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Cross Default

A very interesting case recently reminded me of the evil effects this clause can produce. Most (all really) banks have in their standard loan documentation.

When you sign loan papers at the bank, somewhere in there you are signing something that gives them the right to call in ALL of your loans, if you default on any one of them. Let me highlight this by a true, recent incident.
Couple own a home financed by a big bank (BB). Great credit history and NEVER missed a payment on the mortgage. They also have 2 Visa cards (the husband is the main borrower, so the main responsibility).  Also a truck loan for the husband.
The relationship goes sideways. These things happen, that is life. Lawyers get involved. Her lawyer says, don’t pay that Visa card, and let him look after it. His lawyer says, no way let her pay. So, the ONE visa goes in default. All other borrowings are maintained as agreed by the husband.

The mortgage matures in February of this year. BB advised the client that they will not renew him because of the “bad credit”. Really, they are invoking the Cross Default clause where a default on one loan instrument, constitutes a default on all. The client never, ever missed a mortgage payment and they are calling the mortgage because of a $3,000 visa debt!!
Refinancing is not easy, almost impossible because of the credit, and because this is a property where they got in with 5% and now the value of the home is less than when bought. This has been a nightmare for the client where parental had to be given.

I am not suggesting that this will be invoked in all cases, however, it is there and the banks can use it as a hammer. Credit Unions too by the way.

My experience where couples separate is that there are never any winners in a see/saw battle where husband/wife dispute ownership of a credit card or loan debt. Keep paying and sort it out in court.

Moral: The old adage “don’t put all of your eggs in one basket” might well be appropriate here.


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What is a pre-sale?

Example scenario: When the developer intends to build an apartment building and applies for financing, the bank will grant financing under certain conditions. One of them will likely be a certain percentage of pre-sales the developer will need to secure before receiving the funds.
It is common practice for a developer to approach several real estate investors and offer them an opportunity to purchase units of the non-existent building at a discounted price, and on good terms.

Once the number of pre-sales is accomplished, the developer goes ahead with the construction, which will likely take two years or longer to complete. During construction, their marketing team offers the remainder of the units for sale at market value to the public.

If you are a RE investor, you know that it is preferable to be buying at the pre-sale prices, not market value prices.

The question is, how do you get the invitation to buy a pre-sale?
In the past many years, investors have made substantial income by buying at wholesale prices and selling at retail prices even before they needed to complete their purchase. I saw many of them lining up and sometimes even camping overnight in front of the sales center to get a chance to buy at lower prices, but not everyone was lucky enough. You needed to be well-connected to get an opportunity, and you had to act fast.

Today is a bit of a different story. Several projects in the Lower Mainland and Fraser Valley offer really good prices and incentives to secure a unit now and complete the purchase two or three years later. The list of incentives varies from one project to the next. Besides attractive prices, you can get low deposit amounts (5-15%), low or no assignment fees, free updates, a mortgage rate buy-down program, extra parking and more.

A month ago, I helped a few of my clients purchase a presale in Surrey that sold out in 2 days, and I know of another good developer that will be offering a few units for sale as well.

If you would like to know more about these opportunities, I would encourage you to call or email me, and I’ll be happy to send you details on those projects.
Kind regards,
Tibor Bogdan
Century 21 Creekside Realty Ltd.
45428 Luckakuck Way #190, Chilliwack, BC V2R 3S9
cell: 604-855-2521
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