FINANCING FORMER MARIJUANA GROW OPS
One of the most common inquiries we receive is with regards to financing former marijuana grow ops: “Can you finance them?”
The answer is, “Yes, you can,” but there are some things to be aware of and additional costs that you may incur
There are a few points that need clarification when talking about a grow op. They are:
- Has the property been fixed or “remediated?”
- Was the occupancy permit for the property pulled by the municipality when the grow op was busted?
- Were hydro or electrical services cut off from the property and are they currently connected?
In most cases, for properties on the MLS, they will already be repaired and could have been lived in for quite some time. If the property has not been fixed (or “remediated” as we call it) then no bank will finance it.
This point needs to be reiterated again for clarity: if the property has not been fixed, no bank will finance it.
While there may be lots of profit that you can make on an un-remediated grow op, the bank doesn’t want to take part in financing these properties and potentially having to deal with them.
However, if the property is fixed, financing is much more readily available. There are three things you are going to want to get done to ensure that your application is given the best consideration from the lenders:
- Environmental air quality test (Phase 1)
- A comfort letter from the city or re-occupancy certificate
- Appraisal of the property
ENVIRONMENTAL AIR QUALITY TEST (PHASE 1)
This is an air quality test that test for mould or airborne pathogens. A test is done in the room or area where the grow op was done, an area it was not, and outside (as a control) and the results are compared against generally accepted guidelines to ensure that the home doesn’t suffer from mould in the air or any other airborne issues. You will want to make sure the lab that does the testing is certified by either The Canadian Registration Board of Occupational Hygienists or the American Board of Industrial Hygiene While this last step is not mandatory, it will give you the most choice of lenders when financing the home.
You can expect the cost of this test to be $1,200 – $2,000 depending on what part of the province you are in, the distance the testor has to travel, and the urgency of the request. Standard pricing is around $1,300 and will take 2-3 business days to have results in your hand.
COMFORT LETTER FROM THE CITY
The rules on this vary from municipality to municipality. Some municipalities will remove the occupancy certificate, and you will need proof that it is re-issued or never missing in the first place. This is what a “comfort letter” does; it is a confirmation from the city that property has its occupancy certificate in place and that the home is not presently in violation of any bylaws. Most municipalities will do this for free or a nominal fee of $25-$50.
If the services from the city have been cut off, you may have to get electrical inspections by the city, fire department, or other government body to confirm that all electrical is up to code. As there are a myriad of rules even within the lower mainland, you should consult your mortgage professional before spending time and money on these inspections to see which is required for financing in your municipality.
APPRAISAL
An appraisal is not the same as an inspection. Where an inspection is for your peace of mind that all outlets work, appliances work, roof is in good condition, etc… the appraisal is done by a neutral, certified, third part to confirm the lending-value (similar to market value) of the home. The bank often wants this to confirm the price you are paying is fair market value, and to ensure that the stigma of being a former grow op is not adversely affecting market value.
Once you have all three of these in place, does this mean all banks will do the mortgage? No. Most chartered banks no longer finance former grow ops at all, but local credit unions are your best chance. That said, if you just wander into a local branch, you might be met with resistance due to the staff member or manager’s personal bias, so it is best to use the services of a qualified mortgage broker to negotiate and package the deal up appropriately for submission to the correct credit manager.
WILL I HAVE TO PAY A HIGHER RATE?
Maybe. In the past, we could get these done at fully discounted rates. However, depending on which lender approves the mortgage, the location, your credit score and income, we may or may not be able to get fully discounted rates. Rates can range from fully discounted to 1% higher than fully discounted depending on these factors. Without an application, it is impossible for us to quote you a rate until we have the full package of information in our hand. As a result, you will have to spend a bit of money on testing and appraisals before we can guarantee an approval or rate.
However, with these three things in hand, assuming a personal qualifies for the mortgage amount they are seeking, financing a former grow op is not much more difficult than a standard mortgage application
Call us at City Wide Mortgage Services for your best guidance on this process and the costs involved.
Rowan Smith, A.M.P.
Senior Mortgage Planner / Partner, DLC – City Wide Mortgage Services
Direct Line: 604.657.6775
Direct Fax: 1.888.282.5760
E-mail: rowan@citywidemortgage.ca
Website: www.rowansmith.ca
City Wide Mortgage Services
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