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Assuming a CMHC insured property

M

Millions

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Hey,

I recently found someone who has offered to assume a condo I own in Calgary that is insured by CMHC. I bought it in march 2007. IT would be an assume without qualify. Up until now, the story was that i would be liable for 1 year. Now I am hearing that I can be liable for the entire term of mortgage and the CMHC wont allow them anymore without qualifying.

Does anyone know if this is true or if there is a way around it?

I hope to hear from everyone shortly!

Thanks

Matt Bailey
 
QUOTE (Millions @ May 26 2009, 09:21 AM) I recently found someone who has offered to assume a condo I own in Calgary that is insured by CMHC. I bought it in march 2007. IT would be an assume without qualify. Up until now, the story was that i would be liable for 1 year. Now I am hearing that I can be liable for the entire term of mortgage and the CMHC wont allow them anymore without qualifying.
Two options:

a) You can let him buy it / assume it .. but you may be called upon the personal guarantee IF they (or any sub-sequent buyer) default

.. or

b) you can ask CMHC to discharge you from the guarantee and then they would qualify this new buyer for an add`l fee ..

depending on condo value and loan-to-value of mortgage consider route 1 only if low enough ! So yes, there is risk .. thus do it only if the risk of default is very low. Otherwise have them get their own, new mortgage or have them qualify !
 
QUOTE (thomasbeyer2000 @ May 26 2009, 09:19 AM) Two options:

a) You can let him buy it / assume it .. but you may be called upon the personal guarantee IF they (or any sub-sequent buyer) default

.. or

b) you can ask CMHC to discharge you from the guarantee and then they would qualify this new buyer for an add`l fee ..

depending on condo value and loan-to-value of mortgage I`d suggest route 1 if low enough !



So if i go with route 1, i can be liable for the entire term of the mortgage. that is pretty risky isn`t it?

Matt
 
When I first got into the business, it was common for buyers to assume existing financing. But, that was because rates were moving up. When I started the going rate was 9.25% for 5 years. Within a couple years it was up to 12%.

With low interest rates, even with a penalty, more sellers are paying off their mortgages than allowing them to be assumed, just for the reasons you cite. It is risky to be held liable for someone else`s possible default... something over which you have no control.

You don`t tell us why the Buyer wants to assume your financing. Why do they not get their own? If it is a credit issue, have you thought of an Agreement For Sale or an RTO? That will give them time to rehabilitate their credit.

If it is you who does not want to pay the penalty for early payout, well, I think you are going to have to bite the bullet one way or the other... pay the penalty... or accept the risk.
 
QUOTE (Millions @ May 26 2009, 06:43 PM) So if i go with route 1, i can be liable for the entire term of the mortgage. that is pretty risky isn`t it?

Matt
yes it is risky .. BUT: you can have an indemnity agreement to protect yourself plus a caveat such that you know if they re-sell it .. you could disallow that as part of your indemnity agreement !

An indemnity agreement indemnifies you. it means that of the buyer defaults, and CMHC comes after you, you can come after the buyer for damages. (of course, if the buyer has no assets, and he loses $30,000 then you might win a law suit but can`t collect ..)

So yes, there is risk .. thus do it only if the risk of default is very low. Otherwise have them get their own, new mortgage or have them qualify !
 
What is a RTO. Would an agreement of sale still allow for the assumable or how does it work?

Well basically, he seems like a good buyer. he owns a few investment properties which is why he doesnt think he would qualify. and if he got his own mortgage, he could probobly get a better deal on another property as mine is slightly higher priced due to the assumable. I want to get rid of it because it is negative cash flow of about $250 a month.

Talk to u soon!

Matt



QUOTE (Dan_Eisenhauer @ May 26 2009, 07:01 PM) When I first got into the business, it was common for buyers to assume existing financing. But, that was because rates were moving up. When I started the going rate was 9.25% for 5 years. Within a couple years it was up to 12%.

With low interest rates, even with a penalty, more sellers are paying off their mortgages than allowing them to be assumed, just for the reasons you cite. It is risky to be held liable for someone else`s possible default... something over which you have no control.

You don`t tell us why the Buyer wants to assume your financing. Why do they not get their own? If it is a credit issue, have you thought of an Agreement For Sale or an RTO? That will give them time to rehabilitate their credit.

If it is you who does not want to pay the penalty for early payout, well, I think you are going to have to bite the bullet one way or the other... pay the penalty... or accept the risk.
 
RTO is Rent To Own. There are numerous posts here on the subject.It is an Agreement FOR Sale, not OF Sale. You sign an Agreement OF Sale when buying through a Realtor, as an example. An AFS is an agreement between you and the Buyer where he pays you an amount each month that gets contributed to the purchase price. It is for a set term, and you retain ownership of the ppty until the buyer meets the terms of the agreement.

An AFS is sometimes called a wrap mortgage. In some ways it is very much like an RTO, except with the AFS you have a firm deal, and the Buyer cannot walk away without legal repercussions. I posted an RTO worksheet in November that will help you calculate what you should charge the buyer. It should be the same for an AFS contract. Remember to add condo fees into your calculations, and to allow for their increase in your contract.
 
QUOTE (Dan_Eisenhauer @ May 27 2009, 09:18 AM) RTO is Rent To Own. There are numerous posts here on the subject.It is an Agreement FOR Sale, not OF Sale. You sign an Agreement OF Sale when buying through a Realtor, as an example. An AFS is an agreement between you and the Buyer where he pays you an amount each month that gets contributed to the purchase price. It is for a set term, and you retain ownership of the ppty until the buyer meets the terms of the agreement.

An AFS is sometimes called a wrap mortgage. In some ways it is very much like an RTO, except with the AFS you have a firm deal, and the Buyer cannot walk away without legal repercussions. I posted an RTO worksheet in November that will help you calculate what you should charge the buyer. It should be the same for an AFS contract. Remember to add condo fees into your calculations, and to allow for their increase in your contract.


hey,

So in the end of the term, he would still have to qualify to buy the house right? My main idea was to clear my name so I could maybe buy more properties and the only way i can do that is assume it or have them qualify right?

Matt
 
You could sell your house now, with the RTO contract in place, to another investor. They produce good cash flow.
 
QUOTE (Dan_Eisenhauer @ May 31 2009, 07:40 AM) You could sell your house now, with the RTO contract in place, to another investor. They produce good cash flow.


You mean scrap this assumable deal and try to rent to own it to someone else?

IS it easy to do these days?

Matt
 
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