Tales from the Trenches

Why follow-up on a slam-dunk, for-sure mortgage? Sometimes paperwork just gets lost; having a Plan B is essential.

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Download the audio file HERE and the text/handout HERE.

Three in one. It doesn’t happen often, but this Tale on credit woes comes from the same set of circumstances as the first two Tales in this series (Part I and Part II).

Now, remember that my client is a very successful businessman, holding eight investment properties—each with substantial positive cash flow. His mortgage broker set up each of the mortgages for the existing eight properties so the broker is very knowledgeable about the client and his borrowing profile.

When my client calls his mortgage broker to advise he wants to refinance one of his properties, the broker says, “no problem.” There isn’t any reason to think there would be a problem, because together they have done eight financing deals already, and it’s always been smooth sailing. The usual data is collected by the mortgage broker and my client forgets about it for a month and a half. Then, as a careful, ‘almost type A guy’ he calls his mortgage broker because he suddenly realizes he hasn’t yet signed a commitment letter for the refinance.

His mortgage broker hums and haws and says the bank wants a little more information, and then the issue of the mysterious $200 credit blemish and a caveat on title are raised and discussed. There was lots of back-and-forth on both these issues with the lender but, in the end, the refinance is approved and the commitment letter is signed. It looks like issues are resolved and my client thinks to himself that he is glad he started the process three months before he needed the funds, because it took almost 2 months to get to this stage.

Now, the reason for the refinance is to obtain funds for a new, unconditional purchase. The sellers have a high ratio mortgage, which can be tough to deal with. A week or so after the mortgage commitment is signed, my client calls and says, “Barry, do you have mortgage instructions from the lender?” “No,” I reply, “nothing yet.”

My client calls the lender who says they have, in the usual way, sent the mortgage instructions to us here at my law office by e-mail. My client passes that information on to me; I check but there is no e-mail to me or any of my partners or staff. My client calls the lender who says they will resend the e-mail; I check, nothing! We went back and forth with this e-mail dance three or four times. In the end, it took a full month to receive the actual e-mail mortgage instructions from the lender. ONE MONTH, unbelievable!! I’m not saying the lender didn’t send e-mails; I’m saying we didn’t get the e-mails.

Now, if you are mathematically inclined, your addition tells you that so far it has taken two months to finalize the refinance approval and then one more month to get us mortgage instructions, which is a total of three months. The closing date for the new property is at about the three-month mark. By the time we actually got the mortgage instructions, the closing date for the new property had passed and my client was on holidays. He was extremely fortunate to have a big line of credit (LOC) and he could write a cheque to close the new property. What if he didn’t have that line of credit or some other access to cash? He would have been, that’s right, screwed!

If you’re getting or refinancing an Alberta mortgage, you need a lawyer. Contact Barry right away!

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Here’s three examples of how lenders can sometimes be unreasonable. Logic and a good track record will not necessarily change the lender’s mind or policy when you try to get a mortgage.

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Download the audio file HERE and the text/handout HERE.

Our next Tale is the second in a series about my client with the credit reporting issue (see Part I here). He runs a very detail oriented business and is a type A, or close to type A, personality—both in his business and personal affairs. With that kind of mindset, he had contacted his long-time mortgage broker three months before he needed his refinance funds.

My client—despite high income, eight extremely positive cash flow properties, and great credit scores—had a problem on what should’ve been a simple refinance. Again, it involved his lender. Lenders can be unreasonable.

Sometimes lenders can be extremely unreasonable. And, guess what, don’t think that because you are a great customer with sweet logic on your side, they are going to cave in and retreat from their unreasonable position. Stop me if you’ve heard this definition of the Golden Rule: “He who has the gold makes the rules.” Or, as Peter Kinch has often pointed out, if you play in the lender’s sandbox, it’s the lender’s sandbox rules.

Okay, so what was unreasonable? During the approval process the lender pulled a copy of the title of the refinance property. They noted a caveat by the City of St. Albert.

The caveat said that St. Albert had a financial charge against the property pursuant to a grant under their secondary suite program. Basically, if you take St. Albert’s grant money to fix up and make a legal secondary suite, you have to rent at less than market rent for five years. A key clause in the agreement says that the City of St. Albert will postpone their caveat to any new first mortgage financing. In other words, they understand that if a lender is giving you a first mortgage, the lender has to be first on title. Therefore, St. Albert agrees to postpone or move their caveat so that they are second on title. This is a standard clause well understood in the financial service industry.

What did the lender say? You guessed it; they want the caveat removed from title, not postponed. Our member gets them a copy of the agreement and points out the relevant clause. That doesn’t seem to be good enough, so our member goes directly to the City of St. Albert and gets an official letter confirming that they will postpone their caveat to the lender’s new financing. Still not good enough.

The arguments went back and forth throughout the approval process. The lender never provided any logical reason why a postponement wasn’t good enough. In fact, they never did officially back down from this position although they finally did issue the commitment letter and sent mortgage instructions without mentioning the caveat. My law office got the official postponement document from the City of St. Albert, and we registered on title because that’s the way it’s done. The lender’s mortgage is now in first position and the city of St. Albert caveat is in second position.

But the point is, lenders can be unreasonable. Talk to Patrick Francey about his refinance of a Grande Prairie multifamily unit. Through diligence and extremely hard work, Patrick and his partner Jared Hope maintained a 3% vacancy rate through the horrible downturn in Grande Prairie when the average vacancy rate was 15%. The unreasonable lender based their numbers on 15% and nothing Patrick and Jared could do would convince them otherwise.

How about my client that specializes in condominiums? He always puts down a deposit of 30% and manages the heck out of his properties. As you can expect, the properties are always excellent positive cash flow. In the recent downturn, his favourite long-time lender cancelled the most recent mortgage application because lender’s head office policy had changed. They were simply no longer lending on condominiums. Unreasonable? You bet!

If you are dealing with an unreasonable lender, get Barry and his team on your side. Contact him now!

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Your good credit can be affected by inaccurate credit reporting. Even a small, bogus claim reported to Equifax or Trans Union may give you major grief, staining your good track record and fabulous credit rating. This podcast and blog post tell the tale of a client whose credit rating was sullied with a mere $200 claim.

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Download the audio file HERE and the text/handout HERE.

My client was angry when he called me; I could practically see the smoke coming out of his ears. His bank was giving him a hard time over refinancing an already-owned property. Here’s the background.

A few years ago he got a call from a collection agency who said that he owed ABC Company $200. His response, “I don’t owe ABC Company any money. This sounds a little bit familiar, but I dealt with XYZ Company so I’m not sure exactly what you’re talking about. I can’t pay you unless you send me a contract or an invoice or something that proves I owe the money.”

The collection company didn’t send anything and he didn’t hear from them again. My client thinks about this and says to himself, “oh well, even if they reported me to the credit agencies, this will be off my credit record in two years.” Big note here: check your facts. Talk to a credit expert to find out how long items stay. Don’t trust hearsay.

Sometime later another collection company calls with the same attempt to collect for ABC Company. The conversation is a little more heated this time with my client demanding proof, the contract or an invoice, and the collection agency threatening court action, credit reporting and, generally, the end of the world. Again, nothing else comes of this.

Fast-forward to this year, and my client is sitting at the desk of his long-time, favourite loans officer at a major lender. As set out above, he is applying to refinance an already owned, positive cash flow investment property. The application goes fine with the usual light talk and banter that you have as a successful businessman and investor talking to your loans officer who has done numerous loans for you in the past, never any trouble.

The next day he gets the call from the loans officer. “We’ve got a little problem. There is a $200 claim on your credit record and you have to clean that up before we can do your refinance.”

My client has a bit of a short fuse and is outraged. “What are you talking about? I own a successful business that employs 10 people, eight investment properties with major positive cash flow, and my wife and I have Beacon scores of 730 and 750. This $200 claim is bogus!” (and he provides the background to his efforts with the collection agencies). “Doesn’t matter,” says his now not-so-friendly loans officer. “It’s policy with us and every major lender. Claims reported to the credit agencies have to be cleaned up. It doesn’t matter if the claim is big or small. It’s your problem, not our problem.”

Logically, my client sees that just paying the $200 makes sense. He’s a busy guy and he has already spent too much time talking to collection agencies and raising his stress levels speaking to his loans officer. But, he says, stop me if you’ve heard this one before, “It’s not fair!” So he calls Equifax, Canada’s major credit reporting agency, and explains the situation. They are sympathetic but not helpful. They say, “send us your rebuttal, your reasons why you think you don’t owe the money and we will send it to the creditor and get their comment.”

My client sees this as a giant time-waster and has a heart-to-heart talk with his loans officer who speaks to his superiors. They decided to make a one-time-only exception, but say this credit issue will have to be cleaned up for any future loans.

When you’re dealing with Alberta mortgages, get an experienced real estate lawyer on your side. Contact Barry now!

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In this episode, Barry explains how condominium parking works. Do you have title to your parking unit, exclusive use of that parking unit, or is it simply your assigned space? Perhaps it is a combination of all three…

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You buy a condominium; you get a place to park, right?

At its simplest, that’s true. But, condominium parking is way more complicated than that. Here’s why. When a condominium corporation is created, there are a number of choices for how to handle parking. The developer (whether it’s a brand-new condo or condominium-ization of an existing building) chooses one of four ways to set up parking.

With that brief explanation of how parking works in condominiums, it’s no wonder that the exact status of parking is often confused in a condominium purchase:

Beware: offers to purchase often don’t describe parking accurately!!!!

If you’re buying a condo in Alberta, a lawyer can help sort out your parking. Contact Barry now!

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The 168 unit Penhorwood condominium complex in Fort McMurray, Alberta suffers from many deficiencies including structural, mechanical, electrical, building envelope, and roofing. This situations led an engineer to say there was a possibility of, “potential hazard to life, health, safety or building integrity.” Lawsuits ensued.

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The disaster at the Penhorwood Condominium Complex in Fort McMurray is another graphic illustration of huge potential problems in a condominium purchase.

In March of 2011 on a cold winter evening, just before midnight all residents of were ordered to evacuate on 30 min. notice. The Condominium Board had requested the evacuation order after receiving an engineer’s report fearful of a disastrous foundation collapse.

Here’s some background. There are 168 units contained in seven buildings, located in the southeast corner of Fort McMurray’s lower townsite. Units were offered on a pre-sale basis in May 2002, with prices starting at $105,000. Construction started in August of 2002.

Serious problems were alleged in the fall of 2003 by a gentleman named Mr. Al Penner, who had been hired by the developer to market some of the units and form a rental pool. Mr. Penner told a meeting of owners in 2003 that the condominium units were unsafe and any occupants were at serious risk of injury and perhaps even death! These are very serious charges that resulted in the developer filing a defamation suit against Mr. Penner; that lawsuit was later settled out-of-court.

This was just the start of the controversy surrounding Penhorwood. Very soon after Penner’s allegations the Penhorwood Condominium Board hired a lawyer to see whether or not there was enough evidence to sue the developer. Apparently there wasn’t, so the board hired an engineer to look at their buildings.

The engineer’s report was part of evidence in a 2007 lawsuit launched by the Condominium Corporation. That engineer’s report was very scary and reported many deficiencies including, “structural, mechanical, electrical, building envelope and roofing” which led to the engineer saying there was a possibility of, “potential hazard to life, health, safety or building integrity.”

There were further allegations of other engineer’s reports setting out similar problems. The 2007 lawsuit specifically alleged failed roofs, water leaks, wiring mistakes and a cracked foundation, along with poor stucco, falling fences and dangerous in floor heating. Damages were claimed in the amount of $4.1 million. After the evacuation order in March of 2011, the Condominium Corporation amended their lawsuit to claim the cost of knocking down and completely re-building all the units, total $60 million!!

Fingers are being pointed everywhere. The Condominium Corporation blames the builders and the developers, the Regional Municipality of Wood Buffalo, project engineers, safety codes officers, and the architect. Mayor Melissa Blake says the town has done everything they can to help homeowners and points out that any purchasers after 2007 got a reduced price. Purchase contracts were apparently amended to disclose the existence of the lawsuit. There had already been a $25,000 per unit special assessment related to earlier problems. Statements of Defense deny all allegations and nothing has been proved in court. The lawsuit is likely to drag on for a few more years.

How could this possibly happen? Some say it’s quick-buck artists who build, sell, and disappear. University of Calgary professor Tang Lee is an architect who has been an expert witness in many court cases involving similar situations. According to Prof Lee, consumers think that provincial or municipal inspectors are watching carefully over building projects to make sure they are properly constructed. Prof Lee says there are no inspectors, only safety codes officers who make spot checks and might visit a project three or four times. If they see something, they can get it corrected.

According to Prof Lee, responsibility should lie with the architect who has 20% of his/her fee allocated for “contract administration”, which covers the architect coming to the site and taking a very close look at the quality of construction. He also thinks some developers tell the architect he never has to come on-site and they’ll still give them half his fee. Anyone can put up a shingle and call himself a contractor, no qualifications required. Prof Lee thinks lots are shady. Serious allegations!

He doesn’t know anything about Penhorwood but says the only real solution is a big change in the way the Province of Alberta manages building development generally. The province of Alberta has been looking at this problem for number of years and got a first report in April of 2008. That report recommended a mandatory, new-home-warranty-program, better warranty coverage, stiffer penalties for builders who violate provincial building codes, better training for home-builders, and more frequent inspections of homes under construction. The Minister of Municipal Affairs rejected that report and asked for additional information. Apparently a new report is complete and in the process of being implemented, but that report is not public and will only help going forward.

Where does all this leave you if you’re looking to buy a condominium unit?

Sources: CMHC’s Condominium Buyer’s Guide

Understand clearly that condominiums are a complicated purchase from many perspectives. There’s a lot to learn. There is more diligence that goes into more detail.

Consider obtaining a copy of the additional plan sheet from the Land Titles office in the same way you get a title search. This document shows, among other things, changes to bylaws, changes of directors, Builders Liens, and perhaps notices of lawsuits against the Condominium Corporation. For lawsuits filed by the Condo Corporation, do a Court of Queen’s Bench‘ actions search’ in the applicable Judicial District. If you have gone this far, get help from your lawyer.

Real Estate expert Don Campbell says that when he finds there is any kind of a lawsuit attached to any kind of a property, he walks. It is just too much danger and trouble to take a chance in most cases. Penhorwood is a classic situation where all the research in the world would not have allowed anyone to make an informed decision on the merits of the charges and counter charges. This would have been the very appropriate place to say, “Lawsuits? Thanks, but I’m out!” (with thanks to Dragon’s Den).

Before buying a condo in Alberta, get Barry’s legal advice to keep you safe. Contact him now!

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This episode is about the collective woes that buying a condo makes into your personal problem. Condominiums /strata corporations exist Canada wide. They are complicated in all aspects and especially on the financial planning side. It is essential to examine the reserve fund study/reserve fund plan (different provinces have different wording) to ensure that a qualified professional has done the math costing out what financial contributions are required to replace building components (windows, siding, shingles). Then look to see if the condominium corporation actually has the money in the bank!

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Download the audio file HERE.

Our investor was doing well: a professional in Fort McMurray, rising up the corporate ladder and there for the long haul. With his busy job, he thought that condominiums would be the way to go for investing, way less management time for him and easy to rent in Fort Murray.

Before purchasing any condo units, he got his checklists in order. Down the checklist he went—tick, tick, making sure all items were obtained, including reserve fund studies.  Soon, he owned condo units in a number of different condominium projects.

Condominiums are required to produce a Reserve Fund Study (RFS) prepared by a qualified person, and update or redo that study every five years.  The RFS is supposed to look at all aspects of the common property, determine their remaining useful life, and predict how much it will cost to replace each component . The study then concludes with an overall financial analysis that discusses how much money is currently in the reserve fund and what the monthly fees and or special assessments should be in order to ensure the study can be implemented. In other words, how much money are we going to need to keep this building in good shape?

Once the qualified person produces the RFS, the condominium through their Board of Directors is supposed to prepare a reserve fund plan. The plan is how the condominium implements the analysis contained in the study. But, the Board is not obligated to slavishly implement the plan…

To further protect his investment, he got himself appointed to various condo boards. It wasn’t long before he was dismayed to hear the professional property manager at each condominium complex report to the Board that various deferred maintenance items could no longer be deferred. Examples were windows, shingles, and siding.

At first, our investor wasn’t worried. He knew that reserve funds are established and required to ensure that when a building component needs replacing, there are adequate funds available to do the job.  In one condo complex, the property manager said it was time to replace shingles, fences, siding, doors, and windows. The next thing he said was that their fund did not have enough money and he was suggesting a special assessment of approximately $36,000 per unit. Our investor owns two units. You do the math. How could this be?

Our investor went back to the RFS that he got (but didn’t read!) when he bought the property. He found minutes of a board meeting that said, “We vote to adopt the RFS as our reserve fund plan”. So, the study and the plan are the same document. Note, in many cases the plan does not follow the study if the Board thinks the study is too conservative. Better late than never to dig into the details and find out.

Here’s what our investor found when he dug into the RFS, did some of his own research, and read the board minutes.

Before buying a condo in Alberta, get in touch with Barry to have an experienced lawyer on your side.

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