In December of last year, I bought a house– a nice house, with the perfect location, size, and price for my way of life. And I thought all would be well. The house has good bones, new roof and main-floor windows, and new-ish hardwood floor. But it has a wreck of a basement: insulation is missing on most walls, the wiring and plumbing is not up to code, the basement windows too drafty. I expected my energy costs in that first winter in the house to be high, seeing as the basement was not properly insulated. So I arranged for a “construction draw mortgage” which would pay for the renovations to clean all that up.
Everyone involved in the transaction, including the mortgage broker, the real estate agent, and most of my friends, assured me all would be well.
It’s about six months later, and I’m feeling as if ever since I bought the house, someone or some group of people promised me something, and then when I asked them to deliver their promise, they punched me in the face instead. I feel like I have been cheated and lied to, victimized by a sophisticated bait-and-switch trick, all validated and approved-of by the CMHC and other regulatory bodies that are supposed to put a lid on this. Here’s the story.
The first punch in the face.
In mid December of last year, I gave $15,000 to the notary to cover the downpayment, the lawyer’s fees, and some back taxes. Later that afternoon, the notary phoned me to say I needed to pay $16,000 more, and he gave no explanation for it.
I didn’t have that much money. For about 48 hours, I was sure that I would lose the house and all my money with it. Picture me standing in front of the TD bank branch on St Joseph in Gatineau, in the traffic, in the rain, wondering whether I will have a home to go to tomorrow. I don’t fault the notary for this– he was acting on the instructions he received from the bank. But no one at the bank could explain why I suddenly owed more than twice as much money. I had to hike up the limit of my line of credit to pay for it. Now my short-term debts were enormously higher than I had planned them to be. In fact I had planned no short term debts that I couldn’t pay within a month or two. Instead, I have five-digits worth of short term debts that might not be paid in full for years.
The second punch in the face.
Early in the new year, I wrote to the mortgage broker to ask about how to access the construction-draw funds for the renovation. I got no answer. I phoned him a few times, and left multiple emails. After several months I heard back from him– he had left the bank, and was no longer working on my file. Well, that happens from time to time, and I can’t fault him for that, though I would have appreciated it if the bank notified his clients. So I wrote to his branch, arranged for a meeting with another of their agents, and asked my questions.
At that time, I was told that at least some of the money could be available to me in advance. Perhaps as much as the 15% advance which the contractor wanted. I handed in all the estimates I had so far. But this particular agent admitted that he hadn’t worked with construction-draw mortgages before, and he had to make some inquiries. Very well.
Weeks go by, and nothing happened. I made some phone calls and emails again. The manager of the branch phoned me and said I had been given incorrect information. The construction-draw portion of the mortgage would not be paid until the construction was finished. He also gave me an answer to my question of why I had to pay an extra $16,000 back in December. (Remember, this is five months later.) It was an “insurance premium”, of a sort that is normally rolled into mortgage payments, but for some unexplained reason I had to pay up front. He didn’t say exactly what kind of insurance. It’s not the regular house insurance: I get that from a different company. It’s something else. I still don’t know what.
So, I was to get no money from the bank until the work is done. But because of that unexplained “insurance premium” that the bank took from me without warning, I did not have the funds to pay my contractor to do the work in the first place. You see the trap I’m in: the renos won’t happen until I can pay for them, but I cannot pay for them until after they happen.
The third punch in the face.
The bank manager suggested I could extend my line of credit again, to pay for at least some of the labour and materials in advance. He assigned me to another agent, and I came into the branch to show my income and do the paperwork. At this time I had been assured my line of credit would be increased to $30,000, which I could use to pay the contractor for his labour, and then I could buy materials like insulation and lumber using store cards from Rona or Home Depot. This debt would then be covered by the construction-draw funds, and rolled into my mortgage, as promised.
More weeks go by, and I notice my line of credit had not increased. I wrote the manager to ask why, and I learned that the bank’s head office decided my income wasn’t high enough to carry that much debt– even though the bank knows that the construction-draw portion of my mortgage would cover it less than six weeks later. I was told this was the CMHC’s rule and that there was nothing the local branch of the bank could do about it. The manager said he would investigate whether CMHC would allow the release of half the construction-draw funds when half of the work was done; later he found that he couldn’t predict that until after half the work was done and he got a CMHC inspector to visit. He says I should ask the contractor to accept payment when it’s over, or else borrow money from friends or family.
It’s not the fault of that particular branch manager. But it is the fault of someone, somewhere, at the bank, that I am unable to do what the bank promised me I would be able to do. There are people whose job includes explaining these things to me, and yet nothing was explained. There were too many expensive surprises in this whole experience. And they’ve left me feeling thoroughly demoralized.
Meanwhile, my building contractor, who has been chomping at the bit to get to work all this time, is left wondering what’s happening. He’s a decent man: friendly, helpful, and well recommended from friends at my workplace. But he can’t work for six weeks for free, and I won’t demand that he should. In a way, the bank has been punching him in the face, too. The renovation work should have been completely finished three months ago. Instead, it hasn’t started at all.
I’m investigating other companies that might be able to offer me another loan, but I’m running out of options. I don’t even know what office at the bank I should complain to about any of this. I can’t ask any friends for help– they don’t have money to loan me either. And I don’t have the skills to do the work in the basement myself, although I suppose I could learn them this summer.
I am not asking you, dear reader, for any help in this matter. But I am asking for you to share this story with anyone you know who might have had a similar story, or who might be about to walk into a similar trap. Perhaps next year I will look back at all of this and feel thankful that I got through it. But at this moment, I’m beginning to wonder if what the banks really want me to do is hand over everything I own, and then thank them for the privilege of being punched in the face.