BY JIM HAZZARD
How do you finance the purchase of rural or agricultural properties? Here’s a horror story about the insensitivity of our financial institutions.
The buyer and his partner decide they want to move from downtown
He proceeds to have his house appraised by a local Realtor and is told it should list for $329,000, which would allow him to put $100,000 down on his new purchase. After several months of scouring the Niagara/Norfolk/Simcoe region looking at different farm properties, he finally settles on a 46 acre farm/rural property with a traditional 2,500 sq. ft., two-storey, red-brick home, three barns and other smaller outbuildings, listed at $349,000. He makes an offer on the property and arrives at a purchase price of $335,000.
He puts his
Having purchased his original
Then the wheels fell off.
On August 5, following the long week-end, the buyer received a “panic” call from the mortgage broker stating that a) TD Bank had “neglected” to send the file to CMHC until the end of July and b) CMHC had the property appraised at $220,000 and would hold back 10 per cent as a “high risk” mortgage, advancing only $198,000.
The appraisal “guidelines” would consider only five of the 46 acres and no barns or outbuildings in arriving at a “value”. Nor would they consider that the buyer was putting $100,000 down and was hardly a “high risk” mortgage.
Never mind the $40,000 for a greenhouse, the buyer was now short $37,000 to even close the deal on the house. Plus, if he accepted the deal, a $5,000 to $6,000 additional fee from CMHC for insurance would be tacked on his mortgage. And, the interest rate would be higher than originally promised.
More panic calls to the TD Bank mortgage department by the buyer. The bank had absolutely no remorse, saying, “sorry about that” and, essentially, “Solve the problem yourself”. There was absolutely no time left to look for a new mortgage from someone else.
So, here he was, less than 10 days before closing, having to find an additional $37,000 or walk from the deal and risk being sued by the seller of the farm property. Just a little bit of stress.
The mortgage broker interceded with CMHC and arranged to have the hold-back reduced to five per cent, which meant they would advance $211,000. The buyer used his lines of credit and cash on hand to come up with the balance to successfully close the deal, something that most buyers would be totally unable to do.
So now the questions:
1. If this buyer — with an extremely sound credit history; a good, high paying job; and a $100,000 down payment — is considered a “high risk” mortgage, who then can buy a rural/farm property requiring a mortgage?
2. Why would CMHC be involved in this purchase at all, when the buyer has roughly one-third of the down payment?
3. Would TD’s mortgage centre not be aware of the appraisal guidelines, both their own and CMHC’s, prior to approving the $270,000 mortgage?
4. Why is it that one branch of the federal government, CMHC, attaches no value to farmland and yet another branch of the same federal government, Farm Credit Corporation, is perfectly willing to consider land as an asset?
5. Are all agricultural property buyers in Ontario/Canada forced to find financing through the federal Farm Credit Corporation?
6. The properties in the Niagara/Simcoe area are high-production food suppliers, mostly to the
7. The barns and outbuildings have a value of at least $150,000 and yet the TD Bank/CMHC says they have absolutely no value. What’s wrong with this picture?
I don’t have the answers. I wonder who does?
Jim Hazzard is associate broker with Century 21 B. J. Roth Realty in Barrie,