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6 Month Mortgage Deferral Program May Increase Short Sales

You may start seeing short sale properties on the market due to COVID-19. Here's what you need to know.
By Sam Kamra, mortgagecalculator.ca - REW Market Pro customer Jun 16, 2020

Short sales are a complex issue, and due to financial hardships related to COVID-19, some Canadians may unfortunately be forced to consider selling their home at a loss to cover deferred mortgage payments and other expenses. If you're in the market, you may come across these short sale properties throughout your home search this year. In this helpful article, Sam Kamra explains what you need to know about these homes, including what questions to ask your agent.

According to the Canadian Bankers Association, since its inception, more than 600,000 Canadians have taken advantage of the mortgage deferral program in some form. This isn’t shocking, as many Canadians are struggling to stay financially afloat during these uncertain times. The relief program was put in place in March and is being arranged by lenders on a case by case basis. If approved for the program, your lender can pause or suspend mortgage payments for up to six months.

 

How Mortgage Deferral Assistance Program may Boost Short Sales

Before COVID-19 severely changed our everyday lives, the housing market in the GTA was thriving. Experts even believed that 2020 was going to be an explosive year for home sales. Although that isn’t the case right now, it’s believed that it won’t take long for sales to go back to some form of normalcy as the city reduces restrictions and people start going back to work.

While the six-month mortgage deferral program is a good short-term solution for many homeowners, it may cause long-term challenges. All deferred payments and interest during the six-months will need to be repaid, which might be too much for some homeowners. As a result, the number of short sales could rise monumentally over the upcoming months.

In real estate, short sales refer to a situation in which a homeowner who is financially distressed sells their home for less than the amount due on the mortgage. The buyer of the property is typically a third party who isn’t the bank. All proceeds of the sale go to the lender.

Considering the number of people utilizing the mortgage referral program, there is a good possibility that some homeowners may feel the financial crunch from not working or receiving partial pay, and may choose to sell their home at a loss to try and relieve the financial pressure that COVID-19 has caused.

 

Things to Consider Before Buying a Short Sale

In the world of real estate, there are usually not many deals to be found, and in the GTA, that is especially true. Buying a short sale might seem like an amazing deal that you need to jump on right away, but like any financial endeavour, it comes with its own trials and tribulations. Make sure you do your research and talk to a professional before jumping into a short sale. Here's why:

 

You May Not Get the Deal you’re Expecting

When looking for short sale homes, you may find properties that are priced ridiculously low. These listings will obviously receive multiple offers. But to make sure your offer stands a chance; you will need to come in at a price near market value. If you’re not ready to pay a price above the incredible lowball short-sale listing, you may want to pass on a short sale property.

 

Gather Info on Loans, Lenders and Mortgage Amounts

Ask the agent you’re working with to find out how much is owed against the home and the number of loans that have been recovered. A lender that deals with second or third mortgages will only get a fraction of the money that a senior lender in first position will get. This process can unnecessarily complicate the transaction, and as a result, buying a short sale may not be worth the stress.

 

Find an Agent who Specializes in Short Sales

Dealing with short sales comes with its own headaches and struggles, so you want an experienced agent working alongside you when you’re looking to buy a short sale property. Some lenders can be difficult to deal with. Having an experienced short sales agent who has worked with these lenders before can help ease any difficulties you may face. Ask to see the agent's qualifications and short sale track record before agreeing to work with them.

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