Assumable Mortgages, Which Banks are still offering Options

[JimSlobodzian]

Can you please clarify what happens when assumption of the mortgage falls through and you then "fall back" on proceeding with an "Agreement for Sale" the seller agreed to in original Offer to Purchase?

How is the mortgage handled in this "Agreement of Sale - do you just take over making payments on the sellers mortgage (that is still in the sellers name)? And wouldn't that trigger the bank to enforce their "due on sale" clause??

[GarthChapman]

Can you please clarify what happens when assumption of the mortgage falls through and you then "fall back" on proceeding with an "Agreement for Sale" the seller agreed to in original Offer to Purchase?

How is the mortgage handled in this "Agreement of Sale - do you just take over making payments on the sellers mortgage (that is still in the sellers name)? And wouldn't that trigger the bank to enforce their "due on sale" clause??

Normally the Seller would keep title to the property so that the due on sale clause cannot be implemented. Then the Buyer makes mortgage payments to the Seller, who keeps making them to the Lender. This is often referred to as a Wrap Mortgage, wherein the Buyer gives a mortgage to the Seller which is 'wrapped' around the Bank's mortgage to the Seller.

Yes, the 'Buyer giving a mortgage to the Seller' sounds backwards but this is the correct phrasing - it means the Seller lends to the Buyer.

Hope that helps to clarify,

[investmart]

Thanks Everyone - Great discussion!

[JimSlobodzian]

Thanks Garth!

So in that scenario where you purchase a house with "Agreement for Sale" and keep the Seller's title and mortgage in place, do I understand that you are basically taking control of the property with ability to rent it or flip it?

I'm assuming you could purchase with an "Agreement for Sale" in many scenarios, not just where mortgage assumption fell through. Would a strategy work where you purchase a fixer upper using "agreement for sale", reno it, and then sell it six months later (paying out the original seller's mortgage at that time)??

Are there any major pitfalls for us as buyers using an "Agreement for Sale"?

Many thanks for the helpful info!

Cheers!

[DineenJJ]

Could a student with a short credit history get an "Agreement for Sale?

[GSI]

Could a student with a short credit history get an "Agreement for Sale?

Hi Dineen and Jim,

1) Anyone can structure an Agreement for sale, student or otherwise. Your credit history is not necessarily important UNLESS the seller want to verify your ability to pay.

2) Yes, Jim. A wrap or AFS can be used in many situations including renos and flips. You would be taking over the responsibility of the rents and expenses. These strategies were popular in the '70s and '80s in Alberta and have now fallen out of favour. There are both risks to the seller and buyer.

One of the most challenging parts if being able to negotiate an AFS (better known as wrap) with a willing seller for a longer period of time. Short periods are feasible, especially in the case of a reno deal.

The obvious risks include a seller not making payments to the bank and the property going into foreclosure or the seller fraudulently removing your caveat from title.

A buyer may also default forcing the seller to take back his property, in whatever condition it may be in... including any arrears in payments, taxes, etc. There are potential issues with setting up insurance too.

You need a decent lawyer, a willing seller and the knowledge to put together this kind of deal to make it successful. It is a good strategy that I have used in both Ontario and Alberta.

Thanks,

This post has been edited by GSI: Nov 28 2008, 06:59 PM