Public Alert – Unlicensed Syndicated Mortgage Brokering Activity

​The Financial Services Commission of Ontario (FSCO) is warning consumers that it has received complaints about some websites promoting syndicated mortgage investments. The businesses operating these specific websites are not licensed or registered to conduct this activity in Ontario.

These websites may refer to the investments as "pooled mortgage investments" or "principal secured investments". These websites, along with their online ads, may guarantee high rates of return, secured by real estate, and claim to be RRSP and LIRA eligible.

Consumers should exercise caution if they are contacted by any entity matching this description. Consumers should also be aware that all mortgage brokerages, brokers and agents in Ontario are required to disclose the material risks of any mortgage investment to investors in writing and in plain language. Investors should ensure they receive this disclosure and should carefully review it, ideally alongside independent legal advice, before making an investment or lending decision.

If consumers arrange a mortgage from a mortgage brokerage, broker or agent that is not licensed in the province, they are not protected under the Mortgage Brokerages, Lenders and Administrators Act, 2006 [New Window], which holds Ontario’s mortgage brokerages, administrators, brokers and agents to specific standards.

FSCO's website contains a list of all mortgage brokerages, administrators, brokers and agents licensed to do business in Ontario as well as tips on shopping around for a mortgage.

A licensed Ontario mortgage brokerage, administrator, broker or agent can provide information and advice on the risks involved in borrowing, lending or investing for different mortgage products.

CONTACT
Media inquiries
Aisha Silim
Phone: 416-226-7795
Email: Aisha.Silim@fsco.gov.on.ca
Public inquiries
1-800-668-0128
contactcentre@fsco.gov.on.ca

https://www.fsco.gov.on.ca/en/about/warning-notices/Pages/warning-unlicensed-syndicated-06-16-2014.aspx

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Protect yourself against condo insurance deductible

 There is a lot of confusion out there by buyers and real estate salespeople as to what insurance is required when buying a condominium. The mistake is thinking that the insurance policy for the building will always cover your situation. In most cases, the buyer will still have to pay for part of the damages, even if they have done nothing wrong.

Here's why:

Condominium buildings do have an insurance policy that insures the building and the units. However, it will not cover any improvements to the unit made by the owners or the owners' contents, should damage occur, whether by water leakage, fire or smoke damage. In addition, if someone you invite into your unit gets hurt, they can sue the owner personally for liability. As a result, most condominium buyers purchase a policy that provides coverage for their contents, any upgrades that they do to their unit and liability insurance to protect them if someone gets hurt visiting their unit.

What is confusing to most buyers is that just about every condominium insurance policy has deductibles, which become the owner's responsibility should any damage occur, even if it is not the owner's fault. The deductibles are usually $5,000 but I have seen many policies that have $10,000 deductibles. What this means is that let's say you leave the bathtub overflowing and water damages the unit below you. You are responsible to pay the deductible, and the condominium will pay for any damage above the deductible. This will also be the case if you are responsible for the HVAC equipment in your unit and any malfunction causes damages to the building or to other units.

Let's say the pipes in the wall burst, your unit was damaged and you did nothing wrong. Although the pipes may be the responsibility of the condominium corporation, you will still have to pay the deductible before the condominium pays anything extra to repair the damages. The only way to fight this is if you could prove that the condominium corporation was negligent in conducting repairs and should have known that the damage could occur. In my experience, you will pay more in legal fees to fight this than the deductible, so it is just preferable to have the proper insurance instead.

In every condominium status certificate, there is a summary given of the insurance policy for the building, including any deductibles. One way to protect yourself is to send this certificate to your own insurance company and tell them that you wish to buy extra coverage for the deductibles noted on the policy.

A better idea, in my opinion, is to use the same insurance company that your building is using for your own insurance package. This company likely understands the deductibles better than anyone and will make sure that your package covers any gap that may exist in the building insurance policy.

If you are buying a condominium as an investment, you still need to make sure that you have this type of insurance protection. Most tenants purchase insurance for their belongings and to cover liability. If you want the tenant to also pay for insurance for the deductibles, you need to say so in your lease agreement and make sure that the tenant provides proof that they have obtained all required insurance coverage before you give them the keys to the unit.

When you understand the insurance you need before you move into a condominium unit, you will be prepared should anything occur later.

By Mark Weisleder, Toronto real estate lawyer. mark@markweisleder.com

Renewing your mortgage? Here’s why you should pick up the phone

I am one of those debt loving people who believe I can do more with my money by carrying a big debt at 3%, than by paying off my house and using up all that cheap capital – but that financial idea is a story for another column.

So, even though my mortgage comes due in October, I decided to lock in a rate four months earlier at a different institution at 2.79% for 5 years fixed. I was thrilled to have another five years of cheap money.

Even though I had already locked in elsewhere, I was interested in what my current mortgage lender would provide. I waited and I waited. Just four weeks before it was due for renewal they sent me a mortgage renewal notice. They could have sent it to me two or three months before my mortgage came due, but they may prefer to leave consumers less time to shop around and more inclined to just renew.

Here is where it gets interesting. “Please indicate which option you are accepting by signing your initials in the appropriate area indicated and return your signed agreement,” the letter stated.

I could just initial the 5-year fixed rate — for the princely rate of 4.79%.

Further on in the letter under a section called “Get the best rate,” it offered to extend to you our special interest rate hold guarantee provided if I signed by my renewal date. But all this says is that if the rate went down between now and about three weeks from now, I would get the lower rate.

This is a full 2% higher than what I am actually going to get somewhere else. If I had a $500,000 mortgage, this would cost me $47,600 more over 5 years by ‘just signing here’ vs. going to a mortgage broker three months in advance.

Just to be sure that I wasn’t missing something I called to make sure that I had the correct instructions and rate on my renewal. An interesting thing happened when I called. In about 30 seconds they said “I can actually get you a rate of 2.99% for 5 years.” I asked why my rate was 4.79%, and they said that this is the standard rate, but I can get this better special rate.

Doing the math, that phone call, using the same $500,000 example, would have saved me $42,800 over 5 years. That was a pretty valuable phone call.

I asked the kind sir on the phone how often people just sign the renewal form, and he said ‘quite a few.’

If a bank gets 5,000 people in the same $500,000 example to sign the renewal, that adds $42.8-million in profit to their bottom line each year.

Please do not automatically sign the friendly mortgage renewal form. At a minimum call to negotiate or call a mortgage lender to get the best deal for you. If you feel some sort of loyalty to your current mortgage provider, then be sure to see someone in person and ask for the very best rate that they give their very best customer. Your future net worth will be glad that you did.

By Ted Rechtshaffen, president and wealth advisor at TriDelta Financial

How Cash Back Mortgages Work

 When buying a home, some homeowners might want to buy all new furniture, complete a home renovation or two, or simply have a safety net of cash for the first few months of homeownership. For many, though, the thought of having extra cash when purchasing a home is nothing more than a dream. Fortunately for those people, some lenders offer something called a “cash back mortgage” which can help make that dream a reality.

With a cash back mortgage, you receive a lump sum cash rebate when your mortgage closes, commonly around the 5% mark – though it can be anywhere from 1.00% to 7.00%, depending on which lender you choose. The rebate is tax-free and can be used for almost any purpose, such as to pay for closing costs, complete renovations, buy furniture or pay down other high-interest debts. Some lenders even let you use the cash back as part, or all of, your down payment.

To see how a cash back mortgage works, here’s a simple example. You purchase a home for $350,000 and put down 20% ($70,000) to avoid CMHC insurance, which means you need to borrow $280,000 via a mortgage loan from the bank. If the lender you chose offers a 1.00% cash back mortgage product, you could get a $2,800 ($280,000 x 1.00%) cash back rebate when your mortgage closes and use that money for whatever you want.

The one downside of cash back mortgage products it that they always come with a fixed mortgage rate, and the interest rate is slightly higher than what’s available for standard (non-cash back) mortgage products; this means you’ll pay more interest, over the life of your mortgage, to compensate the lender for letting you borrow extra money from them.

If we continue with the same example above, because you chose the cash back mortgage product with a rate of 3.79% vs. your lender’s standard 5-year fixed mortgage product at 3.25%, you would pay your lender an additional $4,378 over 5 years – and that’s after you deduct the $2,800 cash back rebate you received from them.

Additionally, if you need to refinance your mortgage or break your mortgage term early, you may be on the hook for a portion of your cash back rebate (a pro-rated amount based on how many months you have left in your term). Some lenders even require you to pay back the amount in full.

If we continue with the example above, let’s say you had to break your mortgage 3 years into your 5-year term. Your lender originally gave you a 1.00% cash back rebate amounting to $2,800, which they now want a pro-rated amount of returned, in addition to any prepayment penalty.

With 2 years (24 months) left in your 5-year (60 month) term, you would need to pay back 40% (24 / 60) of the cash back amount you received; that’s $1,120.

While a cash back mortgage might not be an ideal choice for everyone, it can be a great option for a buyer who needs a little extra money while making such a large financial transaction. If you don’t mind the higher interest rate that comes with it, a cash back mortgage can help you pay for any number of things or simply boost your cash flow during the first few months of homeownership.

Alyssa Richard

Founder; RateHub

Lessons from a condo bankruptcy

 The bankruptcy of a proposed condo development and the arrest of a prominent real estate lawyer last month left many buyers potentially out of deposits totaling millions of dollars. It shouldn't have happened.

Here's why:

When you buy a new home or residential condominium from a developer in Ontario, part of your deposit is protected by the Tarion New Home Warranty Program.

This covers up to $20,000 for a new residential condominium deposit and $40,000 in deposits for a new house. However, deposits over and above these amounts are not protected. Similarly, no deposits for a proposed commercial or hotel condominium development are protected by Tarion. In most cases, all deposits are paid to the developer's lawyer, to be held in trust.

Under the regulations governing the Condominium Act, a lawyer is not supposed to release the moneys from trust unless and until they have been given proof by way of a security bond from the developer that the money is protected. In virtually all cases, the money is released when the developer is ready to begin construction on the project and would like to access the deposits for this purpose. As long as the security bond is provided, the law firm will release the funds from trust.

In the Centrum condominium bankruptcy in North York, the Bratty's law firm was holding millions of dollars in trust for the proposed residential condominium that was never built. The money was never released to the developer Yo Sup (Joseph) Lee and the buyers who purchased these residential units will get their deposits back, in full, even though the development is bankrupt and it appears that Lee has disappeared.

However, Lee retained another lawyer, Meerei Cho, to handle the commercial/hotel condominium project and although over 14 million dollars in total was placed into her trust account from buyers, it has since disappeared, even though construction never started and it does not appear that any security bond was posted. In another twist, 1.9 million of the 14 million dollars in deposits was originally placed into Bratty's trust account but developer Lee then instructed Bratty's to pay this money to Cho, which they did, and this money is part of what is now missing.

If Cho made an error in releasing the money, then part of this loss may be covered under her errors and omissions insurance policy, but this may only provide 1 million dollars in coverage for the victims. The law society has a discretionary fraud victim fund of $150,000 but this will also not be nearly enough to compensate all of the victims.

I imagine that some buyers may sue the Bratty's law firm for giving the money to Cho but in my opinion, as long as Bratty's obtained proof from Cho that the money was going to be held by her in trust according to the rules, they should succeed in any claim against them.

The good news is that over the past 20 years, in thousands of new condominium buildings, this has not occurred before, showing that in virtually all cases, lawyers follow the rules and buyers are protected.

The main lesson when buying a new condominium is still the same; check out the reputation of the builder. Reputable builders follow the rules, finish buildings on time and deliver what they promise. Still, whenever you are paying more than the Tarion protected deposits, you should now insist that the developer provide proof that they have sufficient security to protect any deposit over $20,000 if it is a new residential condominium and over $40,000 for a new residential home. It would also be a good idea for the government to just change the rules and make it a law that all lawyers holding trust moneys be bonded themselves, so it can't happen again.

Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com

Will you need to pay any additional costs?

 While your down payment and mortgage will cover the purchase price of your home, it's wise to consider the other expenses involved in buying a home.

You'll pay some costs at the beginning of the home-buying process and others, known as closing costs or disbursements, when your home purchase is finalized.

Additional costs that could add up when you buy your first home:
Property valuation fee Approximate Cost: $150 - $200
This is the fee for determining the property lending value for mortgage purposes. This value may or may not be the same as the purchase price of the home.

Home inspection fees (may not apply if you are purchasing a new home) Approximate Cost: $500
The home inspector evaluates the structures and systems that make up your home and provides you with a written report. While not mandatory, many people make a professional home inspection a condition of their Offer to Purchase.

Property survey Approximate Cost: $750 - $1,000
A survey indicates the boundaries and measurements of the land and positions of major structures, and any registered or visible easements (such as a driveway) or encroachments (such as a neighbour's fence) on the property.

Land transfer tax (if applicable) Varies based on Province
This is charged whenever a property changes hands and is based on the purchase price. Most provinces in Canada charge a provincial land transfer tax and some cities also charge an additional municipal land transfer tax. In some cases, first time homebuyers may be exempt from a portion of this cost. You can obtain further details about land transfer tax on provincial or municipal websites to help you estimate the cost.

As an example, if you are thinking about purchasing a home in Toronto, Ontario for $300,000, the provincial land transfer tax is $2,975 and the municipal land transfer tax is $2,725 for a total cost of $5,700.

Legal fees and related expenses Approximate Cost: $1,300 - $2,500
These fees vary by province and are subject to GST or HST where applicable. Ensure your lawyer's quote includes all related expenses and disbursements, not just legal fees. Make sure your interests are protected by discussing your Offer to Purchase with your lawyer or notary prior to signing.

GST/HST where applicable (sometimes included in sale price)Varies based on Province
Some properties are GST and/or PST sales tax exempt and some are not. Generally, GST or HST where applicable is charged on new homes, but not on resale properties. Always ask before signing an Offer.

Title insurance Approximate Cost: $250
Title insurance is optional and covers problems that may arise due to encroachment issues (for example, a structure on your property is actually part of your neighbour's property and needs to be removed), existing liens against the property's title, title fraud, undischarged mortgages and other issues relating to the property's previous owners.

Insurance costs for high-ratio mortgages Variable
Usually, mortgage default insurance premiums range between 0.5% and 2.75% of the principal plus applicable fees (may be subject to provincial sales tax which cannot be added to mortgage amount)

If your down payment is less than 20% of the purchase price of your home, you must pay a one-time insurance premium on your mortgage amount. You can make arrangements to pay the premium to CIBC before closing, or it can be added to the principal amount of your mortgage. If it is added to the principal amount of your mortgage, you will pay interest on it at the same interest rate you pay on the principal amount of your mortgage.

Interest adjustments Approximate Cost: $100 - $1,000
You will need to pay interest on any gap between the closing date of the purchase and the first payment date of the mortgage. You can avoid an interest adjustment by arranging to make your first mortgage payment exactly one payment period after your closing date.

Prepaid property tax and utility adjustments Approximate Cost: $400 - $500
You will be required to reimburse the vendor for any prepaid property taxes or utility bills.

Home insurance $450/year
Protection for your home and contents.

Mortgage life insurance Variable
Costs vary but can be conveniently included in your regular mortgage payment.

Mortgage life insurance is optional and provides peace of mind. It protects your family’s financial security by paying off all or a portion of your mortgage (up to a maximum of $500,000) in the event of the premature death of you or your spouse.

Don’t forget to consider general expenses such as moving, upgrades, and home decorating costs as well.

Steven Porter, Mortgage Advisor, CIBC. 905-875-2582; steven@stevenporter.ca

More mortgage and real estate information available at http://www.FreeMortgageInfo.ca