Investors taking dangerous steps to get over five door rule

Brokers advised an investor client – who closed two deals in one day -- to not disclose the second planned property purchase to the lender as a work-around for one lending rule.

Investors taking dangerous steps to get over five door rule
Brokers advised an investor client – who closed two deals in one day -- to not disclose the second planned property purchase to the lender as a work-around for one lending rule.
 
Some investors are being creative with what they disclose to the lender in the face of increasing pressure not to overstep the five-door rule.
 
Speaking to MortgageBrokerNews.ca’s sister publication, CREW, an Ontario-based landlord – who spoke on the condition of anonymity -- tells of this obstacle when closing two deals in one day. After her joint-venture backed out in the eleventh hour, she said her mortgage brokers advised her not to disclose the second sale to the lender when she signed the early morning deal.
 
“We were told that as we had did not technically own the second property that we were closing on later that day, we did not have to disclose it to the lender when sorting the first deal,” says the investor. “We had a joint venture partner as we were going over the five doors but luckily we already had the down payment so we were able to close quickly.”
 
The strategy of closing two properties in one day to overcome the five-door rule implemented by some lenders may be applauded by some investor, Drew Donaldson, mortgage broker with Safebridge Financial, advises against it.
 
“There are issues with compliance here and we would never advise our clients to not disclose anything to the lender,” he says. “There are many alternative solutions to investors. Many lenders, such as National Bank, offer up to 12 doors.  And obviously there are many ways to set up your portfolio to avoid any issues that investors may overcome when dealing with lenders.”