Buying or Selling a Home | Residential Real Estate
Most individuals will sell their home and purchase another a number of times during their lifetime. A lawyer can help make the legal end of the transaction smooth and stress free. Here is some information that will help you understand your purchase or sale better.
Drawing up your Offer to Purchase
If you purchase or sell your home through a real estate agent, that person will help prepare a standard offer to purchase form for the transaction. However, many people choose to sell without a realtor. In those cases, the buyer and seller will need to obtain their own form. Click on my "Forms" link on the side margin of this article for an Offer to Purchase Form. If you decide to use it, you must read it carefully. If you do not fully understand it or if you are not certain that you have completed it properly, you need to ask a lawyer for help. It is a final and legally binding agreement. You cannot change the terms later unless the other party agrees to the changes.
The offer to purchase often incorporates a disclosure statement. While a seller of a home will not likely guarantee you a perfect home, they should be prepared to disclose information about the property that is within their knowledge. I strongly urge you to consider having the house inspected by a home inspection company. If there is a problem with the house, you may not have a remedy against the seller so you should know what you are buying now. See my article on Disclosure of Property Defects for more information. For that reason, it is common to include a sentence in the conditions section of the offer stating that it is subject to the purchaser obtaining a satisfactory professional home inspection report on or before a specified date. If you are purchasing an acreage or cabin, you should also include a condition that the purchase is subject to obtaining satisfactory water quality and water quantity test results on or before a specified date. There may be other concerns specific to your property such as being satisfied that the septic system is adequate for your needs.
Tax and Title Searches
As soon as a lawyer receives instructions to act on a residential purchase or sale, he or she will obtain a land titles search and tax search. The lawyer will search both the property and the names of his or her clients, to ensure that there are no judgments registered at the land titles office against the client or someone with a similar name. The lawyer will look at the registrations on title and ensure that they will either be removed by the seller or that they are acceptable if they will remain on title. The lawyer will also check the property taxes to confirm that all taxes have been paid where payment is due. The current year's taxes will also be apportioned between the buyer and seller.
There are 3 common ways to pay the taxes on a property that you are purchasing. You should consider which suits your needs best. They are:
- The owner can pay the taxes all at once. In larger municipalities, the municipality usually requires that they be paid in full by June 30th of each year to avoid interest penalties. In smaller centres and rural municipalities, the due date is typically December 31 of each year. There is often a small discount for early payment. - or -
- In many cities, the owner can pay the taxes on a monthly basis from January to December of each year. The city automatically debits your bank account at the beginning of each month. In this case, the city does not charge interest even though the taxes are not paid in full by June 30th. This is usually the most attractive method of payment for the average individual. This is called the TIPPS method of payment. To enroll for TIPPS, contact your local tax office. There is usually a short form to sign and you will need to provide a sample void cheque.
In Saskatoon, you can obtain more information and enrollment forms for TIPPS at the following link: http://www.saskatoon.ca/org/treasurer/tipps.asp.
In Regina, you can follow this link: http://www2.regina.ca/search/index.htm
In Martensville, call their tax office to enroll on TIPPS - or -
A third option is to pay monthly tax instalments to your mortgage lender. They will then pay the tax bill in full near its due date. Some lenders prefer this method as they know whether the taxes are being paid. However, if the lender has not collected enough instalments from you before the date the taxes are due (i.e. June 30th), they will pay the full bill and charge you interest at the mortgage interest rate on the shortfall. For this reason, monthly instalments of Principal, Interest and Taxes (PIT) to a bank are becoming less common in cities with the TIPPS system.
Survey Certificates / Real Property Report
A Real Property Report (survey certificate) is a simple sketch of your property boundaries that shows where the house and other structures are situated on it. It needs to be prepared by a surveyor to be accurate. The cost of a survey/real property report is at least $750.00 or more, plus taxes. Often, the seller will have a certificate to pass on to the purchaser. Be certain to ask this question before signing the offer to purchase as it may affect the price you are prepared to pay. If the house has been added on to or other structures have been built since the date of the survey, your mortgage lender may require an updated certificate. You may want that for your own protection. For example, a real property report / survey will confirm whether all structures on the land are within property boundaries. It can also help to confirm that the distances from the structures to the property boundaries are within the permitted guidelines of a municipality. Often, the city will require an updated survey before they will provide a "building information abstract". This is a certificate from the city essentially stating that there are no outstanding civic orders against the property. It is not a guarantee that there are no problems with the property. It just confirms that they have not made certain orders against it.
If you do not have a survey certificate, an alternative is to purchase title insurance. Title insurance has become a far less expensive option than getting a new survey done, but remember you might need to purchase it again if you switch banks or re-write your mortgage. You can buy title insurance to cover the mortgage lender only, the owner, or both. You won't need to buy it again to simply renew your mortgage. Title insurance typically will pay for defects that a survey would alert you to, but if you already know of the defect, buying title insurance won't help you. There are a few situations in unique cases where title insurance can help deal with a problem that cannot be solved any other way. Title insurance is also a good option if your property is not in a main city such as Saskatoon. The cost of a survey in a smaller centre is much higher than within a larger centre because of the travel involved for the surveyor. If you are building a new house, you may want to consider buying title insurance to cover the risk that the builder doesn't pay all of his subtrades and suppliers. It can be very expensive if you have the misfortune of getting liens against your property because of your builder.
I have a more extensive article on this website about title insurance, and recommend that you read it. Just look for the link.
Western Law Society Protocol
In some cases, money can be released before the land titles system has finished its work ... so long as all other conditions have been met. Normally, lawyers are not allowed to release money on a sale or new mortgage until the documents have completed registration at the land titles office. That's because in theory, a judgment or builders' lien or other claim might have been placed for registration the day before the documents on your transaction were submitted. Until registration is complete, you will not know absolutely for certain that there were no intervening registrations on the title. If this is the only outstanding item, the law societies of British Columbia, Alberta, Saskatchewan and Manitoba have a program that covers that risk, allowing immediate release of money so long as everything else has been done. It requires all of the parties involved to agree to the procedure. Some lenders allow it to be used and some do not. You can ask for more information if you think this might apply to you.
It is the responsibility of a purchaser and seller to arrange for utility meters to be read on the closing date and accounts transferred to the name of the Purchasers. This also applies to telephones, etc. You should make these arrangements several weeks in advance to ensure that you do not have an interruption in service. Because money will have changed hands before the municipality renders its final utility bill, it is not possible or practical for a lawyer to ensure that utilities are paid in full. It is rare that this is ever a problem. If you have a special concern, you can ask if the seller's account is paid up to date when you are transferring utilities to your name and raise any suspected problems with your lawyer.
Insurance on Your Home
If you are the buyer, you will need to arrange for insurance to cover the risk of fire and other perils. Your insurance broker will help you decide on the amount and coverage. They should ask you for the name and address of your mortgage lender so they can be added as a loss payable on the policy. They should also fax confirmation of insurance to the purchaser's lawyer. The purchaser's lawyer needs this so that keys can be released on the possession date and to confirm that the mortgage lender's requirements have been met.
Signing Your Mortgage
The purchasers' mortgage lender will give instructions to the lawyer for the purchaser. The lawyer will then prepare the mortgage documents and arrange to meet with the purchaser to review and sign them.
Statement of Adjustments
A lawyer will prepare and go through a Statement of Adjustments with the clients. The statement of adjustments shows all the debits and credits to the purchase price and indicates the amount of cash to be paid in by the purchaser.
Land Registry Processing Times
In 2002, the Saskatchewan land titles system was automated. Before then, all titles and documents were recorded on paper only. This also meant that there were several land titles offices, each dealing only with a specific geographic part of the province. Now, the Saskatchewan land registry is automated. A lawyer is able to log on to his or her account with the land registry (ISC) and search titles, names and various documents or plans. On average, it takes the land registry between 1-5 business days to process a transfer and mortgage document. The time is typically shorter in slow real estate seasons, such as the winter. The delay can be longer in peak real estate seasons. Under the former paper system, there were times when the land titles office was several months behind on their work. Thankfully, with automation, those days will not likely be seen again. However, as with any system that completely replaces another, there are still a few bugs to be worked out and improvements to be made.
Interest Payable to the Seller
Because of land registry processing times, it is often not possible for money to change hands on the day of possession. The purchasers need to pay their own cash contribution other than mortgage money to their lawyer no later than the possession date. The purchaser's lawyer is not allowed to make use of the transfer authorization from the sellers until the purchasers have paid their own cash contribution. The transfer authorization and mortgage are documents are submitted electronically by the purchaser's lawyer to the land registry for registration. Typically this is done by either fax or e-mail as the land registry does not keep paper copies of anything. When registration is complete, the lawyer reports to the mortgage lender and asks for the loan proceeds. This is then paid to the seller's lawyer. Unless the purchasers bring in their money a week or two before possession, the mortgage lender has all of their documents to the lawyer a week or two before possession and the seller's lawyer sends the transfer authorization in trust a few weeks early, the purchase price will not be available to the sellers on the possession day. If any one of these do not take place at least a week or two before the possession date, the release of money will be delayed.
In most cases, the sale proceeds will not be releasable to the sellers until a few days after the possession date. This is because the land titles office has not finished the registration process and therefore the the purchasers' mortgage money has not yet been advanced. However, the purchasers will not begin paying interest under their new mortgage until the mortgage is advanced. During this time, the purchaser pays interest on the money that has not yet been paid to the sellers lawyer instead. The interest rate is specified in the offer to purchase. In the end, the result in terms of money is much the same. The purchasers either pay interest to the sellers or the mortgage company, but not both. If explained properly, you will see that the interest paid to the sellers is not a "penalty" or "late interest". Interest must be paid either to the sellers or the mortgage lender so it should not matter who receives it. There may be a small interest rate difference but over a short period of time it is relatively insignificant. A lawyer should help estimate the interest component in advance so the purchasers can pay it and budget for it.
A few lawyers still follow an old discontinued practice of getting the mortgage money advanced before registration is complete. With a few reasonable exceptions (such as to preserve an interest rate when a rate commitment is about to expire), they usually do this to try to avoid paying the above interest. This is frowned on because that mortgage money will be tied up in trust with the sellers' lawyer and not working for anyone. The savings to the buyer are in most cases nominal only but in doing so, it usually creates a legal risk that is beyond the scope of this article. If interest is properly explained to the client, there should not be any need to take that risk or deprive the seller of interest.
If the buyer is paying cash and not obtaining a mortgage, then the entire price will be paid to the sellers' lawyer by the possession date. In that case, the sellers' lawyer will be holding all the funds in trust pending registration. This means that there will not be any interest payable to the sellers.
Paying the Cash Portion of the Price & Releasing the Keys
As long as the purchasers have paid their own cash contribution (other than mortgage money) to their lawyer, possession can be granted and keys released even though title has not registered in their name and the mortgage is not advanced. The lawyers will deal with matters from there through trust conditions and undertakings.
Buying & Selling at the Same Time - Interim Financing
If you are buying and selling your home at the same time you will most often need "interim financing". This means that your banker will give you a short term loan to cover your down payment on the purchase price of your new home while you are waiting for the money to be releasable on the sale of your existing home. You would be borrowing the difference between your purchase price less the amount you are borrowing under your mortgage ... your down payment money. Why ... you may ask? That's because the land titles system takes a few days to register the transfer in the name of the buyer and then the buyers' mortgage company must advance their mortgage money before the sale proceeds of your existing home can be released to you. Since the lawyer has legal obligations he or she has to follow, the lawyer cannot release your sale money until they have complied with the trust conditions imposed on behalf of the seller and you have given up possession of the property you are selling. Also, the mortgage part of the buyer's money might not even arrive until a few days after closing. Here are 4 possible scenarios:
- If you are moving into your new home on July 1st and selling your existing home on July 5th, you cannot possibly receive your sale proceeds in time to use them for the July 1st possession. You can't have your sale proceeds until you have given up possession and the land titles office has done its work. That's why you need interim financing from your bank.
- If you are moving into your new home on July 1st and selling your existing home the same day you will still likely need interim financing. There are two reasons. One is that the money might not be releaseable to you because the land titles office hasn't completed its work and you need to give at least your down payment amount to move into your new home. The lawyer is not allowed to "dip" into trust funds on your sale before they are releasable. The second reason is that July 1st is a holiday. All businesses, including law offices and banks will be closed so you'll need to have your money in place at least the last business day before the holiday or weekend. Even if the transfer has registered in the buyers' names on your sale, the lawyer is not allowed to release the money to you early for your purchase because you haven't given up possession yet to the buyers on the sale of your existing home. That will only happen over the weekend or holiday.
- If your possession and sale date are on the same day, your lawyer might be able to use the "Western Law Society Protocol" to release money on the same day even though the land titles office isn't finished its work yet. In this program, the Law Society of Saskatchewan insures the risk of releasing money when everything has happened except the land titles office isn't finished its work. However, there are a number of conditions that must be met. The buyer and seller and mortgage lender all have to agree to use the procedure. Some but not all banks will agree. Also, remember that you must have given up possession before the money can be released on your sale under this procedure. You cannot use it to have money released before you have given up possession. If your possession date is on a weekend, the lawyer cannot release money on Friday if you aren't giving up possession until Sunday. You'll need interim financing even though it may seem to be an inconvenience.
- If you are selling on June 15th but not moving into your new home until July 1st, then your money should be releasable to you in time for the purchase because there are about 2 weeks in between and land titles is usually only 3-4 days behind on their work. You probably don't need interim financing but you should check with your lawyer and banker. However, you'll need to stay in a hotel or stay with friends or family for two weeks until July 1st so not many people are able to do this.
Of course, if you have cash or a line of credit that you can draw on, you might avoid the need for interim financing. Remember, you will need to give your lawyer all your money for the purchase except for the mortgage amount in order for keys to be released.
Legal Costs - Fees & Disbursements
Legal Fees means the amount charged by lawyers for a real estate transaction. Disbursements means the out of pocket expenses that a lawyer pays and is being reimbursed for. Disbursements include the amounts the land titles office charges a lawyer to search titles and names, register transfers, mortgages, etc. It includes the amounts a municipality charges to supply tax information and other certificates. There may be other disbursements as well such as long distance telephone, couriers, etc. The amounts paid to the land registry and surveyor are usually the most expensive disbursements. The land registry bases its charges on the number of titles being transferred or set up in the purchasers' names as well as the number of titles that a mortgage is being registered against. Most residences consist of one lot and therefore one title. However, sometimes the property includes mineral rights as well as surface rights. This means that there will be two titles ... one for the surface rights and one for the mineral rights. In addition, some properties include more than one lot. There will be one title for each lot. All of this can affect the amount that the land registry charges for searches and registrations. To register a transfer on a typical home with one lot, the land registry will charge 3/10% of the property value and $160.00 for the mortgage. If the mortgage is against more than 4 titles, they charge $50.00 per additional title. However, the charge will be only $25.00 if a lot is worth $8,400 or less and $10.00 (or possibly free) if a lot is worth $500.00 or less. If a new survey certificate / real property report is required, the surveyor will charge $750.00 or more. Title insurance is often a less expensive option.
In the purchase of a property, a buyer will pay fees for the purchase and the mortgage work. The buyer will also pay the disbursements mentioned above. In most cases, the disbursments, GST and PST will be the largest part of a lawyer's bill for a purchaser.
If you are selling instead of buying, the fees will only be for the sale work. The purchaser, not the seller, pays the land titles office to register the transfer authorization and mortgage. The seller's disbursements are minimal in comparison. Therefore, the seller's total legal expenses will typically be much less than half the amount paid by the purchaser.
If you would like a quote or have questions about your real estate transaction, feel free to call me at 306.477.7259. I can supply quotes over the phone or by e-mail.
Notice: The information on this website is general in
nature only. It relates to Saskatchewan, Canada and may not be
applicable in your jurisdiction. It does not constitute legal
advice to you and no solicitor client relationship will be established.
You should seek specific legal advice regarding your circumstances
from a lawyer entitled to practise law in your jurisdiction.
www.rickcarlson.com | Fri, 20 Jul 2018 17:08:33 CDT1
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