Financing Issues to be Considered

The new mortgage rules have made it increasingly difficult for many buyers to qualify for and obtain a mortgage is therefore essential that every agreement of purchase and sale contain a clause making the offer conditional on the buyer obtaining satisfactory financing. Even if the buyer has been approved for financing I’ve seen many situations refinancing issues and problems can delay or even cancel the closing.

Is important to note that a preapproval or approval from a financial institution is not a guarantee that the lender will fund the buyer its mortgage funds. The reason for this is simple as many approvals come with conditions attached to them such as satisfactory appraisal, verification of income, down payment, and proof of employment income. It is crucial to ensure that the buyer works with an experienced and trustworthy mortgage agent or broker. Keep in mind that the lender can change its mind and pull the plug on financing at any time even on the date of closing if it is not satisfied that all of the outstanding conditions set out in the commitment have been fully complied with. Therefore, leaving the financing aspect of the transaction to the last minute is a guaranteed recipe for disaster.

Another issue that buyer should consider is determining the amount of funds they will actually receive from the lender. Mortgage commitments vary from lender to lender and some may contain fees or charges which are deducted from the actual mortgage amount being advanced to the lawyer. Examples of these fees CMHC fees, appraisal fees and interest adjustment. Many buyers fail to realize that these deductions reduce the amount of funds that your lawyer will receive on closing thereby requiring the buyer to make up the difference on the closing date. The buyer should therefore be prepared to have a reserve of additional funds in case it is needed to close the transaction.

Finally, the most important thing that the buyer must do to avoid financing problems is to ensure that your lawyer receives the mortgage instructions well before the closing date. We advise our clients to tell their lenders to provide us with the mortgage instructions at least 10 days prior to closing to avoid funding delays which can delay your closing and end up costing you unnecessary expenses and stress.

All offers should be made conditional on financing unless the buyer instructs you not to do so. If your buyer instructs you not to make the offer conditional on financing, it is prudent to confirm these instructions in writing or have the buyer sign an OREA form which makes it clear that the buyer understands the risk in making the offer without a condition on financing.

(Article provided by Isenberg & Shuman)

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Title Insurance and Surveys

With the advent and popularity of title insurance, there is a widespread belief that it is no longer necessary to obtain a survey for a residential property purchase. This column will examine this belief and explain the differences between survey coverage under a title insurance policy and a survey of the property.

A survey is a document prepared by an Ontario land surveyor using calculations when viewing the property as compared with the registered title documents. The survey will show the measurements, dimensions and boundaries of the property. It also illustrates the location of the buildings on the land along with the improvements to the land such as fences, pools, hedges, easements and rights of way in favour of utility companies. Usually an Agreement of Purchase and Sale will provide that the seller agrees to provide a survey of the property to the purchaser, if available. If no survey is available, the purchase may wish to consider whether it wishes to pay to have an up to date survey prepared by a land surveyor which usually costs between $800-1000.

Title insurance insures title or ownership as of the closing date and indemnifies the purchaser for certain losses under the policy. Title insurance provides coverage for many risks which are not available with a lawyer’s traditional opinion on title. Examples of these risks are unpaid liens, zoning contraventions, unpaid final water bills and most importantly, coverage for fraud and forgery. With respect to survey coverage, most policies offer protection for losses suffered as a result of defects that would have been revealed had the purchaser obtained an up to date survey of the property. In theory, the protection of a title insurance policy should place the insured purchaser in the same position as if it had obtained an up to date survey of the property. This is not entirely accurate. In fact, title insurance is not always a replacement for a survey of the property. For instance, a title insurance policy cannot reveal the dimensions of the property. It cannot tell you whether or not the swimming pool, fences or any other additions are built within the lot lines. It cannot tell you the extent of your title or reveal that existence of rights of way or easements.

If you are arranging a mortgage as a part of your purchase, virtually all lenders will accept a title insurance policy in place of an up to date survey of the property. For a modest one-time premium, title insurance will insure your title for as long as you own it. From a value perspective, title insurance is inexpensive and provides peace of mind coverage to protect likely your largest investment.

Title insurance provides some coverage for survey issues, however, it is not always equivalent to obtaining as up to date survey. Most policies offer protection for an adverse circumstance that would have been revealed by an up to date survey such as an encroachment (except for boundary walls or fences). However, the response of the title insurance company to a survey related claim may not fully compensate the insured purchaser. This is why obtaining a survey depends on the needs and wants of the purchaser. If the purchaser intends to build on the property (i.e. addition, garage, or swimming pool) and needs to know whether or not the future plans are doable, then obtaining an up to date survey of the property is strongly recommended.

Title insurance offers significant benefits and I always recommend that purchasers obtain it because of the benefits. It costs less money than obtaining an up to date survey of the property. However, as this column indicates, there may be circumstances where a purchaser should consider obtaining both a title insurance policy and an up to date survey of the property.

Article Provided by Lorne Shuman – (Isenberg & Shuman)

The Importance Of A Status Certificate

If you are considering the purchase of a resale residential condominium, it is important to ensure that any offer to purchase you make is conditional on your lawyer’s review of the status certificate.  This column will examine what a status certificate is and why a buyer needs to have it reviewed and approved before making an offer firm and binding.

The status certificate is a document that is prepared and issued by the condominium corporation.  The condominium corporation charges a fee of $100 to issue the status certificate and it normally takes up to 10 days for it to be issued.  Almost every condominium resale agreement contains a clause which makes it conditional on the buyer reviewing the status certificate with a lawyer and being satisfied with its contents. The importance of this document cannot be overlooked.

The status certificate and related condominium documents answer many hidden questions about the unit and the condominium building.  Here are some of the more important points that a status certificate and condominium documents will disclose:

  1. What are the monthly common expenses and has the seller paid the monthly common expenses or are there arrears?
  2. Is the condominium corporation considering levying a special assessment against the unit owners to pay for repairs, replacement or improvements to the building?
  3. Is the condominium corporation involved in a lawsuit?
  4. Does the condominium’s declaration or rules contain any restrictions which would prohibit owners from having any pets?
  5. What is the amount of the condominium corporation’s reserve fund and when was the last reserve fund study completed?
  6. Is the condominium corporation professionally managed and does it have a budget and up-to-date financial statements?
  7. Is there a record of any unauthorized repairs to the condominium unit?
  8. Do the parking and locker units in the Agreement of Purchase and Sale correspond to those set out in the status certificate?

The status certificate and condominium documents will answer these questions and many more that need to be carefully considered before the Agreement becomes firm and binding.  Without knowing this information a buyer is at risk of purchasing a condominium which could result in many problems, issues and costs to the buyer.

A properly drafted Agreement with the usual “conditional on status approval” clause will allow the buyer’s lawyer to review the status certificate and related condominium documents while the offer is conditional.  The lawyer can then discuss its findings with the buyer so that the buyer can make an informed decision to go ahead with the purchase or not.  In most cases, the status certificate, while not always perfect in every aspect, will be acceptable to the buyer who will then decide to waive the condition, thus making the offer to purchase firm.  In some cases, however, the status certificate may disclose an issue which the buyer may not be willing to accept and the buyer may cancel the Agreement.

The importance of the review of a status certificate cannot be overstated and should never be overlooked even in the situation of a hot real estate market.

Article Provided by Lorne Shuman – (Isenberg & Shuman)