I will update you as soon as I can.
Wednesday, November 30, 2016
We May Lose the House - The Ugly Side of The Lending Industry
It is 1:51 am and I am writing today's post from the couch in our Drummondville hotel room. For those of you unfamiliar with eastern Canada, it is really one of the last areas in Quebec, where a non-French speaking person like myself can communicate in English and be readily understood - at least until we cross the inter-provincial border into New Brunswick.
I will update you as soon as I can.
Both Steph and I are exhausted and at our wits end as I write this. We have all our possessions in a 26 foot truck that I am driving for the 1,600 KM trip, and our car, which Steph is driving. Our two lovely cats, Viktor and Meeko are freaking out from 8 hours on the road each day, confined to their small cages. We are supposed to close on our beautiful new home tomorrow, but the unconscionable behavior of a mortgage broker in Fredericton has left us with no financing at the very last minute, and two very upset sellers who are wanting to move to Florida. This is the story of what has happened this past week. It really is unreal. This is a LONG post, for which I apologize. But after what my broker and lender have done to us, I believe I have a civic duty to make as many people as possible aware of what has happened to us, so that others can avoid the same fate.
On Friday, November 18, we finally received the investor funding that allowed me to repay a portion of my shareholder loans and thus have the money for our downpayment. Following my broker's instructions from our conversation over a month earlier I had my bank print up to date statements for all my accounts to provide to my lender, Optimum Mortgage, to prove that I had the funds for the downpayment. Optimum had given us a commitment to finance 75% of the purchase price of the house on September 29. My broker had given my realtor in Saint John a letter of financing that very clearly stated that we were approved subject to a satisfactory appraisal being obtained on the house. I paid $350 for an appraisal to be done, and it came in at $144,000 - $12,000 higher than what we paid, and $45,000 higher than the amount of the mortgage. Based on this approval, we waived all conditions of purchase and sale and sent our realtor our 5% deposit of $6,600 on September 30 - the day before our wedding.
So after obtaining the bank statements, I sent them to my broker explaining that I needed him to have Optimum send mortgage instructions to our lawyer in Saint John by Tuesday, November 23, so that I could have a lawyer witness them and courier them, signed, with a certified cheque for the remaining monies to my lawyer by Friday the 25th. This was necessary as my lawyer had advised me that Optimum had a 48 hour turnaround on disbursing funds after receiving the documents, and we were going to start the 2 day drive to Saint John on the 29th. So Optimum had to receive them by the 28th - otherwise we would not be able to move in when we arrived. This would be a huge problem, as we have already opened our utilities accounts for the new house and scheduled hookups for that day.
I didn't hear back from my broker until about 11pm on Saturday night, November 19. This was his full message:
Can you please forward me bank statements for October as well. I need to show the most recent 90 day history.
He didn't address my direct question to him about our timeline. However I sent him the bank statements that he requested on Sunday. I reiterated the importance of the timeline and asked him to call me.
On Monday, November 21 there is no call or e-mail from him. I try calling his office again, and I get a voicemail message saying that he is moving his office and will not be reachable until the 22nd. This is the first time I am hearing of this - no mention whatsoever in his earlier e-mails.
On Tuesday, November 22 I am getting really nervous. I frantically call his office and by now it is going straight to voicemail. Not knowing what to do, I call my realtor and ask him for advice. He tells me to call Optimum directly to find our what is going on. I take his advice and call Optimum. The receptionist takes my number and tells me someone will get back to me. About half an hour later, I get a call from Rick Glauser who is one of the senior VP's for sales. He tracks down my file and tells me that they have not received the signed commitment that I sent back to my broker on September 29. He also tells me that he cannot find any evidence of an appraisal having been done as yet. At this point, I can barely contain my anger. I inform him that I sent Mr. Laking (my broker) everything on September 29 and 30th. He says he will check and calls me back, confirming that indeed they have the appraisal, but nothing else. He promises to call Mr. Laking first thing in the morning to get to the bottom this. I feel a bit of relief, but not much.
About 10 minutes after this call, I get the following e-mail from Mr. Laking:
I apologize for the delay in getting back to you as you know we have been relocating our office and everything is finally completed from the moving aspect but our phone provider ran into some issues completing our setup and are still working on finishing everything.
I received your statements for the 90 days. I thought you were going to be receiving a large investment from an investor(s) ? I had indicated to the lender that you would have a lot more cash on hand. I realize you don't need to use it all for down payment but would have on hand to cover living expenses etc.. which does impact their decisions.
Do you have other assets such as RRSP etc? If so what can you show? I ask this as this could impact things. If you could forward me any statements you have for any other investments you hold to show them your assets would be good as they may want to see this.
You are still approved but lenders can change the terms should anything be different than originally declared.
The mortgage instructions come from the lender and I will work with them to hopefully get this out as soon as possible.
I could not believe what I was reading. The extra money he was referring to were some investor monies that I was expecting to receive by January 2017. We discussed those verbally, when we first started talking in August. But at no point did he tell me that our approval was conditional upon us having $50,000 more than our downpayment of $33,000. I actually told him when we were ready to make our offer that the $50,000 would not come until January 2017, at the earliest and that my income and downpayment would have to be sufficient. He assured me that all was approved with what I had sent him in writing. It was clear from this e-mail that he was unaware of my conversation with Mr. Glauser.
I sent him an e-mail to call me immediately, and I sent this within 2 minutes of him sending me the e-mail. 45 minutes later, when no call was forthcoming, I sent him the following response:
Since you aren't going to call me like I've asked you to numerous times, I am going to respond in writing.
I am so angry I really don't know where to start. I just got off the phone with Rick Glauser at Optimum who told me that they had received absolutely nothing from you - no appraisal, no signed commitment, nothing - with 8 days to go. You have not responded to most of my e-mails, nor any of my calls. I have given my notice and will have no place to live in a week if this deal doesn't close.
I am still waiting for one investor to give me 50K. However, when we first started the loan application process, I was looking at buying a property that was $225K and rural. I wound up buying a property in town on a double lot that cost $132K and appraised out at 144K. That's almost $100,000 less than I was originally looking to borrow. My business is generating over $3,500 a month -more than enough to cover all the carrying costs and living expenses without the 50K. I'm putting down 25% - they are only lending me $99,000 and have a value spread of $45,000, with the appraisal. Are you seriously telling me now, on November 22 - 8 days before I am supposed to close that I need to show more than $35,000 in the bank?
I know you told me that the lender would want to see evidence of the down payment, which I have now given you. But You NEVER said that I would have to show the entire $85,000 or so on hand in order for this to go through. As it turns out, I am still expecting to receive that money - I just don't know when. My investor has run into a snag himself with his real estate project. He can't give it to me until he resolves his issue.
I don't have any more assets other than my business, which as you know, holds inventory of over $850,000.
I just don't get it. How could an income stream of $3,000+ per month and 25% equity not be enough? My wife can always go get a job. I have some accounting clients who I will be doing work for to the tune of $6,000 or so over the course of the year. That's another source. The house itself was a B&B and we plan to Air B&B two of the bedrooms, which will generate some more money.
If all this isn't sufficient then I just don't know what to tell you. I gave you everything you asked me for Mike. Yes, I didn't get all the money I thought I was going to get when we started this process, but then again, I bought a much cheaper property and to put down a lot more that what we originally discussed, so I didn't think that having more cash in the bank other than what I have now was a factor.
Shaking my head,
The following morning I awoke to this response from Mr. Laking:
I understand you are upset and frustrated. I also am aware that you were speaking with Rick at Optimum Mortgage. Rick isn’t my main contact as he is in management and is currently covering for the territory manager as she is on vacation. I mainly deal with an Underwriter based in Alberta. To be completely honest I was also upset after receiving messages from Rick and this one from you last night. As you know we’ve been relocating our office so the past couple days which is why I was hard to reach. Prior to that I thought we had plenty of communication, a lot of it was via email but I never realized that was an issue for you. In all honesty Chris I was going to call you as soon as I had a chance last night. I was on my way to the office to do so and had an emergency call from family that I needed to look after right away. Fortunately everything turned out ok and was dealt with. I was hoping to look after that and then come back to call you. In the mean time after receiving your last email and seeing how upset you were and the message from Rick I thought it best to wait until this morning to contact you. I am not sure why he would have told you that they didn’t have anything on file for you as that is clearly not the case and I have already contacted him back to ask why or how he said that. They have many many documents on your file. I know you were already running on a tight timeline and were already concerned so I am sure this just made things a whole lot worse for you. I am very sorry for this becoming what it has but we need to work together to get everything finished.
Here is what I have forwarded to Optimum since the beginning:
They have the Purchase and Sale Agreement, several bank /statements (they needed these early on to examine the income stream for your business), they do have the appraisal as well (The appraiser is required to send it directly to them, I only made arrangements for it to happen and they do this as they prefer the appraiser to be completely third party) The underwriter on the file actually was speaking with the appraiser after they submitted the report as they requested some modifications to the report so they clearly have it. They have the signed papers you sent me as well. They were still needing more information to complete the file such as down payment confirmation and assets.
There may have been a misunderstanding between us regarding the money you would access to. Regardless of your down payment requirement, I am required to advise the lender what you have for assets etc.. For this type of file because your business wasn’t run full-time for very long and doesn’t have a long history of generating the income that has been happening more recently they look at things differently. The amount of cash you have access to does impact their decisions and what they are willing to lend you. Since you had indicated to me all along that you would have 100k + in cash before closing time I figured it would show in your accounts and when we collected the statements for down payment it would reflect. So essentially both items would be verified with the same documents. Since your business doesn’t have a long history of the income that we would normally require it certainly made the lender feel better having the extra cash in the bank to make sure you would have no issues at all with payments. I understand the extra sources of income that you could generate however the lender isn’t able to verify anything with that since they are future dated events that could happen.
I have already had contact with Rick this morning he is looking into this further as it doesn’t make sense to me. So please leave this with me, I am working with Optimum to try and get everything resolved and satisfied for you. I will update as soon as I can today.
In essence, he spends the first paragraph giving me a multitude of excuses for his lack of professionalism. Then he tells me that he sent Optimum all the information I sent him. Then he proceeds to chalk all this up to a misunderstanding and blames me for essentially thinking that the commitment that he issued my realtor was iron clad. By the way, here is what he wrote to my realtor, before I waived conditions:
To: Royal Le Page Realty
This letter is to confirm that Chris McFetridge and Stephanie Savage have been approved for mortgage financing to purchase the property located at 213 Lancaster Ave., Saint John NB. The lender has requested that a full appraisal be conducted as well as part of the approval so the clients themselves are approved pending satisfactory appraisal confirming a value of the agreed purchase price or greater.
Please contact me should you have any further questions.
Seems pretty clear, doesn't it? No mention anywhere of further asset or income verification being required. So you can see why I was so angered by Mr. Laking's response. Clearly he was either lying when he wrote the financing letter above, or he was lying when he wrote the e-mail above.
However, I told him I would leave it in his hands that day, which was Wednesday the 23rd. When no update had come in from him by the end of the day, I followed up:
I had hoped to receive an update today, based on your earlier e-mail in which you said you would update me later in the day. Please e-mail me as soon as you receive this message and let me know what the current status is, including what discussions you had with the underwriter, or what their feedback was for the information you provided. I want to know definitively whether of not we are going to get this mortgage. If you don't know, that is fine, then please say so and tell me specifically what still needs to be resolved.
I re-read your e-mail and I would remind you that on September 17 before I made my offer, I told you (by e-mail) that we could put down 30%. After I knew that there were delays in the receipt of the investor funds I did tell you, but reassured you that we would at least have the down payment. You told me that the lender would require proof of the downpayment, but did not tell me that they would require me to have additional funds over and above the 25%. I am a very meticulous and careful person. There is no way that I would have allowed myself to get into a position like this. I would never have made an offer and waived conditions if I knew I would have to have 100K in my bank on closing, since I knew that wasn't going to happen by November 30.
Chris McFetridge, CPA, CA
The following morning, I woke to this response from him:
Here is where things stand as of right now:
With the current mortgage that we've been working on the lender is still willing to approve you and fund the deal but they want to adjust the down payment requirements.
The statements you have forwarded are not used to see what you have access to for down payment but also to show your income for your business. Based on the income the business has generated and what you will have for assets they want you to increase the down payment to 35%.
I know you had indicated that you don't have any other liquid assets that can be used. Your statements do show funds coming in from RRSP withdrawal, are there no more funds there to consider for this?
If you can show that for the down payment then they will instruct and fund quickly.
I already have another lender looking at things to see if they will offer you an approval with 25% down.
I have had some dialogue with them and things sounded positive but until they give me a final answer I won't know for sure and I am expecting that today. If they do approve there is a chance they may offer you a bette rate as well but again don't have a final answer on that.
Have you had any income in 2016 from accounting or is everything from the stamp business?
If you had and can show it might change things some but I was under the impression with you doing this business full time that there really wasn't any other income happening from that consistently.
That is all the news I have for now, I know it's not what you were wanting to hear.
Unfortunately lenders do have the right to change anything about the deal until it funds.
I am fairly confident in the other lender but that makes things very tight on time. We are tight enough as it is. I wish I had better news. Please advise if you have any options to increase the down payment.
I know you would be able to come January but that's still a ways away.
Hopefully I'll have better days as the day goes on.
So basically, we were screwed. Optimum knew that we didn't have 35%, but they decided to demand it anyway, even though they issued a commitment to people who were dealing with them in good faith and are moving across 2 provinces. He says that they have the legal right to change anything they want until they fund the deal. I'm not so sure I believe that. I think they have violated common tort law, but they rely on the ignorance of you and I to get away with doing whatever they want. The really sickening thing here is that this is bigger than just Steph and I. There were 4 parties involved here, all of whom have acted in good faith, placing reliance on Optimum's commitment and Mr.Laking's letter of financing:
1. The sellers - a nice retired couple, wanting to move to Florida.
2. Two realtors who both put in a lot of professional time into this deal.
3. One lawyer, acting for both sides.
4. Steph and I.
I am disgusted that I live in a society where a lender can screw seven people over $13,000 - that they haven't even lost, or have any significant risk of losing, and have that behavior protected by law. I just can't believe that this is the country I live in.
I responded to this e-mail by asking him to call me to discuss as I had some ideas. He responded that his daughter was sick and he needed to go and pick her up from school, and that he would get back to me as soon as he could. Then later he requested that I e-mail him sine his daughter was really, really sick. So I did:
I have only one option to raise the required 13K on such short notice. I can take small selection of my best inventory, worth about 40K under normal circumstances and see if my competitor will give me 15-20K for it. I have another colleague in Vancouver that runs a weekly auction that can sell them and likely get more for them. But that will take at least 2-3 months to sell. I can probably persuade them to write a letter to the lender to the effect that they will sell the stamps and can attest to their ultimate value, but I don't know if that will work.
I do have currently three clients and an ongoing relationship with my old firm. So far in 2016, I earned $2,800 from these clients and next year expect to earn $6,000-$10,000 as I have agreed to take on more work from my old firm.
The problem here Mike is that had you told me that I would really need 35% and not 25% back when we had time there would have been a lot more options that I could have pursued:
1. I could have sold more medium range inventory at less profit, but not a loss because I could have sought out a buyer.
2. I could have leaned harder on my investors.
3. I could have spoken to Allen Sloan and gotten more work right away so that I could show the lenders that I would have the work on an ongoing basis. I could have given the lenders a client list and projected billings, as these are all relationships I have had for years.
But we don't have time for any of this now. You have put me in a situation where I have extremely limited options because you told the lender I would have 100K when they didn't need that much security. The only reason they need it now is because my cash situation is significantly different than what you told them it would be. I sought a second opinion from an independent broker about this and they could see no reason short of you telling the lender that I had more money than I have why the lender would change the deal so drastically and abruptly.
Who is the other lender you are having discussions with?
Let me know if Optimum will accept a letter from Weeda Stamps verifying that they will be selling stamps over the next three months with an expected value of $20,000, or not. If they will, I will call them and arrange that.
Let me know if Optimum will accept a letter from Allen Sloan outlining my relationship and expected billings over the next year from work that he plans to give me.
Please respond to this by noon, even if you can't call or have no additional news.
Surprisingly, he got back to me right away:
Let me talk to Optimum and see what they say about the options you've presented here.
I assume you could get documentation to show you still have a relationship with the accounting firm and they could likely confirm your ability to pickup work and earn extra money going forward?
The other lender is Equitable Bank. I will hopefully have further updates from both lenders this afternoon.
I will update you as soon as I can.
His question here was a bit annoying since I had already asked him in the above e-mail if a letter from my former partner would work, and I had told him in detail, over the past two months about the nature of my professional relationship with Allen Sloan. But at least he is finally listening and responding, I think to myself. Shortly thereafter he asks me to obtain the letter and forward it to him.
At this point, it is just before lunch on Thursday, November 24. I put my store on vacation and started to pack up all our inventory and began disassembling furniture. For the next 24 hours, I receive no new news from Mr.Laking. To his credit, he does send me 2 or three short e-mails to let me know that he is still speaking with Optimum and Equitable Bank, but has no news.
On Thurday night I called Mr,. Glauser and asked him to call me back. I explained that I did not feel that my broker was handling things professionally, and that I needed to hear straight from him or somebody senior at Optimum, why they were reneging on a commitment they had issued, when there had been no adverse change in our circumstances. He did not return my call.
Finally on Friday around 3:00pm, I called the underwriter at Optimum, a Liane Geiger whose name appeared on the commitment that she approved. I politely explained to her that I understood that Optimum does not normally deal with clients directly, but this was an extraordinary situation, and could she please discuss my file with me. She seemed hesitant at first, but agreed to speak with me. I asked her why Optimum was yanking my mortgage at the last minute, when they had issued an approval and a commitment. She corrected me and said that they had simply cut back the loan to value percentage from 75% to 65% because of my non-qualifying income. I asked her what she meant by this and her exact words were: "Well you are going from being a full time Chartered Accountant in Toronto, to a self-employed person in New Brunswick. You haven't established enough of a track record to show us that you are capable of earning enough to make the payments. We have to mitigate our risks". I immediately realized that the international nature of my business was lost on her. The rest of the conversation went as follows:
Me: "Ok. So my question to you is why would you issue an approval when you already had the same information about my income in September that you have now, that you have now decided was insufficient to support my application.? You are now inconveniencing a lot of people who have relied on your commitment in good faith."
Her: "I issued the approval based on the information we had."
Me: "So you are telling me that you didn't have any information about my income until last week?"
Me: "Well there has been a breach of fiduciary duty or something because I can prove to you that I sent Mr. Laking all this information between September 26 and September 29. I had every reason to believe that you had it, Mr. Laking issued a letter of financing to my realtor that very clearly stated that we were approved, subject only to the appraisal, which you now have. Do you have the letter from my firm that I sent yesterday?"
Her: "What letter is this?"
Me: "A letter from my firm regarding a fee splitting arrangement that my former partner and I made between us for clients that I have agreed to provide ongoing assistance with. I sent it to Mr. Laking yesterday and he said he forwarded it to you. Would you like me to e-mail it to you.?"
Her: "Ummm. Sure, go ahead and send it to me. I know you can work remotely but I can't promise that this will change anything. I do promise you that someone, either Rick or myself will get back to you, Ok?"
I sent her the letter, along with the full e-mail trail of the documents I sent to Mr. Laking up to the 29th. In my panic, I couldn't find what I had sent on the 29th and 30th, as Outlook had attached them to a more recent e-mail correspondence with Laking, but I later found them. About a half hour later, I get the following e-mail from Liane:
Hi Chris, I have spoken to Michael and he will be in touch with you shortly. Michael will be talking to you about alternate solutions to your financing needs. Thanks Chris!
I asked her to clarify what she meant by this, but she refused to answer and all my calls to her direct line were immediately re-routed to the reception.
Mr. Laking then sent me one final turd, coated in milk chocolate and polished to a high shine:
After discussing your file at great length with Optimum here is what we have come up with.
First of all, they have decided and made a final call that they will not go back on their decision for the down payment to be increased. So they will require 35%. However, we have 2-3 ways that we think will work in order for you to get this completed.
Option # 1 - Discuss with Realtor the possibility of the people you are buying from to consider a “vendor take back” mortgage for 10% of the purchase price. All this means is they essentially would accept for you to give them 90% of the purchase price at closing and register a lien / second mortgage for the small amount of difference. With the money you have coming through hopefully in January from Investors you could pay this to them at that time to have it removed. Not sure of they would do this interest free or want increase to accrue but you would have been paying interest on the money anyway should it have come from the mortgage so even if they did it at the same rate or lower wouldn’t cost you anything extra. This is a fairly common practice and would be the fastest and easiest in my opinion. So essentially you could proceed with the 25% down payment now and pay the difference later. If they would agree to this then it make things very quick getting completed and lawyer instructions sent. This way you don’t need to come up with any extra money and could pay the difference in a few months.
Option # 2 - The credit bureau report we had to obtain for you back when we first started this application showed you had a TD credit facility of 25K with nothing owing, I assume is either a Visa or line of credit. If you could draw the extra funds from it to make up the difference on what the lender wants, that’s also a fairly quick solution. You would obviously need to have the money moved into your bank account to have access. I am not sure if this could be done all at once or if there are limits to have much you can move at one time. Again, you are expecting 50K in the next few months which could be used to replace this.
Option # 3 - The difference in down payment that they are now requiring could be gifted from family. If this were to be done we would just need a gift letter signed by the family member and show the money in the bank. I am not sure if you have any family who could do this for you.
I think either of the first 2 options should work and be fairly easy to execute.
I still have Equitable Bank reviewing your file as well. They have come back with several questions throughout the day but haven’t made a final decision yet. I am optimistic they likely will approve but they may not come back with a lower down payment. Considering the amount of time we have, I think it is easiest to stick with the Optimum deal and use either of the options I have outlined above as they would be fairly quick to get things satisfied so we can still try to close on time.
Let me know your thoughts on which option you think is best.
So basically, he is suggesting that I commit fraud to consummate the deal with Optimum. I say this because option #3 is really not an option, especially since I would have told him if it was. I mean, how many relatives do you have that will just give you $13,000 on short notice? The other two run completely counter to Optimum's terms. If Optimum wasn't comfortable loaning me $99,000 to purchase a $144,000 house, then how on earth would they be comfortable with me having a $13,000 credit card balance, that will have a minimum monthly payment of $600-$650? How would they be comfortable with the sellers having a continued interest in the property? How do I even approach the sellers now at this time to discuss or suggest such a thing?
So I decided that Mr. Laking and I were done. I didn't tell him that just yet, as I wanted to see if he would come back with something from Equitable, but his e-mail above suggests that he hadn't actually sent Equitable anything, and had only had conversations with someone there. Maybe the whole thing was just BS. I'll never know.
So on Friday afternoon, I gave the go ahead to a new broker that my realtor referred me to. She has been great, and has been working really, really hard for us. I really do hope that in the next few hours we will have better news. Otherwise, we will have to rent here instead of own, which will be a real blow to both of us, but most especially Steph, who has spent the last 2 months acquiring furniture and decorating it.
The bottom line is:
1. Don't rely blindly on anything a professional tells you unless their behavior has been professional (i.e. they give you straight answers to your questions, promptly return calls, let you know when they won't be available, avoid giving excuses). If they behave unprofessionally, then that is a sign that what they tell you may be unreliable and that they are unlikely to take responsibility for their mistakes.
2. Don't do business with Optimum Mortgage or Canadian Western Bank. Even though my broker was the one who initially screwed up, their behavior was reprehensible. They knew the situation and they knew they had issued a commitment, so they should have honoured it, period. They had every opportunity to mitigate their risk before they issued the commitment that we all relied on. What makes them so special that they can issue a commitment and go back on their word? Banks and mortgage companies have a social function in addition to earning a profit. Their right to exist and do business is really not an inalienable right, but a privilege granted by the government and the greater society. They thus have an obligation not to act against the public interest in my opinion. Issuing mortgage commitments and then reneging on them, and injuring multiple innocent parties is not in the public interest - at all. So don't reward organizations that behave like this, and don't kid yourself into thinking that this is an isolated incident, because I very highly doubt that this is the case.
Well it's 5:21 now. I'd better get some more sleep for the 10 hour drive ahead.