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Facing financial trouble, Habitat for Humanity changes mortgage rules and gets sued by families

Habitat for Humanity changes its mortgage model
WATCH: Habitat for Humanity changes its mortgage model

The Edmonton chapter of Habitat for Humanity is $27 million in debt and its CEO says it needs to overhaul its mortgage plans now to stay afloat.

President and CEO Karen Stone said the debt comes as a result of the non-profit’s intense growth over a short period of time. Dozens of homes have been built in the Edmonton area in recent years, but grants only cover a portion of the costs.

“I think a lot of folks misunderstand and think the houses are fully paid for,” Stone said. “They’re not.”

Stone says although the land for the builds is donated, grants only cover about 22 houses in a good year. With Habitat pumping out about 50 homes each year, the non-profit borrowed money to bridge the gap left behind after donations and fundraising.

To service its debt, Stone said Habitat Edmonton is spending about $2 million each year — an amount she calls unsustainable.

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To recoup some money, Habitat has decided to move to a unique new mortgage model. Instead of the mortgage being at zero per cent and financed through the non-profit in its entirety, now 50 per cent of the home’s mortgage will have to come from a bank, with interest.

Stone says on average, half of the mortgage for a Habitat home is worth $130,000. With the special rate secured for families, interest each year is estimated to be between $3,000 and $3,500.

But Stone says those interest costs won’t change how much families are paying.

“Their costs actually don’t change from month to month,” she said. “Those families living in the houses now in tenancy will not pay a cent more under the new model.

“The payments for their home are 30 per cent of their income. These are families in the $35,000 to $65,000 household income range. So 30 per cent includes their mortgage expenses, their utilities — we give them space for utilities — their condo fees, their insurance and their taxes.”

What will change is how much of that 30 per cent payment each month counts as equity. Some will now be used to pay the interest on the bank portion of the mortgage. But another change being made will more than make up for that in the long run, Stone says.

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“We’re giving the families market appreciation back on the home in a graduated fashion. That means the families in our new model are going to exit with more equity.”

Families that stay in their Habitat home for five or more years will be entitled to at least half of the market appreciation of their home in addition to the equity they were always given when they sold their home back to the non-profit.

“The only difference is you’re going to have families that now have to pay interest at the front end, and that interest will come back to them with the market appreciation over time.”

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But the change has not been well-received by the families. The Pangburns, a family of four in Fort Saskatchewan, say they don’t understand what’s happening.

“It wasn’t explained to us very well, so I’m confused by the whole process,” Naomi Pangburn said.

After years of renting and moving from house to house, moving into their Habitat home was a dream come true. But now they fear the bank won’t accept them when it comes to getting a mortgage. Both Naomi and her husband Robin are on AISH.

“We don’t want to end up in the streets because, like I said, we know we won’t qualify for the bank,” Robin said.

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“So we’ll be kicked out of the program. We just want to be in our home.”

As a result, the Pangburns are now one of 55 families joining a class-action lawsuit against Habitat, citing a breach of contract.

“No one saw this coming, least of all the families. And they were not consulted,” lawyer Avnish Nanda said.

He said the families are not looking for money, just what they were promised.

“If Habitat comes tomorrow and says, ‘We’re grandfathering everyone in,’ case closed. It’s done,” he said.

So far, Habitat has shown no indication of changing gears.

“Then we have to go through the court,” Nanda said. “Just because they’re vulnerable people, people of low income — a promise is a promise is a promise.”

In its statement of defence, Habitat denies the allegations against it.

“We’ve got a misunderstanding. A very unfortunate misunderstanding. We want a solution. We would love these families to realize the benefits and come back into the program and work with us because this is actually an incredible opportunity.”

Nanda said it’s not an opportunity his clients will be able to access if the bank denies their mortgage applications.

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