# Disaster!



## prollywrong (Dec 17, 2010)

This is a story of personal financial disaster involving real estate, and - while it does involve some very, very poor decision making by the person involved - I would ask folks to please take it easy on said person because, well, she's my mother. 

So. Mom bought a two bedroom apartment in the Fraser Valley BC a few years ago (I was out of country and kept pretty much in the dark) with a 130,000 mortgage from Capital One. Zero down, forty year amortization, not certain of the term or interest rate but it has to be high because:

a) She has terrible credit.
b) Her income is around $20,000 a year.
c) She's 57 years old. 
d) Zero assets. Nada.

Long story short, Mom went bankrupt this year due to other consumer debt, and decided *not* to try and include the mortgage debt in the bankruptcy. Now, her strata fees have gone up sixty dollars a month (may not sound like much but look at her annual income) and Mom wants out. The problem is, her apartment is worth twenty grand or so less than her mortgage, which she will never, ever be able to pay off.

Now she's approaching me for advice. "Can I just walk away?" she's asking me. I don't know. Can she? What of the tens of thousands of dollars difference between the mortgage and the likely current sell price? Who will come after her for that? The lender? CMHC? Any suggestions of potential outcomes or options...garnished wages, for instance? 

This is a woman who lives payday to payday, and any hit on her monthly income will put her very close to the street (it won't come to that, of course, because she can live with us if necessary), but it is a very dire situation. 

My gut - and many people here will probably disagree with this - is to tell the predatory lending jackals to take a leap; although I believe she shares responsibility she should never, ever have had this loan approved in the first place. But it was, and here we are.

Any constructive thoughts or links? Perhaps a best/worst case longer term scenario if she forecloses? How likely is wage garnishment or a lawsuit?


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## sags (May 15, 2010)

The short answer is yes, the lender could seek a court order to garnishee her wages, for the shortfall.

Given her credit record, a bankruptcy, and low income, it will likely be difficult for her to find suitable rental accomodations.

Would it be possible for family members to subsidize her mortgage payments enough to keep her in the home.

Maybe her condo will rise in price over time, and the family can recover their expenses that way.


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## Dana (Nov 17, 2009)

I agree with Sags, the lender will be able to pursue recourse against your mother for the shortfall plus interest, plus their fees and other costs. If your mother had included her home in her bankruptcy she may have been able to walk away with no recourse. 

Would market rents in her area allow her to get a tenant in the unit and cover the carrying costs? Your Mom would then have to move out and like Sags said, would have limited rental options as any landlord who checks her credit will see that she is an undischarged bankrupt. 

Power of Sale situations are expensive for lenders - they don't like to take ownership of property. She might be able to call them and discuss options for making the payments more affordable in the short term. It can't hurt to try.

ETA: If your Mom's bankruptcy is not yet discharged, she could also call her trustee and ask his/her opinion. Maybe it is not too late to amend the bankruptcy and try to include the mortgage? (I have never heard of a bankruptcy being amended - I am grasping at possibilities) Ultimately the mortgage is secured so the lender can fight the bankruptcy, but the trustee would have a better idea, given the specific lender, what they would likely do.


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## MikeT (Feb 16, 2010)

This couldn't have happened for a couple reasons.

1. We don't have a subprime crisis is Canada. Canada has wonderful lending institutions with fantastic bulletproof lending policies. 

2. Real estate prices in Canada NEVER go down, they only go up. So she can always just sell it and make a huge profit no problem.

(tongue in cheek, but I have several acquaintences with worse situations, who are blind to their debt problems. At least your mom knows there is a problem.)

What can she rent it out for? Rent it out and move in with you guys.


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## andrewf (Mar 1, 2010)

Moving out and renting would probably be fraudulent. Her mortgage contract/CMHC insurance probably certifies that she will live there as her primary residence.


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## K-133 (Apr 30, 2010)

> Can I just walk away?


This type of irresponsible choice was the beginning of the disaster down South. 

If you're willing to take her in, then I think you've already taken responsibility for her. Though, I would caution against becoming an enabler to her behaviours. And think clearly. What is your financial position? Can you afford a dependent and her debts? There is a reason that they say to throw a drowning person a rope.

Her mortgage represents about 43% of her income. Add to that condo fees, property taxes and hydro. Yes, she's in a pickle. But its not dire yet. I would guess that there are other habits that she has contributing to her seemingly hopeless situation.

Most problems can be resolved, some are painful. This will be a painful one for her, but if she's up to it, she'll be better off facing it than walking away. As will the rest of our society.

Speak to a credit councilor or financial planner, and in the meantime, look into the possibility of it becoming a rental. Though, this is a very good point:



> Moving out and renting would probably be fraudulent. Her mortgage contract/CMHC insurance probably certifies that she will live there as her primary residence.


After speaking with the credit councilor, it may be a good idea to speak to the bank to figure something out.


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## MoneyGal (Apr 24, 2009)

Two bedrooms = one bedroom available for a roommate.


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## Dana (Nov 17, 2009)

andrewf said:


> Moving out and renting would probably be fraudulent. Her mortgage contract/CMHC insurance probably certifies that she will live there as her primary residence.


Good Point! I didn't even think of that!


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## Dana (Nov 17, 2009)

MoneyGal said:


> Two bedrooms = one bedroom available for a roommate.


Another good point!


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## Berubeland (Sep 6, 2009)

Considering the terrible mortgage I would look at that situation first. Is it possible for you are your siblings to cosign for her or even buy the place off her and get a mortgage yourselves? 

This would lower her payments, then she would have to get a roommate.


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## the-royal-mail (Dec 11, 2009)

Is it likely we'll be seeing lots of threads like this over time if interest rates should rise?


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## prollywrong (Dec 17, 2010)

Thanks for the comments everyone. 

Renting the unit out is not an option: no rental building, including room-mates.

Given the loss of value in the home, and the fact that (I believe) she now owes more on the mortgage than it's original value due to making slightly less than interest-only payments, I'm not certain her mortgage will even be renewed when it comes to term.

And, as a few of you have intuited, a few interest-rate bumps and she's gone.

We already support her with occasional expenses that she just doesn't have the cash-flow for, like car repairs (her job is car-dependent). I've thought of buying the unit from her and renting it back...but again, no rentals, and I wouldn't want it at half the price.

I agree that "enabling" this type of behavior is a problem, in theory. But in reality who is not going to support their mother at a time like this? 

She's still in the bankruptcy process. I'll have her talk with her trustee ASAP.


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## Four Pillars (Apr 5, 2009)

Can she get a part-time job?


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## kcowan (Jul 1, 2010)

Can you give her a loan to bridge the gap? You are likely the only lender with a vested interest in making her whole!


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## Cal (Jun 17, 2009)

Four Pillars said:


> Can she get a part-time job?


+1

I wouldn't be to enthusiastic about co-signing with her. You know her best. But it sounds like it would be you that takes a hit.

I hope that she doesn't have a cable package with the movie network or anything. She definitely has to cut some expenses.


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## MoneyGal (Apr 24, 2009)

The problem is defining the gap.  I support a family member, but she's 93, not 57. 

Is the gap "just" $60 per month? 

What would cause the gap to increase? 

If mom knows these funds are available every month, what is a reasonable amount to budget? 

If mom's health fails, and she becomes unable to earn even $20K per year, what then? 

I'm not saying you shouldn't do anything, OP. However, in your shoes, I would make arrangements *with the lender,* not with your mom. The idea of co-signing to bring her interest rate down is the solution which appeals to me most of the ones that seem viable in her case.


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## Dana (Nov 17, 2009)

prollywrong said:


> Renting the unit out is not an option: no rental building, including room-mates.


I feel naive. I didn't know that condo corps in Canada did this. I know it is common in the US - especially in vacation hotspots like Florida, but I didn't know that we have condos here that have by-laws against short-term leasing and roommates. It seems impractical to have to police all the tenants in a building to make sure their 'guest' isn't a room-and-board paying roommate.


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## Potato (Apr 3, 2009)

prollywrong said:


> Renting the unit out is not an option: no rental building, including room-mates..


Even a roommate? I find that hard to believe... anyway, I think it's nigh unenforceable for a roommate at least, and even if the condo board did want to stir up trouble, ask them if they'd prefer a roommate over a power-of-sale in the building.


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## Plugging Along (Jan 3, 2011)

I would say do NOT cosign a loan for anyone, especially someone who has credit issues, and has shown irresponsible behavior. This could have long term future implications for the cosigner. 

If the person doesn't pay, then you're on the hook, and you do not necessarily have the same access to the information if it's being paid. 

If you can afford to pay the loan or buy the place, then you may as well pay it off yourself. Cosigning a loan is one of the worst things you can do for yourself.


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## sprocket1200 (Aug 21, 2009)

she is an anchor, don't let her drag you down. time to go back to work and be more responsible.

there are many places that offer lower rent. she may have to cut her loses and move to another area.

keep the stories coming people, we will be seeing many more of these. great reading!


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## MoneyGal (Apr 24, 2009)

Still brainstorming. What about if you made a lump-sum payment to the mortgage to bring her payments down?

The thing is, the whole mortgage arrangement is unworkable - rates are only going to rise, the property is upside down, she's nowhere near having the thing paid off, etc. 

Can she either amend the existing bankruptcy OR - what happens if she defaults on *this* loan as well? Is she prohibited from doing so?


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## ChrisR (Jul 13, 2009)

Plugging Along said:


> I would say do NOT cosign a loan for anyone, especially someone who has credit issues, and has shown irresponsible behavior. This could have long term future implications for the cosigner.
> 
> If the person doesn't pay, then you're on the hook, and you do not necessarily have the same access to the information if it's being paid.
> 
> If you can afford to pay the loan or buy the place, then you may as well pay it off yourself. Cosigning a loan is one of the worst things you can do for yourself.


I agree. Other than a parent cosigning a loan for a child because they have no credit history, I can't see any good reason for ever cosigning a loan. Even then, the parent had better be fully prepared to pay off the loan if the child cannot.


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## Dana (Nov 17, 2009)

MoneyGal said:


> Can she either amend the existing bankruptcy OR - what happens if she defaults on *this* loan as well? Is she prohibited from doing so?


I don't know if she can *amend* a bankruptcy or not. I use to do bankruptcy and insolvency counselling when I was a credit counsellor, but I don't remember anything about amendments. 

If she walks away from the existing mortgage, the bank will start the power of sale process after 60 days. Eventually they will farm it out to a real estate office who will list it and sell it fast (probably below market) because the bank wants it off their books. Since CMHC is involved this may take longer. They will add their fees and costs to the mortgage amount (including faxes, postage etc) and will pursue recourse from the lender for the difference. 

Since bankruptcy only takes 9 months (in most circumstances) chances are that her bankruptcy would be discharged by the time the debt is unsecured and they pursue it from her. If she can't make the payments she would have to look at bankruptcy a 2nd time which is way worse than the 1st. 

If the mortgage is $130k @ 7% with a 40 year amort, this lady is paying $800 per month _before_ her condo fees. That is 50% of her gross monthly salary. She would not have qualified for a CMHC mortgage. 

Something smells bad. Were her circumstances different when she was approved?


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## kcowan (Jul 1, 2010)

Could you seek the help of one of CTVs consumer advocates? There might have been some fraud involved in the mortgage application. This "might" help to get her out of it.


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## prollywrong (Dec 17, 2010)

Thanks for the ongoing suggestions everyone.

As you've no doubt guessed, there are some specific details concerning the mortgage that I have yet to find out. I'm also taking a look through her monthly budget (she has one now thanks to bankruptcy counseling) and seeing if there's any fat to trim...but really, she's not piling up bad debt with HELOCS and lines of credit to buy toys, and my suspicion is that anything we can cut back will be to the tens, not hundreds or thousands, of dollars. 

MoneyGal, I agree that the mortgage is fundamentally unworkable for a person in her position: interest rates will rise; strata will rise; job situation unstable. Either way, short-mid term, I think she's out. The question now is how to minimize the damage...she's very borderline financially, so what may seem to some folks as "small change" is actually pretty serious. 

To answer some comments: renting the second bedroom out may be an option. 

I will not co-sign for her. Ever. On anything. There's just no way I'm willing to risk the financial well-being of my wife and imminent rug-rat. 

One thing I'm thinking about is having her sell it and then paying the potential ten-twenty grand difference between the mortgage amount and the sell amount. It hurts, but it may be the most economic option in the long run. 

There's also a part of me that doesn't want to bail her out. I may not. But taking her in off the street is also bailing her out, with the added impact on my own family. 

Another thought is this: lets say she sells for twenty grand less, I don't bail her out, and she has to begin payments to service that debt. If she saves $2-300 by renting a cheaper place (very possible) then servicing the extra debt will put her right back in the position she's in now, cash-flow wise. In that case, the only advantage of selling now would be to cut further losses if/when the unit depreciates more, and eliminate interest/strata rates increasing. 

Dana, I agree that the mortgage numbers don't add up. I'm *fairly* certain her current monthly mortgage payment is $720, and her strata fees just went up to $250. So $970, plus tax and utilities. I'll post more info when I get it. 

kcowan: what kind of fraud can happen with mortgage apps? fraud on her part or the lender, or both? I'm curious what I should be looking for...


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## Berubeland (Sep 6, 2009)

Is it even possible for her to rent a place for less? In Toronto it's hard to find anything decent to rent for $970 per month never m ind a 2 bedroom. Very plain one bedroom condos start at $1200 per month usually plus Hydro

If she rents a room to an international student... she will make $700 per month which reduces her housing expense to about $270 per month.


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## Andrej (Feb 25, 2010)

You've got it right, don't co-sign, or give her money. Until she's done her 9 months there really isn't much to do anyway. Once she's done bankruptcy she shouldn't have to make payments to her trustee any more so that will keep a little more cash on the table- ~$160/mo I think. Then she needs to have more income, plain and simple. Talk to her trustee for advice.


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## MikeT (Feb 16, 2010)

Dana said:


> She would not have qualified for a CMHC mortgage.
> 
> Something smells bad. Were her circumstances different when she was approved?


It's Vancouver (a suburb of). Everyone qualifies. My cat could qualify if I put a suit on him.


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## Cal (Jun 17, 2009)

MikeT said:


> It's Vancouver (a suburb of). Everyone qualifies. My cat could qualify if I put a suit on him.


Yes it does seem like everyone qualifies for everything these days...


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## the-royal-mail (Dec 11, 2009)

Cal said:


> Yes it does seem like everyone qualifies for everything these days...


Apparently I only qualify for a $135K mortgage and I make a decent salary, R1 credit.


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## kcowan (Jul 1, 2010)

prollywrong said:


> ...kcowan: what kind of fraud can happen with mortgage apps? fraud on her part or the lender, or both? I'm curious what I should be looking for...


I am thinking along the lines of a liar loan app where she was encouraged to state something that was not true about her finances.


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## sprocket1200 (Aug 21, 2009)

probably lots of fat to trim off the budget.

start with tv, and get her a library card. they have many good books on finances. as well, get rid of the car if she has one. those eat money all day long!


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## OhGreatGuru (May 24, 2009)

_Mom bought a two bedroom apartment in the Fraser Valley BC a few years ago (I was out of country and kept pretty much in the dark) with a 130,000 mortgage from Capital One. Zero down, forty year amortization, not certain of the term or interest rate ...:
_
Surely this has to be an insured mortgage. Who would lend her that with no money down and not require insurance?

_Mom went bankrupt this year due to other consumer debt, and decided *not* to try and include the mortgage debt in the bankruptcy._

Why the H**l not? The mortgage is her principal debt burden. The main purpose of declaring personal bankruptcy is to legally escape debt burden. In fact, isn't it fraudulent for her to conceal it?
_
She's still in the bankruptcy process. I'll have her talk with her trustee ASAP._


That's a break. The trusteee should definitely be told about the mortgage, even if you have to call with an anonymous tip. Assuming the mortgage is insured, and she declares bankruptcy, presumably the insurance pays the lender, and the lender can't come after her for any additional costs because she declared bankruptcy.

Here's a web site about bankruptcy. Mortgages are "secured debt" that may be excluded from bankruptcy. http://www.bankruptcy-canada.ca/bankruptcy/secured-debts-in-bankruptcy.htm

But if you have negative equity you are usually best to include the mortgage in the bankruptcy. And if you have positive equity, you have to contribute that amount to settling your other debts. So the "asset" and its mortgage has to be revealed to the trustee and courts in some fashion.


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## MikeT (Feb 16, 2010)

It would be nice to be able to buy a bunch of credit default swaps on mortgages in just the lower mainland on all the minimum downpayment people. This was how fortunes were made down south.


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## Rysto (Nov 22, 2010)

MikeT said:


> 1. We don't have a subprime crisis is Canada. Canada has wonderful lending institutions with fantastic bulletproof lending policies.


This one is true. The banks got the government to guarantee every risky mortgage they issue. It doesn't get any more bulletproof than that.


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## MikeT (Feb 16, 2010)

Cmhc vs fanny Mae. Some say they are totally different. In the end, risk is passed on to tax payers in both cases.


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## OhGreatGuru (May 24, 2009)

MikeT said:


> Cmhc vs fanny Mae. Some say they are totally different. In the end, risk is passed on to tax payers in both cases.


Which is why the government (via CMHC) put an end to 40-year, no-down-payment mortgages in 2008 (I guess right after this lady got hers.) And has more recently cut mortgage amortizations from 35 to 30 years.


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## Rysto (Nov 22, 2010)

OhGreatGuru said:


> Which is why the government (via CMHC) put an end to 40-year, no-down-payment mortgages in 2008 (I guess right after this lady got hers.) And has more recently cut mortgage amortizations from 35 to 30 years.


Put an end to them? They introduced them in 2007! They don't get credit for tightening standards to a standard that was looser than what was in place when they came into power.


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## OhGreatGuru (May 24, 2009)

Rysto said:


> Put an end to them? They introduced them in 2007! They don't get credit for tightening standards to a standard that was looser than what was in place when they came into power.


Quite right. I should have said they put a quick end to the short-lived experiment with 40 year zero-down mortgages. OP's Mom is a good example of why they were a bad idea.


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## Pigzfly (Dec 2, 2010)

In BC, there are certain sections of the Strata Act which apply to family members, which can include adult parent/kid family members.

This is by no means all of the details, but I thought you should be aware of the following. I can't remember all of it off the top of my head and only looked under the rental section.
I am not sure of the ability of a strata council to prohibit sublets/rental of a building. I know that in general, a landlord cannot unreasonably object to any sublet, but that would be under the landlord tenant act, not the strata act. 


(2) The strata corporation may only restrict the rental of a strata lot by a bylaw that

(a) prohibits the rental of residential strata lots, or

(b) limits one or more of the following:

(i) the number or percentage of residential strata lots that may be rented;

(ii) the period of time for which residential strata lots may be rented.

(3) A bylaw under subsection (2) (b) (i) must set out the procedure to be followed by the strata corporation in administering the limit.

Limits to rental restriction bylaws
142 (1) For the purposes of this section, "family" and "family member" have the meaning set out in the regulations.

*(2) A bylaw referred to in section 141 (2) does not apply to prevent the rental of a strata lot to a member of the owner's family.*
(3) A rental of a strata lot to a family member under this section creates an assignment of the owner's powers and duties under section 148.

(4) If the bylaws of a strata corporation include a bylaw referred to in section 141 (2) (b) (i), a residential strata lot that has been rented

(a) to a member of the owner's family, or

(b) under an exemption from the bylaw granted or allowed under section 144

is not to be considered, for the purposes of that bylaw, as a residential strata lot that has been rented.

http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/98043_00



So - this would mean that the option would be open to you to purchase and rent back to your mother, though that is not necessarily what you want to do. I would investigate further in order to see about a roommate, as that would substantially increase cash flows and affordability. If this is a viable route, would it be at all possible to ensure that anything "extra" in terms of cash acquired go towards principle as a safeguard against future increases in interest rate and to pay down some principle?


To those commenting about the pricing, things get much more affordable as you head out to the Fraser Valley, ie Chilliwack, Agassiz, Sardis areas.


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