Tips, Advice, and Explanations from a Vancouver Mortgage Broker  

Posts Tagged ‘MGO’

Former Grow Op Financing – Explained by Vancouver Mortgage Broker Rowan Smith

Friday, March 30th, 2012

Transcript of Video Blog:

Hi everyone. Rowan Smith at the Mortgage Center. Going to talk today about my favorite topic and probably my most popular one on all of my blogs, former marijuana grow ops. I want to talk about a specific program that’s come out for these because in most of my prior posts I’ve described what’s required when you’re financing a grow op. I’m going to do so today and cover the new program.

First and foremost, if you’re looking at a property that’s a former grow op it must be fixed. It must already be fixed. It’s not something that you’re going to be fixed, it has to be repaired and what we call remediated. If it’s not remediated your really only choice is to either purchase the property in cash or to purchase the property through a private lender. Usually the rates are much higher in those circumstances.

Let’s assume that the home is fixed. How do you prove that? First off, if you walk into your average bank, Scotia Bank or TD or something, you’re probably going to get declined right off the get-go if you announce that it’s a former grow op, even if it was a former grow op 10 years ago. If it shows up on the property condition disclosure statement or in any of the documentation it was a former grow op, and the seller’s under an obligation to report that, then it will probably be declined in most circumstances.

There are some lenders that I work with that offer the same rates as all the other financial institutions who have a much more open mind about former grow ops. They just want to make sure that they’re fixed and that there’s no potential problems in the future. Here’s what they want to see. First off, environmental air quality testing. Cost between $1,500 and $2,000 depending on where you get it done. There’s a couple of firms that I’d highly recommend over the rest because they’re more widely accepted amongst the financial institutions. If you need that information contact me.

You need the air quality testing. What they’re looking for is they want to see if there’s mold in the air and spores and whatnot. That will ensure that it’s a livable property. Depending on the city you’re in you may also need to get a re-occupancy permit. The city may have pulled the occupancy permit if it was a busted former grow op. Not all places are on-board with this system, though, so please speak to me if you think that may be an issue.

If the occupancy program is not in place then you’re also going to require, third, is going to be a letter from the city that confirms that your property confirms to all municipal bylaws. That’s essentially the same thing as the occupancy permit but a lot of times, in some cities, they don’t pull the permit. They’re not going to issue a letter that says the permit was never pulled. What they’re going to do is give you a comfort letter instead that says the property does not infringe on any bylaws.

Certain municipalities will also want some sort of letter from the electrical company saying things have been set back up and hooked back up to code. Again, you need to speak with me depending on the municipality you’re in. The bottom line here is that I don’t recommend trying to get these properties financed on your own. Chances are you’re going to walk in there and they’re going to either laugh you out of the property, out of the building, or they’re just not going to treat you with due respect, they’re not going to take it seriously.

Several former grow ops do have great value. They’re perfectly fine homes, especially when the grow op was out in the back garage, but to the banks if it’s in the garage or in the house or five years ago or last week, fixed or not, it’s a former grow op until you bulldoze it. That’s just the current state of the law right now.

The new program I’m talking about, effectively, if a property has been a former grow op more than five years ago and we can document that it’s been fixed and has been lived in for that period of time I have one financial institution which will waive a lot of those additional requirements I looked at. They may still want a full appraisal on the property and they’re still going to make sure you qualify under all normal guidelines. They’re still going to charge you full discounted rates but they’re not going to ask for that expensive air quality testing which often is the deal killer for many people.

Again, property must be fixed, environmental air quality, occupancy permit if it got pulled, if it did not get pulled comfort letter from the city, any other municipal bodies such as the hydro company that explains what’s been done, and chances are you’re going to need a full appraisal in all circumstances regardless. If it’s been over five years, we can chop that list down by a big amount, make it much more simple.

If you or someone you know is looking into a former grow op don’t go walking into your bank alone. Please call me. I can at least offer you solutions and suggestions on how to get this approved. There is no fee for my service so please call me. I’ll help you out. It’s Rowan Smith at the Mortgage Center.

What Properties are Hard to Get a Mortgage On? Vancouver Mortgage Broker Rowan Smith Explains

Sunday, March 25th, 2012

Transcript of Video Blog:

Hi everyone. Rowan Smith from the Mortgage Centre. I want to talk today about properties that are difficult to finance. I’ve run into a whole bunch of these in the last couple of weeks so I thought it would be pertinent putting out an actual post to explain properties that you may or may not have problems with.

First off, log homes. A lot of lenders just have a policy they don’t lend on log homes. I don’t really know why it is. I guess they view it as a slightly inferior security or a fire risk or what have you but log homes can present a problem. There’s lenders that will still do them, though.

Former marijuana grow ops. Another big one. There is lenders that will still do those. Check my other posts on the side. There’s plenty I’ve done on what you need to for a former grow op. Another property that often appears very, very appealing to investors but are difficult to finance are residential homes that have more than four living units. Anything with four units or less is generally considered residential. As soon as it hits five it’s considered a commercial mortgage or commercial property.

If you’ve got a home that’s got two basement suites, a loft, and a main floor that’s residential. They’re all over Vancouver. If you’ve got something that’s got two in the main, two lofts, and two basement suites that’s six. Again, there’s several of these older, larger character homes throughout Vancouver. It’s technically a commercial mortgage. You’ll have a lot of problems with the banks.

Properties that are sitting on large parcels of land, acreage, or they’re very rural. Banks don’t want to be sitting on something in foreclosure for months and months or years and years and years. If something’s massive acreage and if the land makes up a disproportionately large percentage of the value it can be tricky to finance those as well.

Float homes, mobile homes, manufactured homes, homes that are sitting on concrete blocks even if it’s the norm in the area are all quite difficult to finance in many cases. Commercial properties, whether it’s a strata property or whether it’s a massive commercial industrial process you need to be dealing with a commercial bank, commercial lender, or commercial mortgage broker for those.

That’s an example of some properties that can be difficult to finance for one reason or another. If you know any people that have properties like this they’re looking at, they’ve fallen in love with, and just because the bank doesn’t think it’s a great idea doesn’t mean it’s not a great purchase and not perfect for you. It may well be.

In those circumstances, please give me a call. I may have a solution or a lender that you’re unaware of and still get you that same great rate that you see on TV. My name is Rowan Smith at the Mortgage Centre.

Former Grow Op Updated – By Vancouver Mortgage Broker Rowan Smith

Thursday, October 6th, 2011

Transcript of Video Blog:

Everybody, Rowan Smith from the Mortgage Centre. I’m here today to talk again abut a topic that seems very popular among my blogheads, which is former marijuana grow ops. Can you finance them, or how to finance them? The answer is, “Yes, you can,” and the way to do it is this. There’s typically going to be extra underwriting that’s going to be required. Not all banks are going to be willing to do that… Read the rest of this entry »

Former Grow Ops – The Noose Gets Tighter

Saturday, September 25th, 2010

Transcript of Video Blog:

Hi, everyone. It’s Rowan Smith from the Mortgage Centre. I want to talk today about the ever-tightening noose that’s slowly closing around the neck of former marijuana grow-op properties.

Now these properties in the past, we always had some credit unions and some smaller institutions that really had more of a make-sense approach to this, to financing former marijuana grow-ops. But the list of lenders that does it has just gotten smaller and smaller and smaller, and those few that do still do it require an extensive amount of documentation up front.

Now if you’re looking at one of these properties, these former marijuana grow-ops, and you want to buy one, and you think it’s an amazing deal, chances are it’s an amazing deal because most people can’t get financing on it. Most banks won’t do it.

There are a couple of institutions. I’m going to use an example, VanCity Savings. I sent a file in to them recently. It was a former grow-op, and they told me after the fact, once they had funded it, this will be the last one that they’re going to do through the broker channel. So they’re not going to be doing former marijuana grow-ops any longer.

Well, that was one of our primary institutions. But think of it from their point of view. When you’re one of only a handful of these companies that’s still doing these products, your book is going to get loaded with these applications, and people may only use you for that type of a product. That’s not what any bank wants. They don’t want themselves to be known as the institution that finances former grow-ops.

So if you’re looking at one of these properties, we need to do some due diligence ahead of time. Things you’re going to need: you’re going to need a full appraisal on the property to make sure the market value’s there. You’re going to need an environmental air quality sample. This is going to cost about $1, 000 to $2, 500 depending on the property.

Now a smart seller will go get this stuff in advance, and this message is for Realtors, too. Realtors, if you’re listing one of these properties, make sure to get this stuff up front. It’s going to mean that you’re not going to go through eight offers and all the stress and everything. You’re going to have all the paperwork you could provide.

Some municipalities are doing to ID occupancy permit reissue program, where if it’s a former grow-op that’s busted the city yanks that occupancy permit, and they only reissue it once the appropriate fire and chemical and environmental reports have been obtained. In those circumstances, you’re going to have to get that reissued occupancy permit.

It’s a huge hassle, because you have to go to the city hall and deal with them to get it. “Who are you? You don’t even own the property. What right do you have to this information?” It becomes a fiasco. You’re going to need the buy-in and the assistance of the selling Realtor and the seller.

In summary, what are you going to need? An appraisal, environmental and occupancy reissuance or some sort of proof from the city that electrical and everything is up to code.

There could be differences, because a few municipalities are not on the reissuance program. Some issue comfort letters. An example is Surrey. Some of them reissue the actual occupancy certificate. You need to know what you’re dealing with, and you need to deal with a broker who knows what municipalities do what.

Now I used to do a lot of these things nationwide, and I’ve retracted to only financing former grow-ops in the BC market, the reason being is other markets, particularly Toronto, where I used to get a lot of these applications, the only lender that would look at them was HSBC, and they’ve now exited the broker market.

I can’t help any more in that matter. If you’d like to try HSBC directly for those people that are back east, go ahead and give them a try. But for now, I will be restricting my activities financing former grow-ops to British Columbia alone.

For the Mortgage Centre, I’m Rowan Smith.

Former Marijuana Grow Ops – How to Buy and Finance Them

Wednesday, March 3rd, 2010

My most popular prior post BY FAR was dealing with form MGO or Marijuana Grow Ops. There is a lot of possible profit and potential gain for those that can afford to buy, fix, and flip them, IF you know the required steps.

This video addresses what you need to do in ANY part of the country if you want bank financing to finance a past grow op. If you want private financing, these rules don’t apply, but most people would rather pay 3.5% over 10% privately. This video blog shows you what is needed. Enjoy!

Transcript of Video Blog:

Hi, everybody, Rowan Smith with the Mortgage Centre. My most commonly hit blog topic of all time, consistently, is talking about former marijuana grow operations. So I’m going to do another one that’s going to cover a little bit more detail.

For those of you that are not in the Vancouver market, perhaps you’re in the Toronto or Ontario market where they’re not used to dealing with these things, this can serve as a guide for how best to proceed to get the best financing rates for you and your clients.

So, a former marijuana grow operation. It doesn’t just have to have been currently a grow off of the prior owner; it could have been the owner before then or the owner before that. When you buy a property, if you’re using a realtor, there’s usually a disclosure statement or something where they ask, “Has the property ever been used as a former marijuana grow op?”

If it has, and it’s in B.C. anyway, that person has to declare that it has been used as such. And why? Because a lot of times that could compromise the value of the security, which is the home, for the bank.

A lot of banks, Scotia Bank for example, simply will not do a former marijuana grow op. It doesn’t matter if you have 50 percent or 65 percent down. They’re not interested in that business, they’ll get it elsewhere, and they’ll leave it for somebody else.

The more common credit unions are the ones that are doing them. There are a couple of the big banks that will, but they require different things such as environmentals. So if you’re looking to finance a former marijuana grow, here are the things you’re going to have to understand.

You will be required to get an appraisal of that property, guaranteed. Every bank’s going to ask for it. Number two, you’re going to have to provide some sort of environmental study confirming that the property is still fit for human habitation. Now, what that means is there are two types.

There are many types of environmentals, but the most common are a phase one, or it’s the level one, and that’s an air quality test. What they are looking for is mold. Make sure there’s no toxic mold in the property, because people can bleach walls and paint them white and Killz and other stuff to get rid and hide the fact that there was a grow up on the property.

So what they do is they take an air test where the grow op was in the house, they take an air test where they grow op was not in the house, and they do another test outside as a control. They look and make sure that there’s not a massive variance between levels of mold within the property and if it’s within the tolerable limits.

The second thing is some banks are going to want a phase two, where they actually take drywall samples and samples of materials to make sure that not only is the air clean, but there isn’t chemical leeching or other possible environmental problems. Banks have to keep an eye on the fact that the property that they’re financing could represent a future environmental liability to you, the buyer…

Former Marijuana Grow Ops – How to Get a Mortgage on Them

Friday, January 1st, 2010

Hi everyone,

I get calls all the time about the great deal that clients have found on a former grow op (past marijuana grow op). While these deals often sounds great on the surface, there is a lot more to getting financing on them than on a typical property. Watch this video blog as it explains the various issues and concerns that may arise when trying to finance a former marijuana grow op:

Transcription of the Video Blog:

Hey everybody,  I want to talk to you today about past grow-ops. At the Mortgage Centre we’ve been taking a lot of calls. Given our area in BC, sooner or later, every house seems like it’s going to have been a former grow op.

So what do you need to do if you are thinking of buying one?

First, if you are looking at the price and thinking, “this is a fantastic deal!” There is probably a reason.

If you read the Property Condition Disclosure Statement, which is something the selling agent is to provide you, it’s a very long list of “Is the property connected to public sanitary? Is the property connected to sewage? Has it been a former grow op? Has it been a former meth lab?” All these type of questions are on the property condition disclosure statement. The selling realtor will give it to you, and you should look on there and see what they’ve said.

If they’ve said no (to it being a former grow op) but you go there and the place has been completely gutted and there is no tenant, then it might be time to ask some questions and ask the inspector to have a look around if he has the time.

But if they do disclose it, and they tell you “yes it was a former grow op”, BUT the grow op was confined to the shed, or confined to one room in the basement to any bank looking at that:

  1. There is now way to prove it!
  2. Who cares where it was confined to?

The type of damage the banks are concerned with are:

  1. Structural
  2. Chemical
  3. Air quality

So how do you make the banks happy?

First off, a lot of banks just won’t do it. Period.  A former grow op that says it? It dies immediately.  An example of this is Scotiabank. On the flip side of that, some of the smaller credit unions: Westminster, Coast Capital, and these guys, they WILL do former grow ops, but they’re going to insist on a slightly higher level of underwriting. So what I mean by that is they are going to look much harder at that property to make sure it is still solid. For certain, they are going to want a full appraisal. That’s number one. Number two, some of them, or most of them, are going to want a phase one environmental study. It’s simply air quality testing. So what they do is they go in, they take a sample of the air from the outside, a sample of the air from the room that had no grow op in it, and a sample from the air from the room that had the grow op. As long as their isn’t mould or contaminants found in those samples, and typically there isn’t, unless it was a massive operation where they smacked out the walls, and had chemicals running all over the place and had high humidity and water mould running all over the place, then if that’s not the case, and if it was just confined to one room; especially if it was confined to the shed, or confined to one single room, then it’s not going to be a problem.

The thing is: YOU are going to have to pay for it. The buyer. And it’s probably going to take you, you know, five days to get it put together.

So if you are looking to buy former grow op, first, get an extended subject removal period. You are going to need more time to get the paperwork put together. If it’s a good deal, there is probably a good reason for it.

Second, know which lender you are dealing with. Don’t expect to just walk into your bank and get approved for it. Some of the other banks, CIBC for example, will require a phase two environmental which includes drywall testing and material testing to make sure that their isn’t within the walls, within the ceiling, and all this. It’s much more extensive and takes generally ten days to get the results back. A couple places will do it faster if you pay more, but NOBODY does it overnight.

So, if you’re thinking of buying a former grow op, come talk to me. It’s Rowan Smith from the Mortgage Centre. I’ve done these a ton of times, and I have a lot of experience to help guide you and avoid the heartache of finding something that is so cheap and so perfect, but you can’t get a mortgage against it.

Until next time…

Past Marijuana Grow Ops…. Worth the Hassle?

Friday, May 23rd, 2008

Past Marijuana Grow Ops

This article is in no way to be construed as legal advice expressely or implied. The information contained herein is the product of personal experience. You must get independent legal advice if you wish to proceed in the business of buying and/or selling a former marijuana grow operation.

Marijuana grow operations (MGO) are an increasing problem in the Vancouver (and Fraser Valley) area. The Vancouver Police estimated at one point in 2005 that there were between 10,000 and 14,000 active MGOs going on at any one time in the locale. As a means of combating MGOs, various cities have taken different measures. For example, various ‘Green Squads’ have been set up with the mandate of looking into things reported by concerned citizens, tips, and official reports and complaints.

You may be thinking that it is a profitable business to get into by buying homes that were previously MGOs, fixing them up, and reselling them. However, the process is far more complicated than this, and could lead to significant legal ramifications that are currently unclear in this business climate.

What makes it so difficult? Consider some of these facts: A marijuana grow operation will often alter the wiring and power in a house to help power the enormous number of massive bulbs that aid in the growing of the plants. Many larger operations will use 15 to 20 (or more) large bulbs rated at 1000 – 1500 watts each. This can result in a power requirement of 30,000 to 50,000 watts. As a result, massive use of power can result in power theft or supply alteration. The most common thing that an operator will do is to use ballasts to boost the power coming into a house. Normally, around 10,000 watts will come into a house, and using ballasts, it can be boosted to nearly any requirement. Of course, these alterations are rarely done ‘to code’ using proper equipment and techniques, and as a result, significantly increase the risk of fire and remediation. A recent study found that MGOs are 24 times as likely to catch fire as a normal residence due to the poor wiring, abundance of oxygen and nitrogen that result from the fertilizers, and modifications done to the home.

Another major problem is that of humidity. Normal humidity levels are around 30% – 50%. However, ideal growing environments for MGOs will require around 80% humidity. Increasing humidity in a home covered in drywall inside is not a science. Little protection is afforded the walls and structures aside from the negligible effect of vapour barriers behind the walls. Oftentimes, the humidity will exceed 80% and could climb as high as 90% resulting in massive growth of mould and mildew (including toxic black mould).

“Remediation” is the process whereby a contractor goes into a past MGO and removes all the apparatus and fixes up the home. There is currently no data available as to the long term effects of mould or toxic black mould on humans, but it should be noted that the consequences are almost surely bad.

Furthermore, as there are no standards for remediation, who can properly say whether a house has been cleaned out properly or if it presents some health risk? There is no way to answer these questions! This could pose the potential ‘home grown’ restoration expert substantial potential liability. There is no way of putting a dollar figure on this potential liability because no one knows the effects that past MGO mould and other chemicals have on people. The data simply does not exist! As a result, this type of investment poses a substantial risk and lenders are increasingly hesitant (if not totally against) lending against a property that was a past MGO.


As discussed above, the effects of exposure to mould are not yet known. When cleaning out a former MGO, contractors and/or the owner are likely exposed to the mould in great quantities. Furthermore, the ballasts often contain power for long periods of time once the power to the home has been cut off, and therefore, the remediation must be done in a very specific and technical manner by trained professionals. Taking apart the electrical apparatus within the house is often a delicate and dangerous business. Lastly, the massive use of chemicals such as fertilizers, insecticides, and bleach (to hide and kill black mould), results in an environment that is very dangerous to work in.

In summary, the risks are
1. Exposure to toxic mould which carries an unknown risk
2. Exposure to vast amounts of chemicals from fertilizers and insecticides
3. Exposure to a dangerous electrical apparatus that contains power long after the supply of power is cut
4. Potential exposure to booby traps set by the prior owners to keep out competitors

The risk doesn’t just end with the physical damage or injury. The potential for long term financial damage is also acute. For example, many major banks are so leery of lending against these properties, due to the host of unknown factors, that they will not even entertain the concept. For example, Genworth will currently not insure any mortgage on a house it knows to be a past MGO. For a more concrete lender example, having spoken with Scotiabank, they will not entertain the idea of lending against a property that is a former MGO, and they are surely not the only bank that holds this dim view of the idea.

There are some lenders that WILL lend against a former MGO, but they will often place many conditions on any such financing arrangement.

The purpose of this report is not to say that this isn’t a very profitable business for you in which you cannot make a lot of money. It is profitable, and you can make a lot of money. If you decide to go ahead with the project despite all these warnings, there are a few things to keep in mind:

1. Disclose, disclose, disclose! Do not attempt to hide the fact that the property was a past MGO. Honesty is always the best policy. You do not need the legal problems that this will bring your way in the long run. When your realtor lists your property they legally have to disclose if it was a past MGO. Failing to do so could result in legal challenges if it later becomes known.

2. Do not try to escape scrutiny by doing a private, non-MLS sale, with a quick close. Lenders (and the authorities) see this all the time, and it does not fool them. They are aware of what is going on. In fact, private sales with a quick close and no subjects are often subjected to the most scrutiny as it clearly appears that something is being withheld or hidden. As a result, you can expect extra investigation by the potential lender.

3. Do not try to avoid disclosure requirements by putting an addendum onto the Contract of Purchase and Sale and keeping the clear truth out of the main form of the contract. Although this might avoid liability for the buyer and seller (and I say might), it will not prevent the bank from calling the loan and demanding payment immediately if they catch wind of the deception (and/or legal charges).

4. Try to purchase the house in cash and finance the project yourself without the use of a mortgage. If you need a mortgage on the subject property, you should not be in this game. If you cannot arrange financing any other way, talk to a broker about the possibilities of using other forms of financing or structuring the deal so that everything is done above board and legally.

5. Do not try to get a quick close if you are doing this project! Make sure the closing date is at least 2 months down the road to allow for the bank to get an environmental analysis done on the property (if they ask for it). Doing otherwise is a risk that you must be willing to accept yourself. I strongly recommend against it.

6. Disclose, disclose, disclose!!! It cannot be stressed enough. Deception will land you in court or bankruptcy proceedings!

If you DO decide to move forward keep these couple of points in mind:

1. You will be required to get an air quality analysis done before any bank will approve you. This takes from 72 hours to several days depending on the demand, and will cost up to $1,000 or more if the lender demands a “phase 2″ environmental analysis. ALL lenders demand some form of environmental analysis or air quality analysis, so build this into your timeline and your budget.

2. You will be required to get a full appraisal of the property at a cost of around $250 with photos of the inside of the property so the lender is assured of the quality of the property they are taking as security.

3. Once the work is completed, you still need to disclose to potential buyers that it was a past grow-op, although you can mitigate the fear this causes by providing air quality and environmental analysis documentation UP FRONT when the property is listed so that potential buyers are put at ease that all is legal and above board.

This articleis not to be construed as legal advice. I am not a lawyer, nor do I represent that I know the state of the law. However, I am a Mortgage Specialist, and I can tell you what the banks will and will not accept in the realm of financing a past MGO as I have been involved in countless past grow-op transactions (or attempted transactions) and can assist you in navigating these waters.