‘Stress test’ rules at banks have led people to seek out alternative ways to borrow money
Satnam Sidhu has been a realtor for almost 40 years and he’s been buying and selling foreclosed houses for the past couple of decades. But he says it’s been many years since he’s seen the surge in foreclosures that he has witnessed in the past few months. And most of the properties are being sold off by private lenders – a rapidly emerging and largely ignored major player in the B.C. housing market.
Because so many people are using private lenders, some believe Canadians might be far more indebted than is being reported by mainstream financial institutions. But, Mr. Sidhu says, private lenders are “filling a huge void in the marketplace.” “A private lender is not going to wait like a bank would. Banks have tens of thousands of mortgages, so if you have a bad one, it’s not the end of the world. But for a smaller lender who doesn’t have tens of thousands, just a few, they can’t absorb those losses.”In the past several years, there have been many people making tidy profits in the world of private mortgage lending.
Usually, the loans are for about a year, and some private lenders operate as numbered companies, realtors say. If the person misses a payment, the lender can obtain an Order for Conduct of Sale, which means they have the right to sell the house close to market value and recoup what is owed to them. If other lenders have charges against the property, they also get paid out. However, foreclosure is a last resort, emphasizes Mr.
Ron Usher, a lawyer who was part of an independent advisory group that made recommendations to reform B.C.'s real estate industry, is keeping an eye on private lending transactions. He says the mysterious inflow of money through private lending needs to be made transparent. “You are seeing massive price reductions on houses … but there are two sides to every story. The open houses I’m doing on Saturday and Sunday on premium properties in the $8-million to $15-million price bracket are extremely busy.”He’s seeing packed open houses and buyers looking to move up the property ladder from Richmond to West Vancouver, and looking for deals.
“To go to one of these private MICs, where they are not publicly traded, you need to become an accredited investor with a minimum net worth of something like $5-million or $2-million, something like that.
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