We had an opportunity this week of helping a retired couple (aged 72 & 69) refinance their farm in order to accent day to day living. Joe and Julia are both retired and are both on their second marriages. They live six months of the year in Florida and six months here in Canada. Their respective pensions do not seem to cover their lifestyles. Four years ago, they decided to give a concerted effort towards staying within their means. They had accumulated some $12,000 worth of credit card debt at that time. Today, four years later, their credit card debt remains stagnant at $12,000. They own a 100 acre farm just outside of Ottawa, in a satellite community. It is free and clear (no mortgage). They approached their Bank for a consolidation loan (to clear up the credit cards), offering a first mortgage on the farm as security. They also wanted enough money ($38,000) to buy a portable "sawmill" for their son to operate (he lives on the farm in the off season) Of the 100 acre farm, 60% is hardwood. Since she was an American citizen, the bank could not use her income in the qualifying process. On his income alone, the Bank had no choice but to turn down the loan application.

We had the same problem with the qualification numbers. We had to create more income! We suggested he place an ad in the paper looking to lease the rights to harvest on the farm. We secured a firewood agent and a fence post company who would guarantee a monthly income that would indeed support the debt. We were successful in arranging with another bank the facility for a "line of credit" high enough to support both the need for a consolidation, as well as the purchase of the portable sawmill.
 
 

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We really cannot fault his Bank for their original decision, but to seek a solution to the problem should have been within the Bank's mandate. The Bank's inaction precipitated their decision not to go back to that Bank once we had found the solution. They have pulled everything out of that bank.
 

The lesson here is aimed at lending institutions in general....take the extra time to seek a solution to a deal that makes sense, rather than just saying "no", your credibility is at stake. In our case, we had a farm worth $135,000 with no mortgage. Our Clients were looking for $50,000 to create cashflow (ie. the sawmill). Eventhough Joe & Julia are retired and (chronologically) elderly, the loan makes sense from a security point of view. We not only offered the mortgage as security, but we also offered an "assignment" of rents and leases, giving the Bank the authority to receive payments directly from the firewood Agent, and/or the fencing Company.....a safe loan.