Vigilance Urged When Considering Alternative Financing
The Real Estate Council of Alberta urges consumers considering alternative financing options to be vigilant when it comes to seller financing. While “traditional” lending may not always be an option when purchasing a home, there are things to be aware of if you go looking for financing outside of typical lenders. Incidents of fraud or misleading behaviour is on the rise in Alberta which is worth taking note about.
Seller financing, also known as vendor take-back mortgage, is a type of mortgage where the seller lends fund to the buyer in order to purchase the property. A Rent to Own agreement falls into this category – and should be carefully drafted/reviewed by a lawyer prior to being signed by either party.
While seller financing is an acceptable way to secure financing, it is important to fully understand what is involved. A few points to consider, as well as red flags were provided by RECA:
Hire your own licensed real estate brokerage: a licensed real estate professional must act only in your best interests; above their own interests and those of other people. Your own representation can make sure your interests are looked after if you encounter a seller’s real estate agent offering seller financing. Consumers can find out whether or not an individual is licensed by using RECA’s Find a Professional tool on the RECA website.
Talk to a lawyer: have your own lawyer review the contract to ensure the agreement is legal. If the seller or the seller’s real estate professional insists on using a specific lawyer, this is a red flag.
Verify the property title: it is always good to know exactly who owns the property and what is registered on title, particularly a mortgage. If a substantial mortgage is registered on title, then the funds the seller claims they will lend you may be the bank’s funds, not their own. This is another red flag. You can search titles online through Service Alberta’s Spatial Information System.
Ensure the contract is complete: read the contract to ensure it specifies who will make mortgage payments, to whom, and if applicable, that any lender on title is aware of and approves this seller financing arrangement. It’s a red flag if the contract does not specify who will be making payments, and to whom.