I had written an article a while ago outlining some of the difficulties I was experiencing with banks not renewing mortgages and I actually ended up with some calls and emails from various readers and investors telling me they had been going through similar experiences. Well here we are a couple of months later and I’ve almost ended my second experience, although not quite as smoothly as the first property.
Just to recap, several of the lenders out there are currently either getting out of the mortgage business all together (GMAC), getting out of mortgages on rental properties (Xceed Mortgage Corporation) or simply pulling out of Canada (Wells Fargo). So any mortgages they currently have in place are simply not being renewed leaving many potential mortgage holders in the lurch. From the lender’s perspective, they are simply protecting their investors, but at the same time, they are putting some pretty intense pressure on many mortgage holders.
The one property we had financed through GMAC was an example of a company getting out of the mortgage business and not renewing. We were in a good situation as the property had been purchased in 2005 had gone up significantly in value and we actually had three months notice from the lender they were not renewing. So not only did we have time, we also had equity, which if it became necessary we could relinquish some in order to move the property faster.
This was about the best situation we could be in as we were ready to sell the property anyway. So that’s what we did and everything went well, we even closed the sale just a few days prior to the mortgage being due so there was almost no payout penalties involved.
The second property however, didn’t work out quite as well. With the decrease in values of many properties out there, it’s not uncommon for a property bought during the peak in 2007 to currently be worth about the same value as the mortgage and in some cases even less. It was the latter for us on this second property. To make it worse, the lender, Xceed Mortgage, initially indicated they would renew, although for a shorter term and for a significantly higher rate of 8.1%. Yes, you read that right 8.1%!!!
It was six weeks prior to the mortgage coming due they informed me, via email, they were now pulling their generous offer and not renewing period. Here I was with a property that was currently generating money, but in a negative position due to the values dropping and being forced to sell it when I could have simply weathered it for a few more years and potentially broken even. Instead I was being forced to sell, had to remove tenants that were in place, complete painting and minor renovations to make the property easier to sell in a flat market and I had six weeks to sell it. You can probably already see me doing the happy dance.
Fortunately, the bank generously provided me with 60 extra days to sell the property. Since the mortgage was due at the beginning of July, this gave me the incredibly wonderful months of July and August to sell, two of the slowest months possible for Real Estate. As you can imagine, this didn’t work out so incredibly well as during this time values seemed to drop even more.
Now you have to understand, we were not trying to dodge responsibility, we took the mortgage out, we understood the ramifications of signing a mortgage and we want to do the right thing. Since the mortgage was higher than the listing price of the property, there were additional challenges when selling. First, we had to prepay the realtor’s commissions, which we did. Second, we also set aside a sizable amount of money to cover the loss and ensure the lender would get paid in full. Third, we priced the property lower than the other properties in the area in order to help it sell quicker, even though we knew this meant more money directly out of our pockets.
Yet even after all this, as we approached mid August, still no sale and at this time not even an offer! Things were looking rather bleak and then we received the Demand Letter from the lender’s lawyer indicating they were starting the foreclosure process. This meant additional pressure and more costs associated with selling the property.
As this is turning into a rather long tale (as many of mine tend to be) I will continue with part II next week, so be sure to check back and find out what happened. Also if you have similar stories I would be very interested to hear how things are going for you.
You can find part two here,
Foreclosure With Exceed Mortgage Part II
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