Real estate quagmire
Bank’s financing approval, then its withdrawal, leaves a messy trail
When your bank confirms in writing that your mortgage is approved you should be able to rely on that, says a local real estate agent. Because a B.C. branch of Scotiabank withdrew its mortgage approval six weeks after the approval was received in writing, several people, including a Redcliff woman, have been severely impacted.
On April 24, Scotiabank in Fort St. John, B.C., confirmed in an email to Val and Brad Rakoczy that their mortgage had been approved to purchase Glenn and Nickie Kilback’s home in Vernon B.C.
“Glenn & Nicole, please be advised that financing conditions have been met on the above purchase from Brad & Valerie Rakoczy. Lynn B, please note that a credit memo for $5,000 was deposited into your trust account ... Theresa Seitz, manager, Scotiabank Fort St. John.”
With that confirmed, the Kilbacks made two trips to the Medicine Hat area and made an offer to buy Deanna Sweeney’s Redcliff home. That was accepted.
On June 8, six weeks after that first email from Scotiabank, another email was sent by Seitz.
“Nickie & Glenn, I apologize for the inconvenience where we removed conditions for the Rakoczy mortgage approval. I had a trainee run the application, and input incorrect income for the Rakoczys, when I did the compliance it was discovered that we could no longer approve Val & Brad for the purchase based on the incorrect information. I hope you do not penalize them for our error. Thank you in advance for your consideration.”
The dominoes then began to crash down.
Local real estate agent Annette Olive, Girls On The Go, Maxwell Team Realty, was flabbergasted. Much has changed during her 30 years in real estate but never have agents not been able to rely on written approval from a bank, she said.
If someone makes a mistake you take responsibility even if it costs you, said Olive.
Sweeney said she wants to know who was supervising the trainee and why it took six weeks.
“It just blows my mind that the bank can be as callous as they’re being,” said Sweeney.
“That’s a contract. That’s their word. If you can’t trust the bank...” said Glenn.
“If that was any other industry ... they would be held to that contract,” said Sweeney. “Banks should not be able to get away with that.”
Seeking answers from Scotiabank is elusive.
“The bank does not reply to us anymore,” said Glenn. “They’re stonewalling us.”
Medicine Hat News made several attempts to speak to Seitz without success. The News has a copy of an email, dated June 8, in which Seitz says she had escalated the matter to upper management. A communications person for Scotiabank in Toronto initially asked The News for more time to look into the matter and then simply did not return phone calls or respond to emails.
“It’s like banks can get away with bloody murder and everybody is just supposed to crawl into their little ditch and suck it up and deal with it,” said Sweeney.
Glen Motz, MP for Medicine HatCardston-Warner, is perplexed that it appears a Canadian chartered bank is not communicating with those affected. He has offered to work with the Kilbacks, Rakoczys and Sweeney.
Who is protecting the consumer?
The Office of the Superintendent of Financial Institutions Canada (OSFI) regulates federal financial institutions to ensure they are in sound financial condition so this particular case would not be an OSFI issue, said a spokesperson.
The Financial Consumer Agency of Canada (FCAC) said it can help those affected understand the steps they may consider taking, said a spokesperson. They could also file a complaint with the financial institution.
“I am surprised that in this circumstance that there does not appear, at this moment in time, to be protection for consumers,” said Motz.
“How the hell are you supposed to do business in real estate if there is no control over banks?” said Sweeney. “This sets a precedent. Nobody should feel comfortable removing their financing conditions until the money is transferred on possession date.”
Banks backing out of deals is not a trend, says the Canadian Real Estate Association (CREA).
“The bank needs to own up to its mistake,” said Pierre Leduc, spokesperson for CREA.
The impact on those affected
When the Kilbacks heard from Scotiabank on June 8, their move to Redcliff was imminent, said Glenn. Nicole had given notice at work and was not able to get her job back. Their basement apartment tenant had moved out because the house was “sold.”
The financial loss for the Kilbacks keeps mounting. There is the $1,100 a month in lost rent for the basement suite, $3,000 on trips to Medicine Hat, $5,000 lost deposit on the house they were buying from Sweeney. Nicole’s income loss this summer is $18,000, said Glenn.
“It’s a real mess for us financially,” said Glenn.
Val Rakoczy told The News she was hospitalized with stress-related issues over the failed real-estate deal.
There have been nights the Kilbacks simply could not sleep and their stomachs have been in knots, said Glenn.
The Kilbacks have their home on the market again but they have now missed the “spring rush” which is crucial for the area, said Glenn.
Sweeney was depending on the sale of her home to cover construction work on a building where she plans to open a restaurant at street level and live in an apartment above. She’s now in the middle of all of that and is still paying a mortgage on the house she thought was sold to the Kilbacks. Opening the restaurant is delayed.
“We’ve got legal fees for a sale that never even happened on top of all of our costs and loss of revenue,” said Sweeney.