Brokers: Lenders turning their back on 'grow-op' properties

Brokers: Lenders turning their back on 'grow-op' properties

As few as one or two broker channel lenders are now willing to write mortgages on the growing number of Ontario properties once home to grow-op and meth lab operations, said a broker skilled in moving those complex deals to funding.

“Really, it’s only Firstline where I can take a deal on a former grow-op,” Wojciech Pianka, a Toronto mortgage agent with Mortgage Alliance. “CIBC is also willing to do them, I understand, If it’s a property they have seized and would rather have a borrower paying a mortgage on it rather than own it themselves.”

The wholesale reluctance of broker channel lenders to fund mortgages on those properties is a relatively new phenomenon and, ironically, corresponds with the real growth in those affected houses across Ontario and much of the rest of the country.

While brokers have no direct fiduciary responsibility around arranging mortgages for former grow-ops, an increasing number of Canadian brokers are being confronted with those properties and the challenge of getting financing, even after they’ve been declared “safe.” Difficulty getting default insurance is another problem mortgage professionals face in winning funding for a deal on what was once a grow-op or lab site. Proposed Ontario legislation would effectively alert them to those challenges prior to moving forward with a client application.

Still, it would do nothing to draw broker channel lenders back to the funding table, as their risk aversion grows and spreads shrink.

“Ontario is the hardest jurisdiction to do a financing on a former grow op,” said Vancouver-based broker Rowan Smith, with The Mortgage Centre Citywide. “I do several of these deals a year and have done them in Ontario, but the lenders there generally have a flat policy that they won’t do a deal on a former grow-op even after remediation.”

Pianka understands their position based on the electrical and mould problems that can plague houses once used as covert labs and greenhouses. That also impacts resale value in the case of foreclosure. Still lender hesitance is frustrating broker efforts to develop niche areas of practice, said Smith, even as his particular specialty area widens.