Foreclosure

[James Murphy]

Hello,
I have an investment property in NE Edmonton that I bought for 150k and is now worth 70k. My mortgage is around 95k and I am losing about 5k every year due to vacancies, levies, tenant costs and plummeting rents and can no longer afford it. I am wondering if the best route is to foreclose; can anyone inform me of the pros and cons? Are there any other options are out there?

 

[Thomas Beyer]

Be aware of the impact on you credit rating.

But yes, mailing keys back to bank, so called "jingle mail" an option but your credit will be ruined for 7 years at least.

 

[Matt Crowley]

My analysis at this point would probably be
1) Renovate suite to higher standard, attract better tenant, allow property to carry itself
2) Have a discussion with my mortgage broker / bank and inquire as to my options if I exit the property at a loss, how can I pay them back?

I would only choose foreclosure if there was no way to make these options work.

 

[Cory Sperle]

Please email me some details on the property. I may be able to assist you.

[email protected]

 

[Alvaro Sanchez]

Locate someone willing to take over the debt “as is”, offer AFS, convert it to rent to own, etc. There might be a few creative real state investors in Edmonton who might be open to look at the details.

 

[Thomas Beyer]

Locate someone willing to take over the debt “as is”, offer AFS, convert it to rent to own, etc. There might be a few creative real state investors in Edmonton who might be open to look at the details.

Indeed. Someone buying this asset $1 cash to mortgage with a indemnity agreement might work.

 

[trevismcconaghy]

Certainly there is a creative way to make this property work. It needs to be able to demand a higher rent for some reason. A few ideas are: Rent as a furnished rental, make it dazzle by doing smart upgrades. (feature walls, wall mounted tv's, newer appliances..). Add it to a rental pool like airbnb. Just suggestions....

 

[Sherilynn]

Options for the property:

1. There is very little demand for rent to own condos.
   
2. Judging by the levies and plummeting rents, the complex now has a low tenant profile and some serious issues. This could make Air BnB a challenge.
   
3. Depending on the location (is it near an LRT station?), transforming it into a supersuite (fully-equipped, short term rental) may be possible. Supersuites are managed similarly to regular rentals, but don't fall under the Air BnB umbrella (read: restrictions and expectations).

Options to exit the property:

1. Selling via Agreement for Sale (AFS) with zero down is likely your best escape. The new owner gets the benefit of zero down and no mortgage qualification, and he can do what he wants with the property. Perhaps the buyer is a supersuite expert. The buyer may expect you to pay down the mortgage since the property is worth less than the mortgage balance. However, an AFS purchase could close quickly, saving you carrying costs.
   
2. Conventional sale will mean you are out of pocket the full amount of the shortfall plus carrying costs until it sells plus realtor fees.
   
3. As previously mentioned, foreclosure will ruin your credit and erase any hope of buying another property for several years. Not a good way to start an investing career. Furthermore, if the property is CMHC insured, CMHC will sue you for the difference between the mortgage and the sale price.

 

[Willyboy]

Hello,
I have an investment property in NE Edmonton that I bought for 150k and is now worth 70k. My mortgage is around 95k and I am losing about 5k every year due to vacancies, levies, tenant costs and plummeting rents and can no longer afford it. I am wondering if the best route is to foreclose; can anyone inform me of the pros and cons? Are there any other options are out there?

 

[sherrykimk]

Have you considered a short sale?


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[Thomas Beyer]

Have you considered a short sale?


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This is not a Canadian term folks are familiar with. It is also usually not done in Canada. What happens is the bank forecloses on the asset once mortgage remains unpaid for 3+ months and then takes all the proceeds and tries to get the difference from previous owner. Foreclosure here really means a court ordered sale which is usually granted, but by that time the borrower is 6 or often 9-12 months behind in mortgage payments.

Kindly enlighten us how it works IN CANADA in your learned experience.

 

[Thomas Beyer]

Hello,
I have an investment property in NE Edmonton that I bought for 150k and is now worth 70k. My mortgage is around 95k and I am losing about 5k every year due to vacancies, levies, tenant costs and plummeting rents and can no longer afford it. I am wondering if the best route is to foreclose; can anyone inform me of the pros and cons? Are there any other options are out there?

One option is debt restructuring. Some firms offer that via a process called “ Proposals in Bankruptcy “. Contact a debt restructuring consultancy firm such as 4 Pillars to restructure your debt and repay it over, say 5 years via firms such as www.marblefinancial.ca

Get educated about these options.

 

[Matt Crowley]

As Thomas says above, restructuring makes the most sense. Working with the bank is likely your best option.

AFS, options, rent to own are fairly bad ideas.

AFS: basically a farmer's contract to buy expensive land and will use the income from the farm to buy the asset on a "guaranteed" basis. Makes sense in some cases for farming. Really silly for small real estate, frankly. What you need to understand is there is no standard or regulation for an AFS contract. Getting lawyers involved isn't really worth it for small asset purchases either. So you end up with two relatively unsophisticated people trying to knit together a complicated contract. Second problem is massive off balance sheet financing that the real estate "expert" has.. possibly dozens of these AFS that the actual cash flow of their business can obviously not sustain. So if three properties go in arrears or they can't find a rent to own tenant you end up with a very ugly and difficult contract to get out of. It is also awkward for a real estate expert to suggest an AFS since the vendor should be the sophisticated "lender" party and really the "lender" is less sophisticated. Unfortunate these contracts are suggested by some people for small transactions in my opinion.

Options: ugh... garbage. Just get a better Realtor. Price property better, stage it better.

Rent to own: should be illegal. It is not right to take non refundable money from a sub prime borrower who is financially weak. Obviously immoral. Why isn't this obvious?

 

[Sherilynn]

AFS, options, rent to own are fairly bad ideas.
...
Rent to own: should be illegal. It is not right to take non refundable money from a sub prime borrower who is financially weak. Obviously immoral. Why isn't this obvious?

Really??? How many times must I copy and paste this response before you give up dissing viable alternatives such as RTO? (And you have AFS all wrong too, btw.)

1) RTO tenants are renting regardless of whether they rent a property they can buy or a property they can't. They often pay the same market rent they would be paying whether they had the option to buy or not. Yes, a reasonable portion of option payments is non-refundable, but that usually doesn't cover the costs to the RTO company to repair and market the property to a new buyer if the tenant defaults. There is risk on both sides.

2) A responsible RTO company will only accept tenants with a good possibility of getting mortgages within the next 2 - 3 years. RTO is not meant for clients with low incomes or terrible credit and spending habits. RTO works for people who had blips in their past (usually due to either a divorce or a business failure or layoff), but are on the road to recovery. (Yes, there are companies preying on people with no hope to qualify, but they are the minority.)

3) RTO properties with conservative annual price increases can be a fantastic opportunity for tenants. We have had many tenants whose houses appraised for substantially higher than the agreed price. So they were able to live in their "forever homes" even before they could qualify for mortgages, they had the stability of knowing they wouldn't need to move their families again, and they got a good deal on the property rather than renting a regular rental and risking substantially higher prices in the open market when they were finally able to qualify.

4) Finally, if the appraisal doesn't quite work when it’s time to buy, a responsible and ethical RTO company will work with the tenant to determine a solution fair to both sides. After all, this is meant to be a fair business transaction and most RTO companies are not the vultures people sometimes make them out to be.

 

[Martin1968]

Would it be a good idea for the 2 of you (Matt and Sherilyn) to grab a coffee together........

 

[Sherilynn]

Would it be a good idea for the 2 of you (Matt and Sherilyn) to grab a coffee together........

There are many people I would love to meet and discuss various views and strategies. Yet experience tells me a meeting between Matt and I would not be fruitful. When one clings to ones ideas despite evidence or reasonable hypotheses to the contrary, one is perhaps beyond useful debate.