4 Nov

Condo in Crisis: What to Do if Your New Purchase Faces Receivership

Posted by: Michael Greene

Is Your Condo Project Facing Receivership?

Picture this: You’ve been excitedly waiting for your new condominium to be completed in just a few months. All day, you’ve been imagining how you’ll decorate it, learning about local shops, and planning your housewarming party. Then, suddenly, the builder stops sending updates. You turn on the news and discover that your condo project has gone into receivership.

This exact situation happened to one of my clients, someone I had been working with on other pre-construction purchases. Unfortunately, it’s becoming an all-too-common story as real estate receiverships increase across Canada.

But before you panic, let’s break down what this means for you.

Understanding Receivership: What It Means for Your New Condo

Receivership occurs when a secured creditor appoints a receiver to take control of a property, typically to sell it and recover the funds owed by the developer. A receiver is usually a property expert who steps in to manage the project’s finances and steer it back on track.

Think of receivership as a financial lifeline for a troubled project. If a developer can’t meet its debt obligations, a court appoints a receiver to take control of the situation. Receivership is serious and not every developer qualifies for it, but when granted, the receiver analyzes the project’s finances to determine whether it’s feasible to complete it. If the costs are too high, drastic measures may follow.

Types of Receivership

There are two types of receivers:

Court-appointed receiver: A court officer who must report to the court throughout the process. The receiver’s fees usually take 25% of the collected funds, plus expenses, paid by the judgment debtor.
Privately-appointed receiver: Appointed by a secured creditor, this type focuses on recovering debts.

One Example:

Last year, the Iconic “The One” skyscraper project at Yonge and Bloor in Toronto entered receivership due to $1.6 billion in unpaid debt. A court-appointed receiver took control after the developers defaulted. Today, construction continues, with an expected completion date in March 2025.

What Happens When Your Condo Goes Into Receivership?

When a condo project enters receivership, the future of pre-sale contracts depends on the receiver’s decision. They can either continue or cancel the project:

Continue: If the receiver chooses to proceed, existing agreements remain in effect.
Cancel: If the project isn’t financially viable, the agreements may be terminated. In this case, buyers might claim their deposits and potentially take legal action, but recovering funds can be difficult given the developer’s insolvency.

A receiver, not the developer, has the authority to sell the project to another builder or take control of the assets. They may also seek Debtor-in-Possession (DIP) financing, allowing the developer to remain in control while restructuring to complete the project.

DIP loans, though regulated and costly, give developers the funds and time to finish a project in receivership. These loans are more likely to be approved for developments in high-demand areas, as stopping construction in such locations reflects poorly on local governments.

Protecting Your Financial Interests

When you enter a new construction property agreement and provide a deposit, programs like Tarion in Ontario offer protection. According to Tarion’s website, protection applies if:

The builder goes bankrupt.
The builder fundamentally breaches the purchase agreement.
You have a statutory right to treat the agreement as terminated.

For freehold homes purchased after January 1, 2018, Tarion covers deposits up to $50,000 or 10% of the purchase price (to a maximum of $100,000 for homes over $600,000). Condo buyers enjoy extra protection under the Condominium Act, which mandates that developers hold deposits in trust.

Developers must also provide a Delayed Occupancy Warranty, ensuring your condo is ready for occupancy by a specified date. If the developer misses this deadline due to construction delays or receivership, they must compensate you. A PDF copy of the warranty can be downloaded here for your reference.

Steps to Take When Your Condominium Goes Into Receivership

If your condo goes into receivership, here are steps to safeguard your investment:

Contact the Receiver
Reach out to the court-appointed receiver to get updates on the project. They can inform you about the next steps.
Review Your Purchase Agreement
Carefully examine your contract for any clauses about delays, receivership, or deposit protection. This helps clarify your rights.
Check for Deposit Protection
Verify whether your deposit is covered by programs like Tarion, and file a claim if necessary.
Consult Your Real Estate Lawyer
A lawyer specializing in real estate or condominium law can guide you through your legal options, including deposit recovery or claims against the developer.
Stay Informed
Keep up with updates from the receiver. They may attempt to sell the project to another builder or secure additional financing to complete it.
Prepare for Delays
Be ready for significant delays or, in the worst case, the cancellation of the project.
Understand the Possible Outcomes
If the project continues, expect delays. If it is canceled, you may be eligible for a refund, though recovery amounts will vary based on the developer’s financial state.
Consider Legal Action for Damages
In rare cases, buyers may pursue additional damages beyond their deposits. However, this depends on the developer’s solvency and the available assets.

To Sum It All Up

Receivership is often a temporary measure, aimed at getting the project back on track. While dealing with a property receivership can be overwhelming, staying informed, seeking legal advice, and understanding your rights can help protect your investment. Whether the project moves forward or gets canceled, having a clear plan will ensure you’re ready for whatever comes next.

If your condo project is in receivership or you have questions about real estate investments, reach out to Mortgage With Mike today. Our team is here to help you through every step of the process, protecting your financial interests. Schedule your free, no-obligation 15-minute consultation now!

3 Nov

Boost Your Income and Property Value with The Secondary Suite Refinance Program

Refinancing

Posted by: Michael Greene

Ontario’s New Secondary Suite Refinance Program is designed to expand the availability of affordable housing by offering financial aid to homeowners interested in adding secondary suites. These suites, commonly referred to as accessory dwelling units (ADUs), can be a great asset to your property, providing extra income while helping address the housing shortage.

Program Highlights

The Secondary Suite Refinance Program provides several important benefits to qualifying homeowners:

Up to $40,000 in forgivable loans, covering 50% of the costs to build new secondary suites.
Homeowners can now refinance up to 90% of their home’s value, including the potential value of the secondary suite they plan to build. This allows them to borrow a larger sum of money by tapping into the increased value of their property.
The refinanced mortgage can be amortized over a period of up to 30 years, making monthly payments more manageable for homeowners. This longer amortization period spreads the loan out over a longer time, reducing financial strain.
To ensure that homeowners across all regions can take advantage of the new regulations, the government has increased the mortgage insurance limit to $2 million. This applies to those who are refinancing specifically to build a secondary suite, providing flexibility for homeowners in higher-priced housing markets.
Supports the creation of basement apartments, laneway houses, and garden suites.
Encourages affordable rentals by requiring units to be rented below market rates.
Promotes accessible housing by providing support for building suites that cater to seniors and people with disabilities.

Who Can Apply

To be eligible for the Secondary Suite Incentive Program, homeowners must meet the following conditions:

Must be the registered owner and occupy the property as their main residence.
Have a combined annual income of less than $209,420 for all property owners.
The property’s assessed value must be below the homeowner grant threshold (set at $2.15 million in 2024).
Acquire all necessary building permits from local authorities before starting construction.
Rent out the unit at a rate below the market average for a minimum of five years to receive loan forgiveness.

How to Apply

Follow these steps to successfully apply for the Secondary Suite Incentive Program:

Assess Your Property: Evaluate the potential for adding a secondary suite and consult local zoning regulations to ensure compliance.
Secure Funding: Explore financing options to ensure you can cover your portion of the construction costs.
Obtain Permits: Submit the necessary permit applications to your local municipality, ensuring your plans meet all zoning and building code requirements.
Submit Your Application: Complete the program’s application form, providing all required documents, including income proof, property ownership details, and building permits.
Build the Suite: Once your application is approved, begin construction. Ensure all work is inspected and meets required standards.
Rent the Unit: Upon completion, rent the suite at the below-market rate for at least five years to qualify for loan forgiveness.

What is a secondary suite?

A secondary suite is a self-contained living space located within a single-family home or on the same property. It typically includes its own separate entrance, kitchen, bathroom, and living areas, making it independent from the main household. These suites are often referred to as basement apartments, in-law suites, or granny flats.

Secondary suites can be created by converting existing spaces, such as basements, garages, or attics, or by building a new structure like a coach house or laneway home on the property. They provide additional housing units within a residential area and can be rented out to generate extra income or used to accommodate family members, such as elderly parents or adult children.

In many cities, the construction of secondary suites is regulated by local bylaws, which specify requirements such as minimum size, zoning, and safety standards. These units are increasingly popular as a solution to housing shortages and as a way for homeowners to make more efficient use of their properties.

Primary unit and secondary unit examples.

Why Build a Secondary Suite?

There are several benefits to adding a secondary suite to your property:

Extra Income: Generate rental income to help with your mortgage or other expenses.
Boost Property Value: Increase your home’s value by adding a rentable unit.
Contribute to Affordable Housing: Help provide affordable housing options within your community.
Housing Flexibility: Use the unit to accommodate family members, like elderly parents or adult children, while maintaining privacy.

Questions to ask when Considering Building a Rental Suite?

Is there demand for rental housing in your neighborhood?

Have you researched how much it will cost to build your suite?

Have you spoken to your lender about financing options?

Can you afford to build a suite, even if there are delays or additional costs?

Can you meet all zoning requirements?

Can you meet all building code requirements?

Do you want to be a landlord and rent the suite out long-term?

Can you afford the mortgage or loan payments if the suite is not rented for a few months?

Conclusion

The Secondary Suite Incentive Program in Ontario provides a valuable opportunity for homeowners to improve their financial situation while making a positive impact on the community. By understanding the program’s requirements and following the application steps, you can successfully develop a secondary suite that benefits both your family and the wider community.

Thinking of taking on a project like this?

Partnering with a knowledgeable mortgage broker like Mortgage With Mike will empower you to make informed decisions. Your mortgage is a fundamental aspect of your financial future, and it’s essential to ensure it’s built on solid ground.

Get in touch with us today to discover how we can assist you on your journey to homeownership.

2 Sep

How Ontario’s New Planning Statement Could Impact Toronto Housing Prices and Development

Toronto housing market impact?

The new Provincial Planning Statement could have several significant impacts on housing in Toronto:

Increased Flexibility for Toronto’s Housing Development: With greater autonomy granted to municipalities, Toronto could tailor its housing strategies to better meet local needs. This means more responsive planning to address specific challenges, such as affordability, density, and the demand for various types of housing.
Focus on Transit-Oriented Development: The updated statement emphasizes building more homes near major transit stations. For Toronto, this could lead to increased development around transit hubs, making it easier for residents to access public transportation and reducing reliance on cars. This approach could lead to the creation of more vibrant, walkable communities.
Utilization of Underused Lands: The push to develop underutilized low-density areas, like shopping plazas and malls, could open up new opportunities for housing in Toronto. This might mean the redevelopment of existing commercial areas into mixed-use developments that include residential units, potentially easing the pressure on housing supply.
Streamlined Planning Process: The simplification of the planning rules could speed up the approval process for new housing projects in Toronto. This could help alleviate the housing shortage by getting projects off the ground more quickly, especially as the city strives to meet its share of the province’s 1.5 million homes target.
Potential for Low-Density Sprawl: While the statement aims to promote more housing, there’s a concern that it might lead to increased low-density sprawl, even within Toronto. This could have implications for sustainable development, potentially conflicting with the city’s goals of increasing density and reducing environmental impact.

In summary, the new Provincial Planning Statement is likely to accelerate housing development in Toronto, particularly in areas with good transit access and underutilized land. However, the long-term effects on affordability, density, and sustainability will depend on how the city implements these changes and balances growth with its existing urban planning goals.

How will this affect pricing?

The new Provincial Planning Statement could influence housing prices in Toronto in several ways:

Increased Supply May Stabilize Prices: By encouraging more housing development, particularly in underutilized areas and near transit hubs, the new planning policies could help increase the supply of homes in Toronto. If the supply of housing rises significantly, it could help stabilize or even lower prices, particularly in areas where demand is high.
Development in High-Demand Areas: Building more homes near transit stations and redeveloping commercial areas could increase the value of these properties, making them more desirable. This could lead to higher prices in these newly developed areas, especially if the demand for these locations outweighs the supply.
Potential for Higher Land Values: As more land is repurposed for residential use, particularly in low-density commercial areas, the value of this land could increase. Developers may pass these higher costs onto buyers, potentially leading to higher home prices in these newly developed areas.
Short-Term Price Increases Due to Demand Outpacing Supply: In the short term, if the pace of construction doesn’t keep up with the growing demand, prices could continue to rise, especially in high-demand areas. This could be exacerbated by external factors such as high interest rates and global economic uncertainty, which might slow the pace of new developments.
Potential for Long-Term Price Moderation: Over time, as the market adjusts to the increased supply of housing, prices could stabilize or moderate. However, this depends on the scale of new development and how quickly it can meet the growing demand in Toronto.

In summary, while the Provincial Planning Statement aims to boost housing supply, which could eventually moderate prices, Toronto’s housing market impact will depend on the speed and scale of new developments. In the short term, prices may continue to rise, particularly in high-demand areas, but increased supply over time could help ease these pressures.

What’s the next step?

The next step following the introduction of the new Provincial Planning Statement involves several key actions that will shape its impact on Toronto’s housing market:

Municipal Implementation: Toronto’s municipal government will need to integrate the new planning guidelines into its local planning policies and zoning bylaws. This involves revising existing frameworks to align with the province’s directives, particularly around transit-oriented development and the utilization of underused lands.
Stakeholder Consultation and Feedback: The city will likely engage with stakeholders, including developers, community groups, and residents, to gather input on how these changes should be implemented. This consultation process can influence how flexible or strict the new policies will be in practice, particularly concerning density and sustainability concerns.
Development Proposals and Approvals: As the city adopts the new guidelines, developers will begin proposing projects that take advantage of the updated planning rules. This might include redeveloping shopping plazas into mixed-use areas or building new housing near transit stations. The speed at which these projects move through the approval process will be crucial in determining how quickly new housing comes online.
Monitoring and Adjustments: The province and the city will likely monitor the impact of these changes on housing supply and pricing. If the new policies are not leading to the desired outcomes, such as sufficient new housing construction or affordable pricing, further adjustments may be needed. This could involve tweaking zoning regulations, offering incentives for affordable housing, or revising development targets.
Public Communication and Education: It’s also important for the city and province to communicate these changes to the public. Homebuyers, homeowners, and investors need to understand how the new rules will affect their property values, housing options, and potential investments. Clear communication will help manage expectations and encourage informed decision-making in the housing market.

The next steps involve Toronto’s integration of the new planning guidelines, active consultation with stakeholders, and the initiation of development projects under the updated rules. The effectiveness of these steps will depend on how well the city balances growth with the need for affordable and sustainable housing options.

In conclusion, this new policy will replace the Provincial Policy Statement, 2020 and A Place to Grow: Growth Plan for the Greater Golden Horseshoe 2019, as amended in 2020, and give municipalities the tools they need to build more homes. Aligning builders and developers with incentives to get more projects off the ground. The vision, laws, policies, and process for land use in Ontario is ready to be put into action and this can be explored through the 2024 Provincial Planning Statement. Here you can Download the PDF of the Provincial Planning Statement.

As we continue to navigate this unpredictable journey of interest rates, our commitment to your financial success remains steadfast. Whether rates rise or fall, the Bank of Canada rate cut impact on mortgages will influence your decisions. Partnering with a knowledgeable mortgage broker like Mortgage With Mike will empower you to make informed decisions in this evolving landscape. Your mortgage is a fundamental aspect of your financial future, and it’s essential to ensure it’s built on solid ground.