Calgary, Alberta – As Canada’s mortgage rules have tightened, the Real Estate Council of Alberta (RECA) acknowledges consumers may consider alternative financing options to purchase or sell real estate.
RECA urges vigilance, as incidents of fraud or misleading behaviour around seller financing are on the rise in Alberta.
Seller financing, also sometimes known as a vendor take-back mortgage, is a type of mortgage in which the seller lends funds to the buyer to facilitate the purchase of a property. “Rent to own” agreements fall into this category.
“Seller financing is an acceptable alternative to securing financing through a traditional lender,” said Bob Myroniuk, Executive Director. “However, when entering a deal that involves seller financing, we’re urging consumers to be vigilant, and understand exactly what they’re getting into.”
As the governing authority for real estate and mortgage brokerage professionals in Alberta, RECA asks consumers to consider the following advice and red flags:
• Hire your own licensed real estate brokerage: a licensed real estate professional must act only in your best interests; above their own interests and those of other people. Your own representation can make sure your interests are looked after if you encounter a seller’s real estate agent offering seller financing.
• Talk to a lawyer: have your own lawyer review the contract to ensure the agreement is legal. If the seller or the seller’s real estate professional insists on using a specific lawyer, this is a red flag.
• Verify the property title: it is always good to know exactly who owns the property and what is registered on title, particularly a mortgage. If a substantial mortgage is registered on title, then the funds the seller claims they will lend you may be the bank’s funds, not their own. This is another red flag. You can search titles online through Service Alberta’s Spatial Information System.
• Ensure the contract is complete: read the contract to ensure it specifies who will make mortgage payments, to whom, and if applicable, that any lender on title is aware of and approves this seller financing arrangement. It’s a red flag if the contract does not specify who will be making payments, and to whom.