Heads they win, tails you lose

Why it’s such an uneven playing field when it comes to mortgage financing

I have a client who signed a mortgage commitment. Then a few days later, he got a better offer. Can he accept the second offer or not?

Here’s what I wrote to Robert (not his real name):

I read over your mortgage commitment from Acme Financial (name changed), which you signed.

I can tell you from experience that there are weasel words in this agreement that permit the lender to get out of this right up to the day of completion if they want to.

I had just that happen to a nice client of mine (a young engineer with a spotless credit history and a good job). How come?

Well, the underwriter googled him and found out he was looking for some roommates. She called me and told me, “We’re pulling out of the deal.” This was with three days to go before completion.

I asked her why.

She said, “This isn’t his principal residence, it’s a rental. He lied on his application.”

I told her that was not accurate—it was indeed his principal residence… him being a 1^st time homebuyer and all, he was a single guy and just wanted a few of his buddies to share with him. She didn’t care and hung up on me.

So, I called the realtor for the seller and got a 2-week extension (for $500!) then I asked my client (who was in tears by that time) to take down his kijiji ads, which he did.

We financed it with another lender and closed no problem at all.

Apparently, no part of your principal residence can be rented. It’s total nonsense IMHO. Having a few roommates would have made it easier for my client to pay his bills including, of course, his mortgage. In fact, I’d imagine there are a few million existing mortgages in Canada that are in breach of this (dumb) clause.

I know many elders, some or them experiencing financial difficulties, who have taken in boarders, Airbnb guests or roommates to make ends meet. If they still have a mortgage, they could be in breach of their mortgage terms. But seriously, what are you going to do? Starve while your home remains under-occupied/utilized?

Here’s the thing though—the reverse is not necessarily true—I’ve had clients back out of their mortgage commitments (because they got, say, a better offer!) and then the first mortgage broker and lender have gone after them for costs and fees. Ugh.

So, my advice is to negotiate with Acme and the mortgage broker to make sure you get a full release before signing anything else.

It’s really unfair but, frankly, the whole planet is tilted in favor of these lenders and their ecosystem. I mean where else can 30-year-olds make an average of $900,000 USD a year? Only on Wall Street. And how come they make so much? Because for them if it’s heads, they win, if it’s tails, you lose.

Best, Bruce

ps your real estate lawyer can certainly help with this… he can talk to the lender and probably get you a release.

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