The reason I’m feeling urged to write today is because I heard just now of yet another disastrous situation happening to a client today, and I want to urge everyone thinking of buying or selling to NOT do it yourself. So here’s today’s story in a growing number of stories and luckily it is not my client but that of another broker. The client was qualified in terms of credit, income qualification, downpayment verification etc. The client had not told the mortgage broker which building he was writing his offer on and while the broker told him he was pre-approved , he stressed the requirement of still putting a “subject to financing clause” but the client didn’t listen and felt the pressure of the multiple offers.
The client was only putting down 5% which means the file must also be insured by the mortgage insurer, of which there are only three: CMHC, Genworth and Canada Guaranty. Even though the client was pre-approved, the bank’s decision is never the final approval decision as the property selected must also be approved, especially in cases where a buyer has less than 20% down (in some cases, some banks require 25% to 35% down in order to not pay insurer premiums depending on the bank and type of property) the mortgage insurer has the final word.
So what happened next is my worst nightmare, the mortgage insurer came back and said that there were issues in the building and that they were not comfortable with and therefore were flat out declining the file.
So what are the client’s options when he has gone “subject free” , has already paid 50,000 in non-refundable deposit and is now he’s technically declined due to no fault of his borrowing ability but due to the property selected.
A. forfeit the sizable deposit he had to pay with his subject free offer and risk being sued in addition to losing his deposit he could also face the domino affect of causing the seller to not have the funds they need to close should they also buy a property. The domino of doom could continue a chain affecting a great number of people.
B. Try to blame someone and try to sue someone…
C. Try to come up with the necessary 20% downpayment to negate the requirement for mortgage default insurance and hope that another bank won’t request all the same condo documentation which may result in a decline anyway due to the bank having the same concerns as the mortgage insurer.
Bottom line, I know this market is ridiculous, its unlike anything I have experienced in my 10 years as a broker, but it’s mostly up to every Realtor to ensure that even though your client is “pre-approved” which it typically little more than interest rates being put on hold and quick credit reviews, you MUST PUT THE USUAL SUBJECTS ON YOUR OFFER. You need financing of any amount, you need to have this subject unless you have done all the leg work before hand.
As a mortgage broker now for almost 10 years, I have seen craziness in our Vancouver and Greater Vancouver market. I have experienced brief slow downs, frenzies and other such hype. I don’t know when order will be restored. The way some consumers and some Realtors think business must be conducted, is becoming very dangerous and very costly to the consumer. The value of an experienced Realtor is immeasurable and one that most people won’t realize as experienced Realtors won’t let you screw up! There are some Realtors that I come across that I shake my head at why they ever chose the profession and many I want to strangle so if you want to know which one is good for the area you’re thinking of buying or selling in…ask me I would happy to make an introduction for you!
The example above is just one of a growing number of issues that are arising from the insanity…I don’t know how to stop the insanity. But if you’ve read this far…thanks!