Mortgage Broker

30 | fall 2017 cmba-achc.ca CMB MAGAZINE taintedproperty Pre-2008, as brokers, we had several lenders who would finance former grow ops ranging from credit unions to banks to monolines. en, over a period of two years, slowly more and more banks pulled out of financing them. Part of this was banks not wanting to be known as "the bank that finances former grow ops." As fewer lenders offered financing to former grow ops, the stigma began to increase, and those lenders who still offered financing found that the broker channel was feeding them a larger and larger number (due to brokers having fewer choices). At the time, one local credit union ceased offering financing on former grow ops and when questioned why, replied cheekily to me: "Because that is all that we are getting." In other words, their book was becoming increasingly filled with former grow ops, and while a local credit union that understands the risks and opportunities of financing former grow ops might be OK with taking some of them on their book, they don't want to be the only one financing them. e second reason that financing has become difficult has to do with the awareness of mould and its potential effect on people with respiratory issues. As grow ops oen result in a high level of humidity due to hot lights and watering, the byproduct of this can be mould in the home. Oen, when cleaning up a grow op, homeowners will use some heavy paint to coat and seal the drywall, then apply a top coat over it, and it is deemed "fixed". However, if there was mould on the drywall, or worse, right into the studs of the house, the mould is still there. Mould can sit dormant for many years, and only needs the reintroduction of water to become reactivated and cause potential respiratory issues. What lies at the heart of the problem is that word, "potential." e banks lending on these homes just don't know what they're dealing with. ey don't know the extent of the risk on the property they're being asked to finance. is is because there is no standard for remediation (fixing the property). ey don't know if it was just slapped with a few coats of lacquer paint, covered and hidden, or if the affected material was removed. Stakeholders have met several times over the past years but there is still no accepted standard for what constitutes properly fixing a former grow op. In fact, regulations differ from municipality to municipality and province to province. Because of this, the banks (most of which are nationwide lenders) don't want to get stuck holding a property that could be highly unmarketable due to the stigma – a stigma which, again, varies greatly from province to province. So where does the client get financing if she still wants to buy the home? Local credit unions that know the local market and can properly assess how marketable or unmarketable the stigma makes the property, are always the best bet. Most lenders will want an air quality test, and it is critical that this be done by a lab that is certified with either the Canadian Registration Board of Occupational Hygienists or the American Board of Industrial Hygiene. ese are the two standards that will get the report accepted by most lenders that lend on former grow ops. Most municipalities will also require a letter of confirmation that the property either has an occupancy certificate or is not violating any bylaws. ere are myriad rules depending on which city the property is located in. Bottom line: Credit unions are the best bet for financing former grow ops. ey recognize the risk, and potential rewards (oen they charge a rate premium), of lending against these properties. Not all credit unions lend on former grow ops, but they're a vital piece of the lending landscape and unless one of the major banks makes a "relationship lending" exception, oen the only choice for these stigmatized properties. What lies at the heart of the problem is that word, "potential." The banks lending on these homes just don't know what they're dealing with. They don't know the extent of the risk on the property they're being asked to finance. This is because there is no standard for remediation (fixing the property).

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