Mortgage Broker

Fall 2014

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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Page 43 of 47

44 | fall 2014 MortgageBroker Land deveLopers in British CoLumBia have been constructing strata titled properties for more than 40 years. ere may even be some much older strata buildings if they were converted from pre- existing apartment buildings, townhouses or other types of buildings. ese older buildings beg the question, "How do you tear down an older strata building that is well beyond the point of repair and maintenance?" Strata living has its challenges, and one them is undoubtedly the challenge of getting the owners to agree on a single course of action, even when the one and only solution is patently obvious. In the case of a strata corporation termination, which is needed to convert the strata units into a single title that can be transferred to a developer, the owners must pass a unanimous resolution. A unanimous resolution requires all of the owners (not just the ones who show up at a meeting) to agree on the resolution to terminate the strata corporation. is is a daunting task, as it just takes one or two holdouts to impede this process. e BC Law Institute ( BCLI), in an in-depth review of this problem, has proposed an urgently required solution. e BCLI proposes that the unanimous resolution needed to approve of the strata corporation termination be eliminated and replaced with an 80% owner-voting threshold. Lowering the voting threshold to 80% will definitely improve the predicament for strata owners seeking to windup their strata corporation. It simply makes sense. However, there is one complication in this process that will impact mortgage lenders. Currently, the consent of all charge holders (which includes mortgage lenders) with registrations against any of the strata lots, common property or land owned by the strata corporation must be obtained. is essentially gives each individual charge holder a veto over the strata corporation windup process. e BCLI has therefore proposed eliminating the consent requirement for charge holders, and providing them with notice of the intended termination and a 30-day window in which to seek a remedy in court. e MBABC held a roundtable discussion with mortgage lenders and brokers to discuss this proposal. Changing the owner approval requirement from unanimous to 80% was viewed as a much needed, positive step for strata owners. However, all industry members expressed concerns about the proposal to remove the consent requirement for charge holders. At the heart of the concerns of mortgage lenders and brokers is that the alteration of the property title from strata lots to a single property title with owners registered as tenants-in-common is likely to reduce the value of the property, and therefore the mortgaged security of lenders. In most cases, a single parcel of land will have much less value than if it is divided into multiple parcels, such as strata lots which are easily transferred to another party. e concerns of mortgage lenders and borrowers include the following: (1) Most mortgage lenders have a significant interest in the strata lot – the lender's interest can be greater than that of an owner. In many cases, mortgage lenders will have an interest in a strata lot that is far greater than that of the registered owner. e majority of mortgage lenders will lend up to 75% of the value of the strata lot, and some will even lend well in excess of that ratio. When you consider who is entitled to the equity of a strata lot, you will see that many mortgage lenders have a significantly greater interest in the strata lot than the registered owner. Mortgage lenders, therefore should be afforded protections and rights in the strata corporation termination process, which are at least equal to that of the strata lot owner. (2) e borrower would breach many covenants in a mortgage agreement if they caused an alteration of the strata lot title or devalued the strata lot. Mortgage lenders agree to provide mortgage funding to borrowers, secured against a specific legal title. When an owner takes action to alter that legal title or do anything to reduce the value of the property they are likely in breach of their mortgage agreement with the lender. A strata corporation termination without the consent of mortgage lenders would therefore constitute a breach of the mortgage agreement. Lenders would have the ability to seek legal remedies, such as foreclosure against borrowers during the course of the termination process, which would complicate the process. (3) Mortgage lenders with no control in the strata termination process will be exposed to increased risk when lending against older strata units, and may stop lending on these units, or may only lend at significantly higher interest costs to mitigate the risk. One lender said just learning of the MBABC suggests a compromise that requires consent to termination for mortgage lenders, but not for other charge holders Strategies to Simplify Strata Corporation Termination By samantha gale

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