BE A WISE INVESTOR BY "SURROUNDING YOURSELF WITH EXPERIENCED PROFESSIONALS"

By Dino Nicosia, Broker of Record, Investpro Realty and Appraisal Ltd.

For years I have preached to real estate investors that they always should surround themselves with experienced professionals. The following article is based on a real life experience of mine which shows the ramifications of not following this rule. Please note that all names will be kept confidential to protect the innocent.

I had listed a small apartment building in East Hamilton, which was eventually sold conditionally by a Toronto Realtor to a Toronto buyer. An appraisal was ordered, inspections were completed and on June 25 2010 all conditions had been removed. The Realtor acting for the Buyer indicated that the CMHC (Canadian Mortgage and Housing Corporation) insured mortgage was approved. The offer became firm and binding, with a scheduled closing date of July 15, 2010.

On July 13, two days before closing, the Selling Agent advised me that the mortgage lender was asking for more property financial details. This was a very unusual request at this point in the process, especially given that the appraisal report contained all the financial details. I tried calling the mortgage broker to understand the reasoning behind this last minute request but he was not returning my calls.

As confusion and anxiety began to set in, the lawyers for both the Buyer and Seller agreed to delay closing for two weeks to July 29, 2010, to allow the lender and the CMHC obtain the information they had requested.

My suspicion was running rampant at this point so I had decided to contact the mortgage lender and spoke directly to the person in charge of the file. I was shocked to learn that the mortgage commitment was actually never issued! The file was still on hold pending receipt of a deposit cheque from the borrower, along with a list of various documents and information.

The Mortgage Broker was being dishonest and misleading throughout the process. I am not sure what his motive was, but I am certain that inexperience was a contributing factor. He put the Buyer, his Realtors and everyone involved at major risk. This predicament was a recipe for a legal nightmare. I did not share this news with the Seller or his lawyer at this point to avoid panic.

It was now July 22, a week before the new closing date and I had contacted the Buyer's Realtor who was also surprised and admitted that he was not aware of the situation. I strongly voiced my opinion for having removed the condition on financing without evidence of a mortgage commitment. With great urgency I asked him to retrieve (from the Mortgage broker) all the Buyer personal information, documents, reports, appraisal etc. The same day I arranged a meeting in Hamilton at a local Trust Company's office that I have being doing business with for many years. We handed over all the relevant documents and information, along with a mortgage application. Understanding the urgency, they put a rush on this deal and within 48 hours they issued a mortgage commitment. The Buyer accepted the terms and the deal was back on track to close on the scheduled closing date of July 29, 2010.

It was at this point I decided to advise the Seller of what had went on behind the scenes to save the deal. As expected he was shocked, but at the same time relieved that the closing date was still on schedule.

This was a very stressful situation that could have easily been avoided. How? Follow these suggestions below:

1. Never accept a verbal commitment from any lender or mortgage broker. A Realtor should not remove a condition on financing without.
   
   

   • Seeing the signed mortgage commitment from the lender
   • Assurance that their client(s) are satisfied with all the terms
   • Knowing the commitment has been accepted and signed by the Buyer.
     
     
      
2. A novice investor should never allow themselves to be involved with inexperienced or unproven Realtors or Mortgage Brokers. Make sure these professionals are proficient in investment properties, and not just residential real estate.
   
    
3. A Buyer should not waive any conditions if they have any doubts about their representation. Consult a lawyer before waiving any conditions.
   
    
4. A Seller should also request a copy of any mortgage documents, commitments or approvals to assure the transaction will close.