Required Disclosure to Banks with JV

[James3002]

I currently have an accepted offer on a property in Edmonton and I have to remove conditions next week. The deal is being done as a joint venture with a friend. My friend doesn't yet own a primary residence and would like to avoid having the mortgage count against his credit and we were advised that a JV could accomplish this. My mortgage broker suggested I didn't need to mention my co-venturer when applying for financing, however I just read the REIN article "5 keys of a successful joint venture" and Tip #5 states that JV co-venturers must be disclosed to the banks as material information.

Can someone please tell me whether JV co-venturers must be disclosed when applying for financing and if so, what the implications are of doing so? For example, will the co-venturer be required to be a guarantor of the loan or to be a co-applicant?

Note that I also have a call into my lawyer, but being the weekend I won't get an answer until Monday,

Thank you for any light you can shine on this issue!

 

[Thomas Beyer]

Some people also cheat in exams or steal apples at Safeway and get away with it.

 

[kfort]

Get a new broker.

 

[PeterM]

I think there might more to this than the answers so far assume. The simplest and cleanest JV arrangement is for both parties to be on title and on the mortgage. Another flavour of a JV has JV partner #1 on title and on the mortgage. That person has to qualify for the mortgage. The other JV partner (#2) has a beneficial interest in the property but is not on title or on the mortgage. Their interest is secured via a JV agreement and possibly a caveat filed on title after the purchase completes. Full disclosure is the best policy of course, but it has never been clear to me to what extent banks care about additional beneficial owners that aren't on title.

Peter

 

[Alvaro Sanchez]

If your JV does not want to be on mortgage/title then you can always bring him after you close on the property. This is no difference than having a property already in place and you bring a JV later (or replace a JV).

 

[James3002]

Thank you for all the answers so far. PeterM has described my JV situation the best - one of the co-venturers is on title and mortgage and fully qualifies on his own (me) and the other co-venturer has a beneficial interest in exchange for his in-kind service contributions (property management). His interests will be secured via the JV agreement and a caveat on title.

In this case, it's not clear to me what interest the bank has in my co-venturer since he will not have any mortgage responsibilities. I prefer to err on the side of full disclosure, but I'm legitimately confused about the legal requirement for disclosure in this situation. (Note that besides posting here, I'm also in the process of getting proper legal advice on this topic.)

 

[kfort]

Not being a lawyer, this is just an uneducated musing: if your intention is to immediately allow another party to have a beneficial interest in the property I would disclose it. If a year later you came upon the opportunity to bring a partner on I would still disclose it.

Keep in mind without a happy banker your life gets a lot harder. Chances are the person sitting across the table won't even pass it up the chain but you'll cover your rear end.

 

[Sherilynn]

Most banks have something in their mortgage documents where you swear you are not getting the mortgage for the benefit of a third party. JV's fall into a grey area here because you are buying the property for yourself but a third party will have a beneficial interest. Therefore it isn't 100% accurate that you would not be buying the property for the benefit of a third party.

Some banks would want the JV to be on mortgage and title, and some banks don't. Generally speaking, the party providing the down payment must be on the mortgage as either the applicant or a guarantor. However, rules change from bank to bank and even within different divisions of the same bank. Specifically, there are slightly different rules in commercial lending divisions and private banking divisions than there are at the branch level. In commercial lending on single family residential for example, our banker knows we have JV partners who are not on mortgage and title as part of our business plan.

 

[Matt Crowley]

"Grey area" means disclose...in my opinion.

Here is what happens in real life with straw buyers: https://www.canlii.org/en/ab/abqb/d...=AAAAAQALcGVkcm8gYnJpdG8AAAAAAQ&resultIndex=2

 

[Sherilynn]

"Grey area" means disclose...in my opinion.

Agreed.

 

[Alvaro Sanchez]

Use your own cash to close on the property and then bring a JV later if required.