Growing problem
Toronto real estate broker Barry Lebow has not seen this many buyers defaulting in 30 years."It's happening in droves," said Lebow. "I'm hearing stories about many people walking away."
Buying presale or preconstructed homes means putting down a deposit and signing a contract that you will pay the balance after the property is built to agreed-upon specifications on a certain date, called the closing date.
Lebow says the declining condo values and high interest rates are making it difficult for people to finance and close on deals. In some cases the unit has lost so much value they now can't afford a mortgage.
Banks will only loan money on the current value of a property, so if a buyer agreed to pay $1 million and the property is now worth less, the bank will only approve a mortgage for the current value. The buyer is left to find the rest of the money on their own.
"The last time we had a wave like this, it was in the '90s," Lebow said.
Lebow helps developers, who are on the hook to resell when buyers default, to prove to their lenders that units were listed then resold at the highest price possible to offset losses and maximize profit. Often the down payments are used to help pay for the construction and the closing payments are needed to complete buildings.
Toronto condo lawyer Gerry Miller says people are "better off buying something they can touch and feel." He's seen clients lose up to $300,000 deposits, bound by contracts he describes as "incredibly complex and one-sided to the point of it being almost unfair."
