The Bank of Canada made an announcement on July 15th, 2020:
If you've got a mortgage, or if you're considering to make a major purchase or you're a business and you're considering making an investment, you can be confident that interest rates will be low for a long time. -Tiff Macklem, Governor of the Bank of Canada
Then in August we found out that July 2020 was actually the hottest market in real estate HISTORY – for a blast from the past, watch THIS video that I recorded at that time – but “a long time” turned out to be shorter than many borrowers wanted or needed, as interest rates jumped 3.5% in 6mo starting in April 2022. The prime rate was 2.45% in March of 2022 & now 6.70% in March of 2023.
And nobody was sounding the alarm in the early days, not
economists, not regulators & not the lenders, that consumers should be
locking in their rates so that they could weather this storm!
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And so here we are in March of 2023 & we’ve been seeing
more & more Power of Sale properties hit the market. But not from the “Big Banks”
as apparently they’re working with their customers to keep them in their homes…it’s
the B & C lenders who are calling in their notes.
As interest rates rose, it pushed more mortgage-seeking customers
into the B & C channels as they no longer qualified for traditional financing.
And there’s some ugly stuff going on in the B & C lending environment
because they don’t say NO. Huge up-front fees, even higher rates, crazy terms
like being added to insurance policies as beneficiaries & when times get tough
for their mortgagors, eating up any available equity through penalties &
fees!
Of course we’re not privy to what’s going on behind the
scenes in a sale unless we’re directly involved in the sale, but when we see
properties that were purchased between 2020 & 2022 selling for less than
they were purchased for, we know that something’s going on. When we see that it’s
a corporation name, a lawyer’s name or some name other than the name(s) listed
on title as the “Seller(s)”, then we know something’s going on. There’s always
the usual suspects of death & divorce, which can force the sale of a home
at an inopportune time, but it’s fairly easy to connect the dots when we see a
property sell at a loss that also has any of the above parameters to it as
well, as to what the cause might be.
And it’s so very sad to make those connections. Behind the
listings we scroll through every day are real people, some of whom have run out
of options & will be left with enormous financial burdens that may take
years to get out from under.
B & C lenders are supposed to be short term solutions
with the eventual goal of qualifying for A lending at the end of the term. With
rates where they are, many are still not able to qualify for the jump to A
lending & so they get stuck where they are. If a B or C lender is not
willing to renew a mortgage for a new term & they can’t qualify for any
other financing, then they have to sell their house – whether the market is
good or not in order to get ahead of the Power of Sale process. If they don’t
get ahead of it, they will still lose the house to the lender, but then they
also incur all kinds of additional fees that go along with the process.
Flip the script on this & this is where opportunities
for buyers can be found. Lenders are required by law to take reasonable steps
to get market value for the property – market value essentially translates into
what a buyer is willing to pay for the property. If that means less than what
the original homeowner paid for it, then that’s just the way it is….
I’ll leave you with one last wrinkle in all of this &
that’s when the lender becomes the landlord in a Power of Sale. If the property
in question is tenanted in any way, then guess who’s responsible for them &
now bound by the Residential Tenancies Act - the new landlord! Because the
tenants have security of tenure. And that could be why the “Big Banks” are doing
their best to work with homeowners so that they can avoid this scenario as much
as possible. The backlog at the Landlord Tenant Tribunal is still far too long –
8 mos just to get a hearing! And if the tenants aren’t cooperative it just
complicates everything even further & piles on additional costs on the
mortgagor.
No take-aways or action steps for you today, just some
observations & what may be behind some of the numbers we’re seeing. And to
be fair, I’ve only identified 9 ACTUAL Power of Sales (out of 1,274 sales
to-date) in Durham since January 1st, none from the “Big Banks”, but
we also have no way of knowing how many people have sold to get ahead of the
process in that time either.
Until next time,
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