Thread by @ronmortgageguy

Once Upon a Time in Private Mortgage Land

Long post but it's a story

Southwestern Ontario real estate and private mortgages have strange twists and this fable covers about 40% of the wild stuff that happens

Young couple wants to buy a small house in Sarnia last Spring

2/

/2 Both with lousy credit but the incomes were ok and they had 30% down payment from the sale of a previous property

The B lenders like HCG and EQ Bank wouldn't do it because in Sarnia they lend at 65% loan to value and even with 30% DP once the fees and LTT are paid

3/

Its really becomes a 75% loan to value deal so Private Mortgage is the only solution

The rate is not insane 6.99% and 2% lender fee for 1 year

Things go smooth till the fall and then there are some NSFs, we chased and they paid but in November we get the call from the man

4/

/4 "my woman has left me so I will be damned if I am going to keep paying these payments and all the taxes and utilities if she owns half so I am walking out December 28th you guys can have the place"

Strange right? Why not just list and sell? It gets clear later

5/

/5 Counter intuitively this is better for us than 7 months of legal action with zero payments to Power them out of the house

Our agent and a locksmith go in on Dec 29th and he is indeed gone, he left about 2 full bins of junk and garbage

Now we know why he left

6/

/6 the place is GUTTED to the walls, just taped drywall, rough flooring, no cabinets, no interior doors, the plumbing and electrical are there and that's it, not livable

Hey, can happen in Private Mortgage Land, you really never know what the mortgagor will do to the house

7/

/7 so we do the required 2 appraisals and list the house for the average value of the 2

Now the weirdness of SW Ontario real estate kicks in

They paid $169,900 for the place (Sarnia remember) it was old and dated but livable

Get this: GUTTED the 2 appraisals averaged

8/

/8 $162,300 AS IS

The Sarnia market is ON FIRE

Listed Monday, 26 showings on Tuesday, 3 registered offers so far, one $2K under ASK no financing conditions close in 40 days

WTF says I

This illustrates a couple of things: if we had done a 65% B lender first and

9/

/9 a Private Second Mortgage that 2nd mortgage investor would lose all their money

Because on default the institutional first position lender has added a ton of fees, legals, interest and would NEVER have sold the house in 60 days from notice, they just cannot do it

10/

/10 that's why I preach FIRST mortgages not higher return seconds; a first charge puts you in total control

The moral of the fable: at least TODAY the Southwestern Ontario real estate market can solve even severe mortgage default issues

And all investors lived happily after