The reality is, that in real estate, closing costs most often come out of the house sales’ proceeds of the seller. Reviewing registered mortgages can be very revealing when it comes to vetting a seller – whether they are your client or not. Registered mortgages can help you identify if a seller lacks equity to cover the costs associated with closing the deal, including your fees. This also helps to identify riskier clients, and save valuable time.
Reviewing registered mortgages
When looking at registered mortgages, you can use amortization schedules to input the registration amount of the mortgage, and then set the amortization term and estimated interest rate to match the length of time the mortgage has been registered to get an idea of the balance. People often incorrectly estimate what they owe on their home, so calculating this will help you identify when less equity actually exists. After making an estimate, if it seems that the equity positioning will be tight, the next step is to request a discharge statement from the bank. The discharge statement will tell you not only what the current balance is but also reveal pre-payment penalties, which, in a scenario where a deal is tight, can make or break the deal.
Identifying riskier sellers
Aside from the obvious, which is identifying an under-stated first mortgage, you can use registered mortgages to identify riskier clients. When reviewing the registered mortgages, if the client has multiple mortgages registered, this may be a sign that you need to dig deeper Multiple mortgages can be an indicator that the client has underlying financial issues. If the client is purchasing their next home with you after the current one sells, you may want to expedite the mortgage pre-approval process.
Digging deeper
If you have reasons to believe that you are dealing with a risky client, it may be prudent to check the property for liens. Income tax, property tax, condo fee and construction liens come up all the time on real estate deals. Requesting a Parcel Register* enables you to look beyond registered mortgages and identify if liens are registered on the home. Income tax liens can be particularly challenging as penalties and interest on tax debts can cause them to grow exponentially over time, often resulting in a balance much higher than the amount of the registered lien. If you have run a Parcel Register* and a lien has surfaced, the next step, just as with a registered mortgage, is to request a discharge statement to learn the true balance.
It’s not the end of the world…
Reviewing registered mortgages the moment a seller engages you is essential. If something comes up, it doesn’t necessarily mean you can’t help your client. It simply positions you to plan contingencies to ensure a smoother closing. It enables you to ask more questions, obtain supporting documentation and show your client that you are a real estate expert, committed to getting the deal closed. Once you get to the bottom line you can guide your client through how they can get their deal closed.
With the NEW GeoWarehouse, you have the tools to easily identify issues with registered mortgages. Find out more by visiting www.geowarehouse.ca or calling 1-416-360-7542.
*An official product of the Ontario government pursuant to provincial land registration statutes.
