This is the final in a two-part piece exploring some of the pitfalls to avoid when applying for a residential mortgage.

YOU have your heart set on purchasing property and the plan is to use existing real estate asset as collateral. Smart move, but there are some often-made mistakes that will make the process drag on and on and on.

Victoria Mutual Properties CEO Allison Morgan, during a presentation to her fellow realtors recently, spoke about pitfalls they should help property buyers avoid.

These include a failure to provide concrete proof that the person hoping to make the purchase should be taken seriously. According to Morgan, sometimes a statement of account is not provided with the mortgage application, and that will cause a delay.

“The bank needs to know that there are not going to be any unexpected delays in terms of cost, that they are seeing the full amount of the financial injection and coverage that is required for this transaction, and that our customers can afford it,” she explained.

Read on for other common, collateral-related errors.

Breaches not addressed in the attorney’s correspondence

If the property being used as collateral has a breach, it’s not the end of the world. According to Morgan, the best approach is to advise the financial institution from the outset and let them know you have a plan — and the funds — to address the issue.

“Talk about it up front. Put it in there. [Say], ‘We acknowledge [there is an] encroachment, [for example] the eave is overhanging. [Present a solution, such as], Our client commits to reserve a portion of the proceeds of sale to make an application to the Supreme Court for the amendment of the covenant of the title.’ Deal with it. Just peel off the Band-Aid. Don’t let it wait until it goes to adjudication — if it passes the loans officer — as that is when somebody reviews it with a fine-tooth comb and then legal [department] realises and they have to send back everything.”

Strata documents unavailable

Insuring a strata property as part of a mortgage application can be a headache because an individual strata unit cannot exist without the other units. The lending institution will need all the documents related to the entire strata: proof of insurance, paid maintenance fees, up-to-date property taxes for common areas, et cetera.

“The most risky investments are strata. Why is that risky? Because from a peril and insurance perspective it is the most difficult to rebuild. The purpose of insurance is to get you back to the state you were before the peril occurred. So [for example], you’re in a strata that goes 20 storeys up and the collateral is on the 15th floor.

You cannot insure only the 15th floor. You cannot rebuild only the 15th floor. So we need to get the strata documents.”

Unpaid property taxes and water rates

“Make sure [payments] are current… The bank is not going to approve the loan, because they know [outstanding amounts need] to be cleared up before [the paperwork] goes to stamp office.”