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With the price of homes on native reserves increasing, everyone is wondering if it’s possible to get a mortgage if you reside on a native reserve. No matter how hard I’ve tried to find answers to my questions and put together this article, I still don’t have all the answers.
The reality is there is no one ‘correct answer’ because each individual case varies according to numerous factors such as location(s), being a member or non-member Mortgage finance institutions that you may be able to get financing in spite of living on an Indian reserve
It is worth mentioning here that native reserves are not part of the jurisdiction of any Canadian federal or provincial government. The only authority governing native reserves is the First Nations Land Management Act. This act gives the national chief of the Assembly of First Nations greater powers over reserve lands and resources which, at times, may conflict with other regimes.
Before moving to a mortgage on reserve lands, let’s first talk about real property ownership and family homes on reserves.
Ownership of Real Property on Reserves
Under the Indian Act, all land on reserves is owned by the Government of Canada. But it is given to the First Nation or the band to hold as a community. In simple words, Aboriginal title is a collective right of an Aboriginal group, that provides a beneficial interest in land.
This legal structure has one issue as it creates the conflict of who is entitled to the communal property. Bands have different ways of dividing reserve property. More often than not, a certificate called a certificate of possession is given to create the ownership of a property. It is also important to mention here that Aboriginal title is not the same as fee simple ownership, which is complete ownership with no limitations or restrictions. The Aboriginal title comes with limitations and conditions.
The person holding this certificate has the right to occupy the land, but will not have the right to sell, transfer or mortgage it. Unless he sold or transferred it to the Crown or Government of Canada.
What Land is Considered to be a Native Reserve?
Under the Indian Act, the Canadian government defined a native reserve as land that has been set aside by the Crown for the use and benefit of an Indian band. Reserve land is still classified as federal land, and first nations do not have title to reserve land.
In simple words, a native reserve land is a tract of land, the legal title of which is vested in Her Majesty or the Government of Canada. It has been set apart by Her Majesty for the use and benefit of a band.
Additionally, the Indian Act states that a band member may be legally in possession of the land if:
- the land is allotted to him by the council of the band, and
- the Minister gave the approval of the transaction
Mortgage Lending on Native Reserves
Making mortgage loans on a native reserve is like making mortgage loans anywhere else. However, there are a few exceptions involved. As banks often use government-guaranteed programs to give mortgages to Indian countries, they need to understand the specific requirements of a loan program.
Mortgage usually proceeds in four phases: origination, processing, underwriting, and closing. So, before the application process begins, a bank considers whether a consumer needs pre-purchasing counselling or not. Pre-purchase counselling is for many native mortgage loan applicants who live on reservations and are first-time home buyers. They are not familiar with the mortgage lending process in general, the requirements of a specific lender and the various types of loans or loan programs available.
Homeownership Counselling For Native Reserve Land
To facilitate the home buying process, a bank may recommend that the applicant get homeownership counselling. A bank that does not counsel applicants may arrange the qualified third parties to supply such training. Some of the topics that should be addressed in pre-purchase homeownership counselling include:
- what details a lender takes into account when a borrower submits an application for a mortgage loan;
- how a potential borrower can assess their likelihood of being approved for credit;
- how much finance is offered, and which option(s) would be best for the application;
- What obstacles might stand in the way of the applicant’s eligibility, how to get over them, and whether the applicant might be eligible for non-traditional funding methods;
So, the bottom line is for mortgage loans to natives residing on reservation lands to tribes who have decided to participate in the mortgage programme, the Section 184 Indian Home Loan Guarantee Program offers them a 100 per cent guarantee.
The rate of loan approval is shown to be somewhat statistically higher for natives living on trust land whose tribes have embraced Section 184 than for natives living on trust land whose tribes have not implemented Section 184. When tribe fixed variables are used in the analysis, the statistical significance vanishes, indicating that underlying tribal traits associated with the adoption of Section 184 are more significant predictors of credit availability than Section 184 itself.
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