The failure to pay property taxes and resulting consequences are not always well appreciated.

Earlier I reported how we saved a homeowner from falling into the hands of the municipality through the Sheriff. The legal action, initiated by a municipality, was over failure to pay property taxes.

The owner of this very attractive rural property on the Oak Ridges Moraine, near the Dagmar Ski area, owed the municipality five years of property taxes plus penalties, interest charges and legal fees. In Ostrich-like fashion, he simply ignored the mail, evidenced by a pile of unopened letters.

He came dangerously close to loosing his property before we intervened with a $40,000, private mortgage on his otherwise debt free property. We had established a market value of $150,000 which provided us with a comfortable equity cushion based mainly on lot value. A fire had previously destroyed a very old farmhouse leaving only the foundation.

Much to my surprise, the owner recently called to request a discharge of mortgage. The brush with the Sheriff had alerted him about realizing the potential value of his property where he had boarded horses and wolves (Yes, wolves!). When he discussed with his neighbors his intention to return to Germany, he received two competing offers, within a day. In the end he accepted an offer for $495,000. He mentioned that it was probably worth more but being a good-natured neighbor, and counting his blessings, he was satisfied with the price of his private sale.

What made the property so valuable was the ruling that, although the farmhouse had burned down and building permits are no longer issued for construction of homes on the Oak Ridges Moraine, his property was exempt from that ruling as it allowed for the rebuilding of a home.

Our quick intervention with private money averted a great financial loss to the homeowner because the municipality would have auctioned off the property, anonymously, to the highest bidder. Government auctions are advertised not in the regular newspapers or real estate agents. Sheriff Sales are listed mostly in the Gazette, which is read only by special interest groups. Very likely, the neighbors would not have even been aware that the house was auctioned off.

Our appraisal made me aware of the hidden value in that the property retained it’s grandfathered building permit. I am pleased over the turn of events. The 12:1 return on mortgage debt had a happy ending. It allowed the owner to return to his native Germany for retirement, with money in his bank account, and fond memories of Canada.

In previous blog entries I expanded on the term Judicial Sale with examples from our files and my own experiences.

The term Judicial Sale is a court order by a Writ of Execution and presided over by a Sheriff, to satisfy an unpaid debt in an auction environment, known as a Sheriff Sale.

It is generally perceived that properties of this nature are marginal or simply parcels of rural land or lots in cottage country. That is far from our experience.

I am happy to report that a reader of our blog acted on this information recently and became the successful, and profitable bidder, of such a property. She tracked auctions over property tax arrears via the Canada Gazette where notices are posted.

The tax sale property was a regular home in a subdivision near London, Ontario. Auctions have their own rules and regulations. For example, eligible bidders must meet the reserve bid of the court, and appear with certified funds of 20% as deposit. Only the funds of the successful bidder will be retained while deposits of unsuccessful bidders are returned at the end of the auction.

The successful bidder is given 20 days to deliver the balance by certified funds to the court. Failure to do so results in forfeiting the 20% deposit to the court. The property is then offered to the next highest bidder.

Unlike regular purchase transaction, where the purchaser can arrange financing on the property purchased, a Sheriff Sale is an unconditional, cash transaction between the bidder and the court. In the case of our client and successful bidder, we quickly provided private mortgage money from a private investor who registered a private mortgage against her own property.

It is noteworthy that under a Judicial Sale no warranties are given. The successful bidder takes over the property in ‘as is’ condition, including the owner, tenants or other liens or existing mortgages.

For example, our client acquired the unencumbered property, worth about $200,000, with a $30,000 bid. She also assumed the previous owner who occupies the property and is now a tenant. As can be readily seen, the rewards are commensurate with the assumed risks.

It is too early to report on the final outcome but I am inclined to believe that her acquisition will be financially rewarding.

I also believe, that due to the economic climate we live in, occurrences such as the examples of Judicial Sales, will increase. They provide astute investors, who are tired of poor returns and volatility in the stock market, alternative investment opportunities that traditional investment brokerages do not offer their clients.

Arnold Molder

I sat down with my Dad to talk about how an investor can invest in private mortgages. As president of a Mortgage Investment Corporation (MIC) and over 35 years of experience he has a lot of insight into the world of mortgage investments. Essentially there are 3 ways that an investor interested in mortgages as an investment vehicle can invest:

1. Invest on a one on one basis. The mortgage is written in the name of the investor and all interest payments go directly to the investor usually on a monthly basis. The caveat with this type of mortgage is that all the risk is on the investor and hinges on the quality of the real estate and the borrower’s ability to make good on the mortgage.

2. Invest in a participatory mortgage. This is where a number of investors pool their money together to invest in one specific mortgage. Each investor gets a stake proportional to their investment in the mortgage.

3. Invest through a mortgage investment corporation. This is where a number of investors can pool their money together in a fund which is managed on their behalf and is RRSP eligible. Each mortgage is written in the name of the corporation and the interest earned gets paid back to the investors through a dividend at the end of the each year. The major benefit of this style of investing is that the risk of each mortgage is spread out among the investor over the entire portfolio. This is essentially a mutual fund for mortgages.

If you are interested in mortgages as an investment and would like to explore whether they are a right fit for your investment portfolio feel free to give us a call or write us below. As mortgage brokers we often have opportunities for investors in any of the categories discussed above.

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Investing in mortgages is a great opportunity that is overlooked by many investors.  There are many methods and ways to invest in mortgages.  The following is the skinny on investing in mortgages:

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Why Should Someone Consider Investing In A Private Mortgage?

A mortgage is a unique investment that provides the investor with a predetermined return (interest rate), paid out on a monthly basis. Best of all, the investment is secured and backed by real estate.

Why Aren’t Mortgages Readily Available For Investors In Canada?

Most investors seek guidance and advise through financial planners who aren’t licensed to sell mortgage investments.

Where Can Investors Find Mortgages To Invest In?

The best place to find mortgages as investments is through a licensed mortgage broker. Often a mortgage broker will be able to match a borrow with an investor/lender who meets the investor’s risk tolerance.

What Type Of Return Can An Investor Expect To Receive For Their Mortgage Investment?

As with all investments, the returns are relative to the risk associated with the mortgage. An investor can expect a return anywhere between 5-12% depending on the position of the mortgage (1st or 2nd mortgage) and the credit worthiness of the borrower.

If you would like to explore whether mortgage investments are right for you, contact Arnold at 416.461.0204ext1 or email .

Your credit score is such an important part of your mortgage application. In this video I share 9 steps to improve your score. If you have stressed credit and need help rehabilitating your score contact us 416.461.0204.  We are specialized in second and private mortgages.

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A second mortgage is a loan secured against real estate, that is subordinate or subsequent to a first mortgage on the same property.

If you own a home there can be multiple mortgages secured against it. The order of the mortgages is determined by who registers the mortgage first with the land registry office.  It is possible to secure third or even fourth mortgages against your property however they are rare as most lenders won’t lend you money unless there is sufficient equity in your home.

The reason a second mortgage is called subordinate is because if the mortgage goes into default, the first mortgage gets paid off before the second mortgage. It follows that the second would get paid off before the third. Because of this subordinate position second mortgage lenders require higher interest rates due to the increased risk.

Assuming a borrower stops paying or defaults on a second mortgage, the second mortgage lender can initiate a power of sale even if the first mortgage is still in good standing. The opposite is also true. A first mortgage lender can initiate a power of sale action even if the second mortgage is in good standing. Each lender has the option of purchasing or assuming the position of the other lender to bring the mortgage back into good standing.

Having sufficient equity (difference between market value and outstanding first mortgage) in your home is crucial if you are considering a second mortgage. It can be quite difficult to secure a second mortgage through a financial institution because they reserve second mortgages for individuals who have good credit and income to support the loan. The reality is that most borrowers require second mortgages to consolidate consumer debt or alleviate financial stress. For these individuals private mortgage lenders are the primary source of funds.

Looking for a second mortgage? We can help. Call Arnold Molder 416.461.0204 to speak directly with a second mortgage lender.

In 1996 British political scientist David Runciman wrote an essay entitled The Plot To Make Us Stupid; David Runciman on the National Lottery.  As part of his thesis Runciman argues that the lottery which was first described as a tax on stupidity given that the odds of winning are 14 million to one (Lotto 649 style) was marketed by the government in such a way that it is acceptable to be stupid. Think about it? If I were to invite you to play a game with me where the odds were stacked 14 million to one in my favor would you want to play against me? Runciman observed that…

the lottery was created and then energetically marketed, with government support and endorsement, it wasn’t so much that it was a tax on stupidity, more as if stupidity were now seen as an important natural resource, something that needed to be encouraged and protected and lovingly nurtured.

Back in August of 2010 I wrote a little rant, The Offer I Could Refuse. I wrote the post after a banker tried to convince me to switch banks by offering me a $20,000 line of credit as if he was doing me a huge favor. As a mortgage broker I am intimately involved with my client’s finances. Last week I worked with a struggling family who 18 months ago refinanced their home to pay off all of their debts and start a new debt free life. Their creditors were so happy that they turned around and increased all of their credit limits and lowered their interest rates. In just 18 months they owe more than $70,000 to outside creditors again.

I see this same trend from lenders, financial institutions and credit card companies offering more and more credit to consumers who just can’t help themselves. You can’t turn a corner without being offered more credit; just a little here to buy that TV, a smudge over there to make your purchase with a 10% discount (who doesn’t like a discount?), a dab over there because if I sign up I get this fabulous looking toaster oven.

Much like the government energetically marketed the lottery (aka tax on stupidity) to make it ok to play a game where the odds are 14,000,000 to 1 against you, banks and creditors have made it ok for you to go into debt and play a game with money where the odds are also stacked against you.

But don’t distress not all is doom and gloom. I found an encouraging report last week. A clear sign that consumers are fighting back. Last week Gregory White wrote a short article on Businessinsider.com about the new credit crisis; America Is Facing A Brand New Type Of Credit Crisis.

This generation of first time borrowers are spoiled rotten. Imagine their shock 5 years from now when their ultra low 3.59% fixed rate mortgage is renewed into a more realistic 6% mortgage? When I speak to older borrowers who have been around the block a few times I am constantly reminded by them of the 80s when mortgage interest rates where in the double digits and 24% wasn’t unheard of.

At that time my father was already a mortgage broker and told me that the majority of his business was arranging VTBs or vendor take back mortgages. Obviously with bank rates at 24%, the costs of owning a home were prohibitive and it was difficult to sell houses. Motivated sellers could make their home more attractive to purchasers by offering to lend money to the purchaser through a vendor take back mortgage at a much more competitive rate. The advantage is twofold:

1- The purchaser gets a great rate and by passes the stingy qualification of the bank.

2- For the vendor they are earning interest on the money that they have lent through a secure mortgage. The draw back for the vendor of course is that they loose liquidity from the sale of their home to spend elsewhere. Especially problematic if they are buying elsewhere.

A vendor take back mortgage is only possible provided that the vendor has sufficient equity in their own home. (i.e. if they are financed 100% they can’t offer a VTB because there is no equity)

Today VTBs are quite rare for residential purchases but an interesting article published by the Financial Post this week ‘Mortgages: You Can Take Them Or Leave Them’ suggests that in the future, the environment might dictate a return of the VTB.

If you are looking to arrange a VTB mortgage or need some guidance in offering one through a commercial sale or residential sale don’t hesitate to give Arnold or I a call. We love working on private mortgages and complex financing situations. 416.461.0204

The consequences of not paying property taxes are not well appreciated. In my last blog entry I explained the term Judicial Sale and highlighted that this legal process is a great opportunity to acquire undervauled properties in cottage country. More often than not the cause is the non-payment of property taxes.

The other day we received a phone call from a solicitor to help resolve a legal action initiated by a municipality to collect tax arrears. The owner of this very attractive rural property was one week away from being evicted by the sheriff. Specifically, he owed the municipality five years of property taxes plus penalties, interest charges and legal fees.

Burying his head in the sand in ostrich-like fashion he simply ignored the mail, evidenced by a pile of unopened letters. He came dangerously close to loosing his property before we intervened on his behalf with a private mortgage on his otherwise mortgage free property.

This episode illustrates a lot of leniency and patience by municipalities toward property owners before they finally resort to the cumbersome legal process of judicial sale. Keep in mind that properties are an important source of tax revenues necessary to pay for municipal services. When default occurs on an otherwise debt free property, the government turns to the public with the announcement of their intended judicial sale and rewards the highest bidder with conveyance of ownership. The new owner assumes the obligation to pay property taxes and, hopefully, keeps payments up to date.

If you are interested in cottage country properties this may be an opportunity worthwhile exploring. One of our private investors purchased a small island of Georgian Bay in this way.

If your property taxes are currently in arrears and would like to finance them through a private mortgage or you are a private investor who would like to explore these and other opportunities please give me a call to discuss. Arnold Molder 416.461.0204 Dedicated to financial sufficiency.

In my last post I wrote about an astute investor who exploited the opportunity of a Judicial Sale when he bought a unique, mixed-use property, for a bargain price of under $100,000. Such opportunities come up frequently but are missed by most people because they don’t know where to look specifically. In addition, the term Judicial Sale is not part of the everyday vocabulary and opportunities are missed.

The term judicial sale is a legal notice informing the public of an intended sale of a property to the highest bidder, in an auction environment by a sheriff. The reason for a judicial sale is most commonly for arrears of property taxes owed to a municipality.

The action of resorting to a Judicial Sale occurs only after a municipality has failed to collect tax arrears from the owner, and all other methods of suasion have also failed. In other words, a Judicial Sale is the final legal act to obtain these arrears through a property sale to the highest bidder.

Such notices appear typically in the newspaper column under legal matters/auctions.

Notices of smaller communities and municipalities, especially in cottage country, offer greater opportunities for investors. The first reason is that due to population numbers, there is a smaller interested audience than in a city. Secondly, it requires special geographic knowledge. Finally, it takes a lot less money to be a successful bidder.

If you are patient and interested in cottage country properties, this may be an opportunity worthwhile exploring. One of our clients, a couple, purchased a property for summer vacations under Judicial Sale on Prince Edward Island, where they grew up.

Granted, the pursuit of Judicial Sales opportunities requires effort, but it can be a rewarding experience.

It is highly unlikely in these situations for a Bank to be your financial partner. More often than not, such situations require private mortgage financing and backing of an experienced mortgage broker.

From the Files Of The Broker: Arnold Molder 416.461.0204