Helpful Hints for Real Estate Clients

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1 This document is intended to bring certain issues to the attention of clients. This may be a simple reminder for clients who have already purchased and sold properties, but it is a great source of information for most first time home buyers. This document is not intended to give detailed legal advice. It is intended to create awareness. This document is intended to encourage discussions between the clients and their lawyers and Realtors and to give them helpful hints on issues important to their transactions. Purchase 1. Moving in on a Friday? Maybe not! For many clients, it is often preferable and convenient for them to close on a Friday. It is recommended, where possible, to schedule the closing date earlier in the week, Wednesday or Thursday, as a number of factors could require the extension of a closing date. If there are problems, and the clients intend to move on the weekend, this allows business days to resolve any unresolved issues. Many factors can delay closings, despite the best efforts of your lawyer and realtor. Another related transaction may have to close first or we may be waiting to receive mortgage funds. Clients must also keep in mind that although it may be convenient for them to move in the morning, often, the actual closing does not occur until the afternoon or at the end of the day. To again avoid stress and inconvenience, it is suggested that clients not make moving arrangements in the morning, 1:00 p.m. is more reasonable. As the lawyer does the actual closing, clients should also be encouraged to discuss this with their lawyer and to always have a contact number available on the closing date so their lawyer can reach them in the event of a delay. 2. Purchaser: What documents will my lawyer require? 1) Copy of the Agreement of Purchase and Sale, and any amendments 2) Birth Certificate 3) Copy of Survey Certificate, if available 4) Copy of the building contract, and any amendments, if purchasing a new construction 1 / 8

2 3. What will it cost? Clients should keep in mind the following costs which are over and above the purchase price. These include: a) Legal fees (plus HST) b) Survey c) New Brunswick Land Transfer Tax (.25% of the purchase price or assessment, whichever is greater) d) Their share of municipal property tax and water and sewer charges (pro rated over the year) e) Oil or propane adjustments, if applicable Many law firms provide a detailed quote list to their clients. We recommend that clients obtain from their lawyer a detailed quote of all costs and not just the legal fees. 4. To whom do I pay the down payment? Clients who are obtaining a mortgage for the purchase of their new home are not obtaining 100% of the purchase price through financing. The balance of the funds are the down payment. All monies exchanged on closing to buy the property are handled by the lawyers for purchaser and vendor. The client will therefore be required to provide the required funds to their lawyer, not to the vendor directly, and not to their bank. Prior to closing, the lawyer will calculate the amount the client must pay. This amount will include the down payment, legal costs, survey costs, transfer tax, and adjustments for tax and water and sewer. 5. What about all the taxes? Transfer Tax - When purchasing any property, all purchasers are required to pay a Transfer Tax to the province of New Brunswick, which is the acquisition tax that exists in most provinces. It is simply a fee for changing title to property, paid by purchasers. It is worthwhile to do the simple calculation of Transfer Tax prior to closing. It is calculated as follows:.25% of the Purchase Price or the assessed value of the property, whichever is greater. It will be included in the lump sum figure to be provided by a lawyer to a purchaser prior to closing. 2 / 8

3 Property Tax - In New Brunswick, property taxes are assessed by the province and billed annually in April of each year, for the period January 1st to December 31. On closing the lawyer will obtain a statement from the province as to the status of taxes. Property tax are shared between the purchaser and the vendor, based upon the number of days in a year that each has owned the property. The vendor is responsible for the days for which they were the owner of the property, from January 1 to the date of sale, while the purchaser will be responsible for the remainder of the days, from the date of purchase to December 31st in the year they purchase. Purchasers buying between January 1 and April 30 should be aware that they will receive the property bill for the entire calendar year and be responsible to pay it to the Province. The Vendors share was credited to them on the closing. Purchasers should also be aware that they will not have saved enough in monthly tax installments with their mortgage company to cover all of the first property tax bill and they will have to pay the shortfall. 6. Why should I obtain a Survey Certificate? It is strongly recommended that clients obtain legal advice on the importance of a Survey Certificate. While some clients wish to rely on pre-existing survey certificates, if that certificate is not recent there is the risk to the client that any changes since the original survey was done are not reflected. The clients should take the survey and view the lot in question to insure that any buildings, fences, driveways, etc. that are physically on the property are also shown on the existing survey. These items could be a potential encroachment and if they are not shown on the old survey, a new survey should be obtained. If the existing survey appears to accurately show buildings, fences, and driveways, etc. on the lot, clients should still be aware that they have no contract with the surveyor and therefore any errors are at their own risk. In relation to the Survey requirement, the Purchaser has the following options: a) Obtain a new survey certificate (approx. $ plus HST). b) Rely on existing survey certificate (taking in account the explanation set out above) - no cost, but no recourse in event of error. c) Have an existing survey certificate updated, if it is not too old, to reflect any changes since the date of the existing survey. Said update would have the name of the Purchaser noted thereon (approx. $ plus HST). d) Obtain survey insurance which does not provide a sketch of the property but is rather like an actual insurance policy. (approx. $ plus HST) 3 / 8

4 If a Purchaser should decide to rely on an existing survey, they should be cautioned as follows: - as the survey was not prepared for them (their name does not appear on the survey certificate) they have no recourse on the vendor, lawyer or surveyor should such survey be in error. Also, the existing survey certificate available to the Purchaser is not current and therefore does not take into account any subsequent changes which may have occurred in this matter. 7. Who is responsible to insure the property on the date of closing? It is recommended that clients obtain fire insurance effective at 12h00am on the date of closing. Clients should not worry about having double insurance as their own policy will not take effect until such time as title is changed and registered in their name. 8. Understanding CHMC (Canada Mortgage and Housing Corporation) CMHC provides insurance to banks who provide mortgages for homes for more than 75% of their value. This is a fee for this insurance and it is deducted from the mortgage advance. A few days prior to the closing, clients are usually meeting with their lawyers to review their Statement of Adjustments and other financial information for closing. In other words, at this meeting, clients will be advised of the adjustments to be made to the purchase price, (credits to them or the vendor), as well as all the other costs associated with their purchase, which are detailed in paragraph 3 above. We recommend that clients discuss with their mortgage broker CHMC costs. Clients should know from the bank or their broker the amount of the net mortgage advance which will be available from their bank on closing. 9. Purchasing a Home with improvements to be made? When clients are purchasing a property, and obtaining a mortgage for improvements, it is important that clients understand that funds for such improvements may only be available upon the completion of their renovations. Usually, funds for improvements are held by the financial institution, not the lawyer. The financial institutions usually holds such funds until such time as they are provided with receipts from the client or an inspection report that the work is complete. We therefore recommend that clients discuss with their mortgage broker and their lawyer any holdbacks or excess funds in relation to the purchase. 4 / 8

5 10. Guarantors Lawyers should be advised very early if a Guarantor is signing on the mortgage with a purchaser. A Guarantor is not obtaining title or a beneficial interest in the property, and yet they assume liability on the mortgage, therefore independent legal advice is required by a Guarantor. This means that a separate, independent lawyer must advise the Grantor. Often, Guarantors do not reside in the same town as the buyer, and additional time may be required to courier documents or make arrangements for independent legal advice thus the need for a guarantor should be communicated as soon as possible to the Purchaser s lawyer. Often as a lawyer, we only become aware of the guarantor requirement when the Mortgage instructions arrive. If these are late, then this will add stress and inconvenience for everyone, and potentially delay the closing. Buying a new construction? In addition to the above mentioned issues, additional factors are to be considered by real estate clients purchasing a new construction things to do the week before the closing: 1) Attend the new construction in the presence of a realtor to determine if the construction will be completed on time 2) Make a detailed list of uncompleted work 3) Provide lawyer with such list and advise lawyer of any concerns, at least 5 days prior to closing 4) Landscaping 5) Arrange for the connection of utilities 6) Municipal water - connected 7) Mortgage advance will be ready 2. What if there are deficiencies? Often, when purchasing a new construction, upon closing, some work is not fully completed. For instance, landscaping, etc. These deficiencies are not usually fatal to the transaction. Clients are to advise their realtor and lawyer so that measures are in place to make sure the work is completed within a reasonable time. Often, a sum of money is heldback by the purchaser s solicitor and only released upon completion of the deficiencies. 5 / 8

6 The amount to be held is usually an amount that would be required to complete the work done. In the event the work is never completed by the vendor, the purchaser will have access to funds to complete the work themselves. If this issue arises it is dealt with between the purchaser and vendors lawyer on closing. Selling 1. Vendor: What documents will my lawyer require? a) Copy of the Transfer or Deed when you purchased property b) Mortgage information: Branch and a reference number, if available c) Birth certificate for all names appearing on the Deed or Transfer d) A Survey Certificate, if in existence 2. What will it cost? Clients should keep in mind the following costs, which are over and above the purchase price. These include: a) Legal fees (plus HST) b) Real estate commission fees (plus HST) c) Their share of property tax d) Oil or propane adjustments Many law firms provide a detailed quote list to their clients. We recommend that clients obtain from their lawyer a detailed quote. 3. Selling and buying the same day? Maybe not! It is often necessary for clients to sell and purchase a property on the same day, especially if funds from the sale are required for the purchase of a new property. Many factors can affect the sale of a property and cause the closing to be extended. In these situations, clients are in a position where they don t have the funds necessary to purchase their new home. Unless explicitly agreed in the Agreement of Purchase and Sale, a purchase is not conditional to a sale of another property. In other words, an extension on the new purchase may not be granted simply because the purchasers did not sell their old house. 6 / 8

7 In situations like this, when the sale of a house has been extended, and is pending for a few days, the clients may be able to take early possession, but only with the consent of the vendor. Usually, the purchaser will have to pay the vendor s pier diem interest on their mortgage. Buying and Selling on the same day is often unavoidable, however clients in this situation should have a contingency plan and a place to stay if for any reason either transaction has a delay. Also, if a client must sell in order to buy, they should not plan to move in the new home until the afternoon. It is almost impossible to close both sale and purchase in the morning. The best scenario would be to bridge finance for a few days, allowing the client to purchase before they sell. 4. Do I notify my tenants? If you have a rental property for sale, be sure to advise your lawyer. Also provide a list of the tenants names and any terms of the lease/tenancy so the lawyer can prepare documents to assign leases, etc. to a buyer. Your tenants should be notified verbally and a form prepared by the lawyer will be given at closing with notice to tenants of the new landlord s name and address, etc. 5. What about my N.B Power Lease? Vendors that have signed leases with utility companies for water heaters or furnaces should inquire with such company the procedure required to allow the purchasers to take over any leases. Upon confirmation that the eventual purchaser wishes to take over leases, this should be stipulated in the Agreement of Purchase and Sale. Any documents to be signed to give effect to assignment of the Lease should be obtained and provided to the client s lawyer. 6. Does my former spouse or common law spouse need to sign? If you are married and selling a marital home, even if title is in your sole name, you may require your spouse to sign on a sale. Clients should advise their lawyer if they have a spouse or common law spouse early in the process so that clients may obtain legal advice on this issue. 7 / 8

8 7. Mortgage Penalties - Selling prior to the maturity date? Prior to signing the Agreement of Purchase and sale, vendors with a mortgage on their home should specifically inquire from their bank as to any penalty on sale. Penalties can be substantial and apply when you sell and pay off the mortgage prior to the maturity date. If you got a cash back on taking a mortgage and you are paying the mortgage off prior to the expiry of your term, a portion of the cash back received on buying will be added to the mortgage payout amount to be paid back to the bank. 8. HST on Real Estate and Legal Fees It should be brought to the attention of clients that HST is added to the Real Estate commission and legal fees. Clients are encouraged to specifically discuss HST and disbursements with their realtor and their lawyer. 9. Deposit The deposit paid by a purchaser is usually held in trust by the realtor. The deposit is then deducted from the commission owed on the sale. This document has been prepared and distributed by Actus Law Droit and is not to be reproduced or distributed without its express permission. It is intended for general information only and not to replace the advice of a lawyer. 8 / 8