Canadians homeowners have seen the value of their real estate value explode higher, but taking advantage of the equity is difficult. Increasingly, seniors have been turning to reverse mortgages. The rapidly growing segment of lending advertises borrowers won’t have to pay off the loan, until they move or die – but there are exceptions. A recent court case in Ontario, CHIP Mortgage Corporation 5 Inc. v. Deep, shows that being late on property taxes can put your home in default. Even if it’s “very briefly,” the lender can move to take possession of your home.
What Is A Reverse Mortgage?
Reverse mortgages are a booming sector of home equity loans, reserved for seniors. A senior homeowner can receive a loan against the equity they’ve built in their property. The interest quietly racks up in the background, at roughly the same rate as a HELOC. The big difference is, as CHIP, the only provider of reverse mortgages in Canada so far, says “no payments have to be made until the borrower moves out or dies.” A small exception, if you miss a property tax payment, you’ll also have to move out and pay your lender’s legal fees.
Source: OSFI Filings, Better Dwelling.
Taken To Court Over A “Brief” Default
This was recently observed in a case between CHIP Mortgages and an elderly Toronto doctor, and his schmacy Lytton Park property. Court documents dated March 8, 2018, show the reverse mortgage borrower “very briefly” saw his mortgage go into default, as a result of property taxes not paid. The homeowner acknowledged the situation, but the statement of claim didn’t ask for the amount of the mortgage. Instead, they alleged that this default entitled them to the whole home.
House and Legal Fees Owed To Lender
CHIP wasn’t just awarded the home, but also legal fees for having to take them to court. The judge awarded the lender the home, located on a street with an average selling price upwards of $2 million. If that wasn’t enough, “partial indemnities” were also awarded, in the amount of $9,000. “Partial indemnities” is a fancy term for some of the legal fees, but not all of them. This borrower didn’t just lose their home for “very briefly” defaulting, they also owe money.
Reverse mortgages aren’t new to Canada, they’ve been around since 1983. However, they have been a relatively small portion of lending until recently. Increasingly house-rich boomers have been turning to the segment of lending, to supplement retirement. Hopefully they understand the full-terms of these loans.
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Since the max they’ll lend you is $750,000 for a reverse mortgage, that works out to up to $1.25 million in profit? I know the interest rate is high, but wow that’s a lot of money for a penalty. Surprised the Big Six hasn’t jumped into this market.
Is $750,000 a hard limit, or is it a percent of the property?
I just played with their calculator and the most i could get on a $2 000 000 home is $540000.
And it says right on the main page of their website taxes and insurance have to be current.
I dont know why anyone is surprised by this. No one loans out millions of dollars with no risk.
I put CHIP reverse mortgages in the same class as pay day loans and sub prime lenders…
Those that prey on the weak, deperate and broke.
Very sad.
They’re exactly like payday loans. People think the borrowers are dumb, but there’s likely a very poor explanation of the terms and agreements.
Any claims in Vancouver? I suspect all of the Boomers here that need to defer their property taxes because they can’t afford them, are going to be turning a lot of property over to CHIP.
For old age ppl, better off sell the property and live in either a well manage retirement home (paying the rent) rather than borrowing against the home.
Rising interest (guarantee) will eat up a big chunk of property value, not including the fact they can’t miss a tax payment and CHIP has lien on the property. No thanks. Not on my watch.
in BC the biggest retirement housing are owned by the Chinese Communist Party…
http://business.financialpost.com/real-estate/property-post/the-chinese-government-now-controls-the-biggest-retirement-housing-chain-in-b-c
Even if this were factually correct, how is missing a Rent payment (on a retirement home) not materially worse than missing a property tax payment on a residence you own? Let alone the fact that monthly Rent at a well-managed retirement home can easily be more than an annual property tax payment!
Conventional Mortgage + Reverse mortgage = Rent
When I see advt by ‘CHIP’ I feel sick to my stomach. They are setting up seniors to take over their property in a legal but immoral way. Reverse mortgages are also promoted by Govt as reported by Better Dwelling few weeks ago. So seniors are not safe between clutches of Govt and these reverse mortgage white collar robbers.
This is alarming! I’d like to read more about it. Do you have any links to the ruling or other commentary? -Thanks
I find it very difficult that the courts would grant the remaining equity be keep by CHIP. CHIP or now HomEquity Bank, is governed by OSFI, same as all the banks. As a former banker, I doubt very much if remaining equity is keep.
Furthermore, it isn’t just a matter of CHIP foreclosing for non payment of property taxes. Every lender would do the same.
For one: they are not the “only” lender that has started doing this
two: the maximum they lend is 55% of the property value
this is still a viable alternative solution for homeowners to keep them in their houses, longer
The absolute worst “viable solution” imaginable is still a viable solution I guess.
You can always spot the defensive mortgage broker in the comments. There is only one other lender approved for true reverse mortgages, and they have none on their books right now, so yes they are the “only” ones. Private lenders offer similar products, but they are not the same. Those are just second mortgages, or re-fies from a legal perspective.
“this is still a viable alternative solution for homeowners to keep them in their houses, longer”
Define “viable.” Is it a physically possible? Yes. Should they? You should probably downsize, and bank the rest. Some private lenders offer rent backs, which might even be a better solution for many. You should do the math. If this borrower took out the maximum, $750k, it would have taken 15 years before 100% of the equity was gone.
I pulled the notes from the case, and the judge doesn’t mention the amount, but does specify the lender was not seeking an amount related to the mortgage, they wanted just the house and partial indemnities.
Sol, you are correct. Equitable Bank is the other bank now offering reverse mortgages as of a few months ago. There are no other lenders who do. Private mortgages are not similar for many reasons. And I highly doubt any would be a better solution.
As for rent backs. I know of cases already here in Vancouver where the clients have been kicked out of there homes because of the new owners ability to sell the house from under the former owner.
Selling is not always the best option. Yes, you can rent or downsize and buy a condo. High rent and high strata fees plus special assessments. Invest the difference. Sounds good. That is if you like 2% on a GIC before taxes.
As a former banker and financial planner, not everyone’s financial situation is the same. Recommending A over B over C without knowing the individuals requirements is not prudent advice.
If I would have sold my house in Vancouver 3 to 5 years ago and “rented” I would have left a significant amount of money on the table.
If I would have sold my house in Vancouver 3 to 5 years ago and “rented” I would have left a significant amount of money on the table.
With the benefit of hindsight, of course. But if a person were to make that same decision today, it might be disastrous. Risk should be decreasing as you get older. Going back into debt does not in any way decrease risk. More debt = more risk. That is the most iron-clad equation in finance you will ever find. Which is why you’ll never hear your friendly mortgage specialist say it out loud.
Everyone’s case is individual, and requires a thorough assessment of their individual finances. Some people can make enormous amounts of money in a bear market, or using subprime borrowing.
The statement I made was as generic as someone saying homes are always a good purchase. In contrast to what? Spending the mortgage payments on takeout? Yes. In contrast to having invested in Facebook? No.
That’s why I said “You should do the math.” No investment is right for everyone, and the ones that are right for most, aren’t right all of the time.
Sol – can you please provide a link or point me in the right direction to find the notes on this case?
Cheers.
Hi Christine. Here is the court file. Cheers.
https://www.canlii.org/en/on/onsc/doc/2018/2018onsc354/2018onsc354.html?autocompleteStr=CHIP%20deep&autocompletePos=1
I think the law is that the injured party must “mitigate” their losses. I’m sure the old fellow will get some of his money back. If not, this is simply unconscionable and the government should put an end to this practice.
What a completely fuc*ed up country they have engineered with their Ponzi.
It appears you have no idea of the meaning of “Ponzi scheme”
To clarify some of the erroneous comments, Schedule 1 banks (RBC, BMO, HomEquity Bank, etc) when providing funds under a mortgage CAN NOT keep remaining equity from the proceeds of a foreclosure. They are allowed to recoup the outstanding principal mortgage balance, interest, default expenses (like paying the property taxes up to date) and costs incurred for expenses pertaining to the foreclosure.
If there’s money to be given back, they would normally get it. I understand that you are probably a mortgage broker, and are going about the normal procedure of these loans, but the court did NOT document what you are saying. Instead, they specified the opposite.
From the court file:
[4] The statement of claim does not ask for judgment for the amounts owing pursuant to the mortgage by any of the defendants.
There’s no way to tell without either party providing the details of the individual contract. Both are unlikely to do so in this case. If you do have a standard contract that CHIP issues, I would like to see it.
Hi Sol, no I am not a mortgage broker.
I would appreciate a link to the Court Case and the document that you are quoting from. How recent is this case, as in, when did this person take out the reverse mortgage. Something is not connecting. I need to do some digging on the CHIP Mortgage Corp 5 Inc. CHIP became HomEquity Bank back in 2010. Public knowledge. If this person did the so called reverse mortgage after that, then it cannot be CHIP/HomEquity Bank.
Interesting.
Is someone plagiarizing someone?
http://blog.homesandcondomississauga.com/2018/04/23/canadians-with-reverse-mortgages-can-lose-their-homes-if-they-miss-a-tax-payment/
A lot of agents just do copy paste jobs on their sites from the news. Not sure why. It penalizes them in search, as well as makes them look like they’re dishonest when they take credit for other people’s work. Which is painfully obvious here, considering they write source Better Dwelling, but don’t have the charts or anything.