faster. Coaches will help you to tap into your inner self and bring out character traits that sometimes the individual being coached may not even know they have. In the mortgage industry, coaching and mentorship is critical to succeeding in an industry that has an exceedingly high fail rate along with new entrants who never realize their full potential.

In most instances, coaches usually have some experience in the same field as the individuals they are coaching, but not necessarily. Some may just be able to inspire others to greatness and success by instilling in them certain habits and abilities which are critical to continuous growth. The relationship with the coach can be temporary or permanent. Meaning the coaching does not have to stop but it is dependent on what the individual wants out of the relationship and the process.

Mentoring is both similar and different from coaching. A mentor is usually someone who has experience and wisdom in a particular profession or discipline or on a specific subject and is able to share it to help others succeed. Mentoring can be quite informal and can take the form of conversations between two individuals where ideas are shared with the expectation of benefit to one or both parties. I have found mentorship to be more fulfilling when both the mentor and the mentee go away from the conversation with a feeling of fulfillment.

Many mentorships can last a lifetime and those are usually the ones with the more successful outcomes. Up to today I still reflect and implement many of the things I learned along the way from the many mentors I have had. The best mentors for me where those who did not even know they were mentoring me but much of who they were in their specific fields and accomplishments is what I wished to become and accomplish.

Before you decide whether you need a coach or a mentor, sit down and do some self-evaluation to determine what is the outcome you expect and what are the gaps that you wish to have filled so your professional and personal journey is smoother than most and does not include a series of avoidable mistakes.

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Digitizing Your Business As A Mortgage Professional

 

Being a mortgage broker today means succeeding online and having a digital brand that clients want to work with.
 
"Business strategist Michael Harrison of Strategies Plus Concepts asks: are you playing by the new rules of broking?" (“The five new rules of broking | Mortgage Professional Australia”)
 
The world has changed. The internet has had an enormous impact on the business of mortgage broking. It has changed the way we think and, more importantly, it has changed the way our clients think and act.
 
This change is accelerating for three main reasons. Firstly, the internet offers instant access. Snail mail has been replaced by email for 90% of transactions. Digital tools let us share videos, send claims updates by SMS and ‘auto-respond’ to inquiries. We do not want to wait anymore.
 
Secondly, the internet is interactive. Communication is more immediate and effective. A Skype video call lets you talk face-to-face with clients and share documents at the same time. Social media sites have become the new frontiers for prospecting, and QR codes instantly connect people to our websites.
 
Finally, this is all inexpensive. Once you have an internet connection, you are in touch with the entire world. This necessitates some new rules for mortgage brokers…
 
Out of sight is out of business
Where is the first place you go to look for information? Google. We are all the same. If you cannot find a person or company on Google you think they either do not exist or, if they do, they are not too relevant. A Google search proves that they exist and have some currency. When was the last time you used the Yellow Pages, except as a doorstop? Why would you? Everything you need to know, from contact details to a satellite view of a building, is on the internet, so make sure you are there too.
 
Being a supplier is no longer enough
If you are going to feature prominently, you must be an authority and not just a supplier. It is not enough anymore just to say, “Here I am – I am an mortgage broker.” You must be recognized for knowing something about mortgages. Seth Godin is a marketing authority. He is regarded as an expert, not just because he knows about marketing but because he speaks about it, blogs about it, makes videos about it and authors books about it. In fact, there are more online searches for Seth Godin than there are for ‘marketing.’ In the digital world you need a footprint in multiple channels.
 
You must give to get
Billboards, telemarketing, and the constant barrage of advertisements on television have made us cynical and suspicious. If all you see is someone’s website or Google advertisement on the internet, you lose interest. If, on the other hand, you offer something worthwhile up front, then the client is more likely to interact with you. It might be a free guide to investment properties or an e-book about buying your first home. Give something first to attract interest in what you have to say.

 
Deliver an experience
It is not enough anymore to say, “I sell this.” You must make people feel part of your community. Are they welcomed like friends? Do they have special status; an after-hours number to call in an emergency; an invitation to your mortgage brokering webinar; a seat at your private economic update briefing held in your boardroom each quarter (which of course you record and webcast for those who couldn’t make it)?
 
Think digital, act analogue
The internet is an enabler; it provides a plethora of digital tools. But relationships are analogue events and mortgage brokers are in the relationships business. The key to growth and credibility is to use the power of the digital world to enhance your client relationships. Salesforce.com allows you to track client contact details; shoeboxed.com allows you to photograph all those business cards you collected over the years for automatic inclusion in your newsletter list; simplebooklet.com lets you create compelling and engaging content on the web and across mobile devices to engage your clients and prospects; and newspaper websites let you email articles of specific interest to selected clients. All of these are accessible from your smartphone.
 
Polaroid cameras went out of business because they missed the digital photography revolution. Encyclopaedia Britannica missed the digital tsunami that created Wikipedia. Microsoft missed the tablet revolution started by Apple’s iPad and is left trying to catch up. The digital revolution for mortgage brokers is here now.

 

 

DO YOU MAKE RESOLUTIONS OR PLANS? LET US GET PREPARED FOR 2023

 

As we go from the old year to the new year many of us make resolutions or plans. Things we wish to achieve in the new year. The challenge with resolutions is that most of them are not worth the paper they are written on as we mostly fall short. While our plans are what we work on continually adjusting as the environment around us changes. Plans are usually what gets us to our goals and are usually over an extremely specific time period. Like planning to learn to ride a motorcycle by spring. Or learning to speak Spanish by August. Or buying a small multi family property by summer. These are predetermined goals that involve planning.

For many of us who are real estate investors or those planning to start investing in real estate this year, 2022 has been a year of highs and lows – higher interest rates and lower house prices. This has happened both in the US and Canada as both the Federal Reserve and the Bank of Canada made upward rate adjustments to slow down a runaway real estate sector and inflation. Has it worked? The jury is still out. But what it has undoubtedly done is create opportunities in the real estate sector in many urban centres to purchase properties at prices today that are significantly lower than they were in spring 2022, but perhaps more importantly it has also removed the highly competitive buying environment where buyers were forced to remove conditions in order to even get a place at the vendors' table.

So, what are you going to do about it? Time to put your team of advisors together and start looking at opportunities to buy in those major urban centres and build your real estate portfolio one door at a time, There are several ways to do this. You can invest in single family residential homes, small multifamily homes or condominiums and townhomes across a variety of price ranges. Working the numbers is critical – down payment in relation to purchase price and rental income in relation to mortgage payments, property taxes and other expenses. Positive cashflow should always be the aim along with property appreciation either passively or forced by property upgrades or rezoning.

So let us not procrastinate but get the search engines revved up and start looking for opportunities that fit your short and long term real estate investment goals. Remember we are making plans not resolutions.

HAPPY NEW YEAR AND TO YOUR PURPOSE IN 2023

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