Lenders wary of flood homes
Banks double-checking values in damaged neighbourhoods
Nervous banks are demanding fresh appraisals and inspections before providing new mortgages or renewing existing loans on potentially flood-affected properties.
A Calgary appraiser says one financial institution has asked him to check for damage on more than 50 homes in the wake of the disaster, and he believes other banks are being just as careful.
“Lenders are justifiably concerned,” Randy Stegemann said.
“They are interested in the market value, which is hard to assess because there have been so few sales since the flood, and they also often want us to visit to see if the property has been affected by high water.”
Residential sales figures for the past two and a half months show there are 947 deals in flood-affected areas of Calgary and another 58 in badly hit High River that could face additional scrutiny by banks. New transactions will also come under the microscope.
Mortgage broker Mike Boyle said most new loans are normally approved after an online check of recent sales and property assessments, although mortgage approvals are always subject to an appraisal satisfactory to the lender.
“Even if the property’s not damaged, the bank can pull financing,” Boyle said.
“Some lenders may be worried about plummeting values of all homes in affected neighbourhoods.”
Renewal offers on mortgages are commonly sent out automatically to customers, but it appears some banks have changed their practices.
“If you have a pulse and you haven’t missed a whole bunch of payments, the banks just send you a notice in the mail,” Boyle said.
“I think a lot of people are going to get blindsided now when their term expires if there’s been damage to the home or the market values in an area have gone down.”
He predicted banks could refuse financing or ask for additional security if they believe the property was literally, or is now figuratively, under water.
A spokeswoman for TD Bank confirmed all purchase and refinancing transactions in southern Alberta are now being reviewed on an individual basis.
“For properties situated in a potential impact zone,” said Lynzey MacRae, “we are proactively reaching out to confirm whether or not the subject property has sustained any flood damage.”
If customers are unable to complete a statutory declaration confirming the home was unaffected, MacRae said the bank is getting the property inspected and then working with the client to determine the best course of action.
“At this time, no customers have been denied financing on credit files that were approved prior to the flood,” she said.
Michelle Henderson, a spokeswoman with Scotiabank, said her institution is not ordering new appraisals on all deals in flood-affected areas, but is taking a second look where customers are still proceeding with purchasing a property that may be damaged.
“We reconfirm the condition of the security behind the mortgage since the appraisal on file may no longer be accurate,” Henderson said.
“We’re doing this at our expense.”
Alberta’s governmentowned bank appears to be an exception to the rule.
Rob Bennett, executive vicepresident at ATB Financial, said the institution is going ahead with mortgages that were in the works before the flood.
“We have not held back funding on any specific deals that we had committed to,” said Bennett, “and we have not required new appraisals on those files.”
However, insurers of high ratio mortgages where the down payment is less than 20 per cent are being cautious.
Genworth Canada spokeswoman Lisa Azzulo said the country’s largest private insurer is working with lenders to assess which properties have been affected by the floods.
“Additional requirements may be needed to insure a property within our reasonable and prudent risk parameters,” Azzulo said.
While purchasers may now have cold feet about proceeding with deals on flood-affected properties that may now be worth less than they agreed to pay, real estate lawyer Jeff Kahane said they could lose more than their deposit if they walk away.
“If the vendor fulfils his obligation to put the property back in the same condition or better, the contract has not been frustrated,” Kahane said.
“Purchasers who don’t proceed could find themselves being sued for real estate fees, carrying costs and the difference in price on any subsequent sale.”
Anne-Marie Lurie, chief economist with the Calgary Real Estate Board, expects there will be a price dip in flood-hit areas, but she said there has been too little activity since the disaster to measure the impact.
In High River, for example, there have been only three deals since June 20, compared to 31 sales in the same period last year.
Realtor Ken Richter is waiting nervously now to see if seven sales he made in the badly damaged Bowness community before the flood will actually close.
“They will set the precedent,” said Richter, “as to whether banks and purchasers still have confidence and to what extent we are now facing a depressed market in some neighbourhoods.”