Assumable Mortgages

[smallfry]

Hello Everyone:

I recently started investing in Alberta and there seems to be some confusion as to which banks are still offering assumable mortgages without qualification. I have heard that CIBC and Royal Bank are still offering them but that Scotiabank and BMO are not. Does anyone know about this and the other institutions such as ATB ? Any help would be much appreciated, as I am much more familiar with BC and Manitoba.

thanks
Kelly Fry

 

[Danny]

QUOTE (smallfry @ Aug 29 2007, 08:26 PM) Hello Everyone:

I recently started investing in Alberta and there seems to be some confusion as to which banks are still offering assumable mortgages without qualification. I have heard that CIBC and Royal Bank are still offering them but that Scotiabank and BMO are not. Does anyone know about this and the other institutions such as ATB ? Any help would be much appreciated, as I am much more familiar with BC and Manitoba.

thanks
Kelly Fry

Hi,
I did an assumable mortgage without qualification with TD in BC in April 2006 on an Edmonton property.
Danny

 

[stocdavw]

I heard that TD is no longer allowing assumption without qualification. They are the only bank that I know of that has taken this step.

 

[pattinvest]

Hi all,

I sold a property with an assumable mortgage from Scotiabank in June and the Buyer was not required to qualify.

Peter

 

[GSI]

As of 7/10/07 TD has tightened up their assumption policy (directly from CMHC) and they now require all assumptions to be qualified for. Some branches may turn a blind eye, but not for much longer.

I did two TD assumables last month and I am just doing one more now, but I`m having to qualify- and they`re being tough about it.

Rezmor is no longer doing rental mortgages.

Scotia is using the same `must qualify` clause to assume.

RBC is case by case, but seems to be the easiest so far.

It`s only a matter of time as the banks follow TD`s suit.

Hope this helps.


Happy Investing! Glenn Simon Inc.

 

[jason]

I just got one from CIBC that is assumable I believe. I was pretty surprised actually.

 

[YvonneCampbell]

I believe it is all in the age of the mortgage. Older mortgages from these banks are still assumeable because they don`t have the new clause. All the newer ones will have the new clause to qualification. Another clause I have ran into is that the new owner must move into the house if they assume, it can`t be a renter. Has anyone else ran into this?

 

[Bill]

In separate conversations with my Lawyer and Realtor this morning assumable mortgages came up and they both mentioned the door is rapidly closing on assumables here in Alberta. Apparently after November 1st you won`t be able to assume any properties without qualifying.

Right now Bank of Montreal and I believe CIBC are still letting some slip through, but RBC and TD have pretty well closed the door.

In the big picture, what will the ramifications be? Due to the huge increases in appreciation over the last couple of years assumptions were only good if you had capital, but couldn`t qualify. Sure there are some $10,000 down deals out there, but they tend to be a bit sketchy. When looking at these "deals" you have to ask why would someone get a high ratio mortgage on a property if they were just selling it immediately? It can happen with a job transfer or other reasons where someone has to leave their property, but usually they are just taking all the equity out and running, so you have to be careful about their reasons.

For the investors who have taken time to build up their credit status, build teams, prepare investment binders and do all of their home work nothing will really change. They will still go out, find properties that fit the systems, put mortgages in place that work and carry on. There may just be less competition for some of the properties now that the people who could only assume without qualifying are out of the picture.

 

[DanBarton]

QUOTE (YvonneCampbell @ Sep 1 2007, 08:55 PM) I believe it is all in the age of the mortgage. Older mortgages from these banks are still assumeable because they don`t have the new clause. All the newer ones will have the new clause to qualification. Another clause I have ran into is that the new owner must move into the house if they assume, it can`t be a renter. Has anyone else ran into this?

Yvonne has a good point. In speaking with my lawyer he advises us to review the current mortgage documents that we are considering assuming and try to locate the assumption clause or lack thereof, which will determine its summability or not. Older mortgages tend not to have this clause in the paperwork, which legally makes them assumable.

We have had no issues assuming RBC, Scotia, BMO mortgages as of recently. TD put up a big fight about us assuming a mortgage into our company but was perfectly okay with us assuming it into our personal name < a year ago, but times have changed. Our fall back plan is a clause that we include in our `Offer to Purchase` if we are hoping to assume financing, is that if the mortgage is not fully assumable, the seller agrees to an `Agreement for Sale`.

Hope that helps

 

[charlesbeau]

What exactly is the clause you use in the offers?

 

[DanBarton]

This is how I positioned myself on my last contract - the mortgage turned out not be assumable and the seller then agreed to move forward with the agreement for sale.

In my financing schedule in the `Assumption of Mortgage` section under other terms I included "If mortgage cannot be assumed - seller will provide sale by way of "An Agreement for Sale". If assumable, seller will give VTB $40,000 at 8% Interest only payments." I`m sure there is a way to make this clause a little more airtight but it worked in this contract. As for the VTB I detailed these terms under the `Seller Financing` section of the contract and once we decided to move forward with an `Agreement for Sale` we wrote a brand new contract.

Hope that helps
Dan Barton

 

[DanBarton]

As of yesterday just had BMO confirm that they will allow assumption of a mortgage - we were quite surprised, however like stated above this mortgage was taken out a few years ago and comes due in about 1 year from now, so I suggest targeting older mortgages due to the banks not having implemented the non-summability clause. Currently working on 2 newer First National`s - so I will keep this up to date.

Hope that helps
Dan

 

[DrewBetts]

I spoke directly with a regional manager for RBC and have confirmed that all RBC mortgages can be assumed in Alberta without qualification. This was for assuming into a personal name. Into a company is another story altogether. I think you`ll find many lenders are uncomfortable with this as it changes their risk profile. Residential mortgages are for people, commercial mortgages are for companies - this is the general rule, although I`m sure you`ll find some exceptions.

 

[seanverret]

If I have assumed a mortgage wihtout qualifying (and I did this on purpose, like many people assuming mortgages do) - what are the chances that when the mortgage comes do I may not qualify and if so what happens?

 

[GSI]

QUOTE (seanverret @ May 13 2008, 01:30 PM) If I have assumed a mortgage wihtout qualifying (and I did this on purpose, like many people assuming mortgages do) - what are the chances that when the mortgage comes do I may not qualify and if so what happens?

Hi Sean, your answer is in your question.... `I have assumed`. If you`ve already done it and are now the legal owner. You will not be required to qualify for the mortgage when it comes due if your account is in order (paid on time and in good standing). If you want to refinance or take a LOC, then yes, you will probably have to qualify. Continue to make your payments on time and you shouldn`t have any surprises.

Thanks,

 

[JimSlobodzian]

Can you please clarify what happens when assumption of the mortgage falls through and you then "fall back" on proceeding with an "Agreement for Sale" the seller agreed to in original Offer to Purchase?

How is the mortgage handled in this "Agreement of Sale - do you just take over making payments on the sellers mortgage (that is still in the sellers name)? And wouldn`t that trigger the bank to enforce their "due on sale" clause??

 

[GarthChapman]

QUOTE (JimSlobodzian @ Nov 25 2008, 09:53 PM) Can you please clarify what happens when assumption of the mortgage falls through and you then "fall back" on proceeding with an "Agreement for Sale" the seller agreed to in original Offer to Purchase?

How is the mortgage handled in this "Agreement of Sale - do you just take over making payments on the sellers mortgage (that is still in the sellers name)? And wouldn`t that trigger the bank to enforce their "due on sale" clause??

Normally the Seller would keep title to the property so that the due on sale clause cannot be implemented. Then the Buyer makes mortgage payments to the Seller, who keeps making them to the Lender. This is often referred to as a Wrap Mortgage, wherein the Buyer gives a mortgage to the Seller which is `wrapped` around the Bank`s mortgage to the Seller.

Yes, the `Buyer giving a mortgage to the Seller` sounds backwards but this is the correct phrasing - it means the Seller lends to the Buyer.

Hope that helps to clarify,

 

[Nir]

Thanks Everyone - Great discussion!

 

[JimSlobodzian]

Thanks Garth!

So in that scenario where you purchase a house with "Agreement for Sale" and keep the Seller`s title and mortgage in place, do I understand that you are basically taking control of the property with ability to rent it or flip it?

I`m assuming you could purchase with an "Agreement for Sale" in many scenarios, not just where mortgage assumption fell through. Would a strategy work where you purchase a fixer upper using "agreement for sale", reno it, and then sell it six months later (paying out the original seller`s mortgage at that time)??

Are there any major pitfalls for us as buyers using an "Agreement for Sale"?

Many thanks for the helpful info!

Cheers!

 

[DineenJJ]

Could a student with a short credit history get an "Agreement for Sale?