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FINANCING
In most cases, a
buyer will either assume an existing mortgage or arrange new mortgage
financing to assist in the purchase of the new property. A clause
which sets out the amount, the rate and the term of the mortgage
should be included in the agreement. Also, a sufficient number of
days to obtain a written commitment from the mortgage lender should
be specified. Even if you have a pre-approved mortgage, a financing
clause should be used as you must ensure that the property which
you are buying meets with the approval of the mortgage lender.
It is important to know most
financing clauses "deem" that a mortgage is arranged unless the buyer
notifies the seller or the seller's agent in writing on or before a specific
date. Therefore, if you have not arranged financing by the specified deadline in
the financing clause, you must take steps to avoid legal liability and you
should seek advice from either your agent or your lawyer.
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HOUSE INSPECTION
It may be in your best interest to
retain the services of a qualified professional to inspect the condition of the
property. If so, a clause should be inserted in the agreement allowing for a
qualified professional to inspect the entire house for problems. It is important
not to limit the inspection clause to specific areas or parts of the house.
Also, a sufficient number of days to complete the inspection should be
specified. In most cases the inspection will be "deemed" to be
acceptable unless the buyer notifies the seller or the seller's agent to the
contrary. Again, action is needed before the deadline if there is a problem.
Clauses that require the seller to
guarantee that the basement or roof do not leak or which address other specific
concerns can also be inserted in the agreement for your protection.
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WHAT THINGS ARE INCLUDED IN
THE PURCHASE PRICE?
A clause that sets out the items to
be included in the price is important. Many items will be negotiable with the
seller, such as appliances, woodstoves, blinds, drapes, tracks, security
systems, etc.
This list is not exhaustive.
However, if you are concerned that the seller may take or remove any item you
should specify that it is included and must remain with the property. You should
also enquire whether the furnace or hot water heater are owned or leased if your
house is heated by oil or propane.
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WHEN IS THE CLOSING DATE?
The Closing Date is the date the
buyer and the seller agree to complete the transaction. This generally should be
a weekday when your mortgage lender and lawyer are open for business. It is the
general rule of thumb that the seller moves out before noon on the closing date.
However, if you have special requirements to move in on the closing date by a
special time you should have your agent stipulate this in the agreement.
You cannot change the closing date
after the contract is signed without the seller's consent.
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WHAT ABOUT A LOCATION
CERTIFICATE?
If you are obtaining a mortgage,
your mortgage lender will require a location certificate from a qualified land
surveyor indicating the location of the house in relation to the boundaries of
the property. Whether you are obtaining a mortgage or not, it is strongly
recommended that a location certificate be obtained to protect your investment.
When obtaining a location certificate it is advisable to have the surveyor not
only show the house location on the lot but also to plot the location of any
decks, driveways, fences, sheds, garages, retaining walls and well (if there is
one). In some cases the location of specific improvements on your property can
violate municipal or subdivision regulations and it is important to raise any of
these concerns with your lawyer. In some cases the seller agrees in the Purchase
& Sale Agreement to supply an existing location certificate to the buyer.
You should be clearly aware that you can not rely on a certificate that has been
prepared for someone else. If it is determined at some later point that there
are difficulties or errors with the survey, because you did not pay the surveyor
directly for the certificate, you may have no legal recourse against that
surveyor. Your lawyer can assist you in obtaining the services of a surveyor.
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YOUR MORTGAGE
The mortgage lender will usually
provide a written commitment to provide a mortgage following approval of the
buyer and the property. It is important that the buyer reads the mortgage
commitment and complies with all of the conditions required for the mortgage
loan. You should give the mortgage lender the name of your lawyer. The mortgage
lender will send to your lawyer the necessary mortgage papers and instructions
to prepare the mortgage documents. Your lawyer will make the necessary
arrangements to obtain the mortgage funds directly from the mortgage lender on
the date of closing.
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WHAT ABOUT
UFFI?
Some houses were insulated with Urea
Formaldehyde Foam Insulation. This insulation later proved toxic in some
situations. A clause should be inserted that specifies that the property does
not and has never contained UFFI. The clause should also specify that this
warranty will survive the closing.
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WHAT IF THE PROPERTY HAS A
WELL AND SEPTIC SYSTEM?
Your mortgage lender will require a
certificate that the well water is safe for human consumption. This usually
means that the water is free from coliforms. You may wish to include in the
agreement the right to test for high mineral content in the water that may
potentially cause health problems. Furthermore, you may also wish to include a
clause in the agreement that the well and septic system are in good working
order and will supply the needs of you and your family. Finally, you may also
wish to have the seller agree to provide the location of the well and septic to
you and certify that both are wholly on the property.
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ARE THERE ANY RESTRICTIONS
ABOUT THE USE OF THE PROPERTY?
You should enquire about the
municipal zoning regulations that may govern the use of your property. If the
property has an in-law suite or rental unit you should examine whether it is a
legal use. It is wise to insert a clause in all agreements that the agreement is
subject to the property conforming with all municipal zoning, by-laws and
restrictive covenants.
In most subdivisions, there will be
a set of rules called restrictive convents which apply to the use of the
property. These should be reviewed prior to signing the contract to ensure there
are no rules or conditions in the subdivision that are unacceptable.
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DO YOU NEED INSURANCE?
You are required to obtain an
insurance policy by the mortgage lender prior to the closing. The insurance
shall be effective as of the date of closing. You should consult with an
insurance agent after signing the agreement to obtain advice on the most
appropriate coverage. In most cases the mortgage lender requires that you have
at least enough insurance to cover the amount of your mortgage. If there is any
difficulty obtaining such coverage special arrangements are needed to satisfy
your mortgage lender that insurance coverage is adequate. In all cases it is
advisable to insure the property for its full insurable value on a replacement
cost basis. Your lawyer will require written confirmation from your insurance
agent indicating the amount of coverage and that the mortgage lender has been
named as loss payee in the policy before the closing date. You should ensure
that you give the agent the correct name and address of your mortgage lender.
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HOW ABOUT UTILITIES?
In due course you should arrange for
utilities to be connected in your name. The utilities should be changed into
your name effective the date of closing.
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WHO SHOULD BE NAMED IN THE
DEED?
You will have to discuss the way in
which the title to the property will be held by you during your ownership. You
can take title to property with another person as either joint tenants or as
tenants in common. Title can also be put in the name of one person for a variety
of reasons.
Joint Tenancy is a form of
ownership which gives to each owner an undivided one-half interest in the
property. The result is that if one joint tenant predeceases the other, the
property automatically vests in the surviving joint tenant. In other words, the
person who survives the longest will ultimately receive sole title to the
property. A person's Will has no effect on what happens to property held in
joint tenancy.
However, if property is held as tenants
in common, then on death, the interest of the deceased owner will pass under
that person's Will. In such instances, the deceased's estate shall be required
to pay probate fees on the value of the property. If there is no Will, the
property will transfer to the person's heirs at law pursuant to provincial
legislation.
With respect to sole ownership, title
can be put in one person's name alone for a variety of reasons, including
business and tax concerns. If the matrimonial home is in one spouse's name, the
other spouse will have a matrimonial interest. The "non-owner" spouse
would be required to release the matrimonial interest at the time of any
conveyance or mortgaging. Provincial matrimonial law does not generally apply
to common law marriages insofar as property ownership is concerned. Therefore,
common law couples may wish to address their ownership concerns by way of a
separate contract. This should be discussed with your lawyer.
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ADJUSTMENTS, LEGAL FEES AND
DISBURSEMENTS
On closing there may be a number of
adjustments to the purchase price, some of which are set out below:
Tax Adjustment: Your
lawyer will contact the municipality and check on the status of the property
taxes for your property. Your lawyer will also obtain a certificate from the
municipality with respect to unpaid taxes or betterment charges. The cost of
this certificate is usually paid for by the seller and the buyer will receive a
credit for the cost of the tax certificate on the purchase price.
You will be responsible for property
taxes from the closing date to the end of the tax year. If the seller has
prepaid the taxes, he may be entitled to a rebate from you and there will be an
adjustment to the purchase price. If you purchase a property at certain times of
the year, you may be required to pay in advance any tax bill that may shortly be
due.
If you are going to pay your taxes
with your mortgage payment, it is normal practice in some cases for your
mortgage lender to withhold an amount from your mortgage money at the time of
closing to pay any upcoming tax bill. This may be necessary when there is not
sufficient time to build up enough money in your tax account with your regular
mortgage payments to pay the next tax bill. You should check with your mortgage
company with respect to the approximate amount that may be deducted.
If there have been any new
improvement, such as paving, severs or curbs installed recently, you should
advise your lawyer. In some cases the municipality charges the property owner
for this work. It may be the case that the seller is responsible for their
improvements even if the bills have not yet been issued.
Fuel Adjustment: If
your house is heated by oil or propane, there will normally be an adjustment for
fuel oil or propane in the property at the time of closing. The general practice
is to adjust for a full tank as partial tanks are difficult to gauge. The
approximate cost to the buyer for a 200 gallon tank of oil is $300.00, but this
figure will vary from time to time. Your lawyer will provide an exact figure
before closing.
Deed Transfer Tax: Most
municipalities charge a tax for the transfer of the property. The Deed Transfer
Tax is payable on the closing date and can be as high as 1.5% of the purchase
price. You should determine the applicable Deed Transfer Tax of the municipality
prior to purchasing the property. Your lawyer will request payment of this money
from you on the closing date and will look after paying the Deed Transfer Tax to
the municipality so that your Deed may be registered.
Goods and Services Tax: Most
used residential houses are exempt from GST. However, you may wish to specify
the property is not subject to GST in the agreement. New houses, lot sales by
developers and newly renovated houses are some examples when GST is payable. A
GST rebate may be available and is usually assigned to the builder. You will
also pay GST on your legal fees, applicable legal disbursements and survey fees.
Most fees paid to a government department do not attract GST.
Title Searches: Your
lawyer will conduct a title search or retain the services of a title search
company to research the history of the ownership and the transfer of title for
your property. The lawyer will determine if there are any outstanding mortgages,
liens or other encumbrances registered against the property and will make
arrangements to have these removed at the time of closing. In some instances
there are title concerns which may arise and your lawyer will discuss any
potential title problems with you. If the lawyer is satisfied with the title,
you will receive a Certificate of Title from your lawyer stating that you have
clear and marketable title to the property, subject to your mortgage, any
restrictive covenants, easements or other encumbrances which are made known to
you.
The Closing: It is
important to make arrangements with your real estate agent to inspect the
property on or before closing. It is advisable to inspect the property after the
seller has vacated the premises so as to ensure the property is in the same
condition as it was in at the time the Agreement of Purchase and Sale was
signed. If any damage has occurred to the property, you should consult your
lawyer and agent immediately.
It is also important to ensure that
all of the items that are included in the purchase price have been left in the
property by the seller. The seller is obligated to leave the property in a
vacant and "broom clean" condition prior to receipt of the purchase
money.
Prior to the closing date, your
lawyer will advise you on how much money will be required to complete the
transaction. The lawyer will require a certified cheque or bank draft payable to
your lawyer's firm "in trust." This cheque will include the balance of
your downpayment, your legal fees and disbursements, the cost of any other
payments made on your behalf by the law firm. Your lawyer will arrange to pick
up your mortgage money directly from your mortgage lender on the closing date.
Your lawyer will schedule an appointment on or before the closing date to sign
your mortgage and related closing documentation and will review the closing
adjustments in detail with you. Your lawyer will send the agreed upon balance of
money due for the property to the seller's lawyer in exchange for the Deed, keys
and related closing material. Your lawyer will then make arrangements to pay the
Deed Transfer Tax and will forward the Deed and Mortgage to the Registry of
Deeds for registration. Your lawyer also provides legal assistance in connection
with the purchase, sale or refinancing of residential property.
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