Frustration surrounding financing former marijuana grow-ops. Are brokers running out of options?
A recent article I read as well as a new client looking to purchase a former grow-op, inspired me to write about this topic. Many you may remember my video from a few years ago, in which i discussed financing a former grow op. CLICK HERE for the video.
The client was looking at this home in Surrey, which was exactly what they wanted for their family. The ideal home for a husband and a wife expecting a little one on the way. The property had a grow op in its shed outside of the living space, over 12 years ago. The current clients had owned it for 8 years. The required re-mediation process was completed and the property passed the inspections and the air quality tests, and occupancy was restored, way back when (11-12 years ago). But they have had 4 offers on the place, all of them had fallen through due to financing.
This is a dilemma many other Canadians are facing.
If you speak with an institutional lender representative, they will tell you about stories of homes in neighbourhoods that have been re-mediated only to have mold grow back 10 years after it was purchased.
In one particular instance, the new owner became aware of the situation after his daughter fell ill and by chance they decided to do an inspection. Now, according to a lender, this family can’t sell the home, they aren’t able to live in it and they might have to abandon the home because they are not in the financial position to tear down walls etc and rebuild.
Of course, this seems to be an extreme situation, the one above where my clients were interested in a home, the grow plants were in the shed, nowhere near the actual living space.
There are still lenders out there that will finance former grow-ops, provided all of the tests are passed and the requirements are met. Many are starting to charge a rate premium however, up to 1 percent higher than the going rates. At the time of this writing, a 5 year fixed mortgage is around 2.69%. Some lenders are even charging an application fee.
In the situation with my client, the higher rate (3.69%) brought the debt servicing out of guidelines, and killed the deal.
In the client’s perspective – it is extremely frustrating given that the fact that only a small portion of the property was affected by the grow-op, and there is a history of the property being fine after 12 years of being re-mediated. It is difficult for them to rationalize why a lender won’t consider an exception, as they don’t see the higher rate as justifiable.
It’s easy to understand where the lender is coming from as well, given the story about the mold coming back. The truth is though, that these types of situations are not typical, and should be looked at case by case. But the lenders are not interested in spending the time to look into each situation specifically. It takes time and man-power, something they are not willing to invest.
I think that this really speaks to the direction that the industry is going as a whole. This is a whole other conversation for another day though. The bottom line is, gone are the days where your banker would build a relationship with you and stick his neck out for you. The modern way is ” you are just a number”. The banks are so much bigger these days, it really is impossible to have that same relationship that our parents had with our bankers 30 years ago.
That leaves room for the little guys (like me). An independent mortgage broker, and even a financial advisor, the way we build our business, is through word of mouth. We aren’t affiliated with any particular lending or financial institutions. We strive to use our relationships with the many institutions and providers to find YOU the best overall deal. If we can save you money, show you how to avoid un-necessary costs, then you will no doubt tell everyone you know about us. That is how our business grows.
Many still believe that the bank that they have supported since they were a child have their best interests at heart. I’ve asked this many times, how much did your bank make in profits last quarter. 2 billion? Where do you think they make these types of record breaking profits in a recessionary environment?