Financing Implications of the Strata Form B: A Guide for Realtors.
In the complex world of real estate transactions, understanding and properly handling Form B is crucial, especially in the context of mortgage approvals. This document plays a significant role in influencing lenders' decisions, and as Realtors, it's imperative to grasp its significance.
The Role of Form B in Mortgage Approval
Form B is not just another piece of paperwork; it's a pivotal component in evaluating the 'Property' element of mortgage approvals. Lenders primarily focus on Form B and its attachments, including the depreciation report, to assess the viability of a property for financing.
Realtors’ Responsibility.
As Realtors, your proactive engagement with Form B can make or break a deal. Transparency about any issues and ensuring that all necessary supporting documents are requested and reviewed early can streamline the process significantly.
Key Areas of Concern in Form B
Form B can contain several red flags that might catch a lender's eye, such as:
1. Strata Fees: Extreme values in either direction can prompt questions.
2. Outstanding Strata Amounts: If there are any amounts outstanding, lenders will investigate if these are from special levies and ensure the seller clears them.
3. Expense Responsibility for Alterations: Any agreements where the strata lot is responsible for alteration-related expenses will be scrutinized by lenders. Ensure all indemnity reports are attached to Form B.
4. Future Special Levies: If there's an upcoming special levy, lenders will seek explanations, possibly including the engineering report and AGM/SGM meeting minutes, detailing the unit's obligations.
5. Budget Overruns: Justifications for significant overruns will be sought.
6. Contingency Reserve Fund (CRF): As discussed previously, a general guideline for lenders is a minimum of $1,000 per unit for condos and $500 per unit for townhouses in the CRF. However, a higher amount is always preferable.
7. By-law Changes: Any changes or pending changes in by-laws or resolutions will require detailed explanations and documented proof.
8. Winding Up Proceedings: These can pose substantial challenges in securing financing.
9. Legal Proceedings: Any involvement of the strata corporation in legal, arbitration, or tribunal proceedings, or any judgments against them, is a major red flag. Lenders will thoroughly investigate the nature of these issues before proceeding with lending.
10. Required Attachments: If the depreciation report is marked as required but not provided, lenders will withhold financing until it's submitted.
The Importance of the Depreciation Report
The depreciation report is a key document, scrutinized closely by lenders. Issues like significant upcoming repairs, signs of deferred maintenance, short lifespan of building components, or absence of the report can be grounds for financing denial.
Client Risk Profile and Lender Considerations
Lenders evaluate the client's entire risk profile. The likelihood of a mortgage application being rejected due to property-related issues is greatly increased for clients with minimal down payments and no backup financial resources. In contrast, clients who make substantial down payments and have considerable savings are more likely to be approved. Understanding this distinction is very important
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Navigating Current Market Conditions
In today's balanced market, most offers can include subjects, allowing for a detailed review of Form B and the opportunity to address any issues. The collaboration between mortgage brokers and Realtors is more crucial than ever to navigate these situations effectively.
For Realtors, understanding and adeptly handling Form B and associated documents is vital in the mortgage approval process. Your awareness and proactive approach can significantly influence the success of property transactions in the current market landscape.
If you have any questions please feel free to reach out.