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How a Lawyer Helps Close the Purchase of Your New Home

Lawyer Acting for a Purchaser

In a typical transaction, the lawyer becomes involved after the Agreement of Purchase and Sale has been signed and after all conditions have been fulfilled or waived so that the deal is firm and binding. There are however certain situations where a lawyer may become involved early on in the process.

1. Agreement Conditional on Review by a Lawyer

In certain circumstances, the Agreement of Purchase and Sale will be conditional on a review by the Purchaser’s Lawyer. For example, when purchasing a condominium, there will often be a condition that the purchaser’s lawyer must review the Status Certificate. The Status Certificate is a document prepared by the Condominium Corporation which sets out the financial state of the condominium unit and the condominium corporation as a whole at that point in time. A review and summary by the lawyer is a standard condition in an Agreement of Purchase and Sale when purchasing a condominium.

In certain other more complicated transactions (with added non-standard conditions), the Agreement of Purchase and Sale will be conditional on the review by a lawyer, and the Purchaser being satisfied with the legal effects of the Agreement.

Typically though, most residential real estate transactions will reach the lawyer once the deal is firm and binding.

2. Title Search

One of the first things a lawyer does is conduct a title search of the property to ensure that there are no issues with the title of the property. The lawyer obtains copies of all instruments and documents registered on title to the property, including any easements, restrictive covenants, liens, judgments, mortgages, notices, subdivision plans, bylaws or anything else that may have been registered. The lawyer then reviews these documents for their legal effect, and if there is a title issue, brings the issue to the attention to the Seller’s lawyer, require that they rectify the issue and recommends a solution to the issue to be completed by the Seller’s lawyer prior to closing. If the Seller’s lawyer either cannot or will not fix the problem, then the Purchaser’s lawyer will discuss the issue with the Purchaser, the potential legal effect of the issue and any possible solutions.

Sometimes, the Purchaser’s lawyer can discuss the title issue with the title insurance provider and arrange for the title insurance policy to “insure over” the issue. Title insurance will be further discussed below.

The Purchaser’s lawyer also conducts certain off-title searches for documents that don’t appear on the title to the property itself. These can be things such as work orders, hydro liens, water arrears, property tax arrears or executions (outstanding judgments registered on the property) against the Sellers. 

If an issue is found through any of the off-title searches, the Purchaser’s lawyer will bring it to the attention of the Seller’s lawyer and require that it be rectified prior to closing.

3. Title to the Property

The Purchaser’s lawyer will advise on the manners of taking title to the property. When there is only one purchaser, the title will almost always be taken in the name of the Purchaser as “Registered Owner”. If there is more than one Purchaser however, the Purchasers will have to determine whether they are taking title as Tenants in Common or as Joint Tenants. Spouses usually take title as Joint Tenants, which means that each owner has equal ownership rights to the property, but that if one party dies, the property passes automatically to the surviving joint owner through a legal principle called “Right of Survivorship”.

If the Purchasers take title as Tenants in Common (such as two friends purchasing an investment property), each Purchaser will own 50% (or another agreed upon percentage) of the property, and if either dies, that Purchaser’s share will be dealt with pursuant to their will.

4. Land Transfer Tax

Land Transfer Tax is a tax levied by the Ontario government which applies to any transfer of property. The amount of the tax is calculated as a percentage of the purchase price of the property, based on the formula set out below.

            PROVINCE OF ONTARIO

                        amount up to                 $55,000.00                                            x          .005

            +          amount between          $55,001.00 and $250,000.00         x          .010

            +          amount between          $250,001.00 and $400,000.00       x          .015

            +          amount above               $400,000.00                                         x          .020

            ________________________________________________________________

                        =                                  Total Ontario LTT payable 

First time home buyers are eligible for a rebate of up to $4,000.00 of the Land Transfer Tax payable so long as they have not owned another home and they intend to reside in the property within 9 months of closing. The Land Transfer tax is remitted to the government by the Purchaser’s lawyer at the time of closing.

 

5. Mortgage Financing

If the Purchaser is obtaining mortgage financing to purchase the property the Purchaser’s lawyer will also be retained by the lender, to act as its lawyer. The lender will send the lawyer a set of instructions to be followed, searches to be conducted and conditions to be met before the mortgage will be funded. The lawyer must report to the lender on the results of the searches, and if there are any issues that may affect the lender’s security in the property.

6. Adjustments to the Purchase Price

The Seller’s lawyer will prepare a document called the Statement of Adjustments, which shows any adjustments that need to be made to the purchase price from the Agreement of Purchase and Sale, to arrive at the final balance required to close. The Purchaser will be credited with the deposit which was made at the time of signing the Agreement of Purchase and Sale.

Municipal property taxes must also be adjusted. If the Seller has prepaid property taxes for the property, the Purchaser must credit the amount of the prepayment at the time of closing, determined by the number of days each party is responsible for. Conversely, if the Seller has not paid the property tax instalment at the time of closing, the Purchaser will be credited on closing with the amount the seller is responsible for.

Other adjustments may include rent paid by tenants, or common expenses if the property is a condominium. These will also be adjusted for how many days each party owns the property.

7. Execution of Documents

A few days prior to the closing date, the Purchaser will need to attend the lawyer’s office to sign the closing documents and bring in the required closing funds. The closing funds will consist of the downpayment, land transfer tax, and legal fees and disbursements.

8. Closing the Home

The Purchaser’s lawyer will send the Seller’s lawyer the closing documents together with the funds required to close. The Purchaser’s lawyer will then review the closing documents sent by the Seller’s lawyer to ensure that everything has been completed. If everything is in order, the Purchaser’s lawyer and Seller’s lawyer sign off on the Transfer electronically, and the keys can be released to the Purchaser. 

It is essential to having a Real Estate Lawyer represent you in a real estate transaction to ensure that all risks are minimized in your purchase.

For any further questions, concerns and to hire legal representation in your next real estate transaction, contact:

Patrick Bush
Associate Lawyer
SULLIVAN MAHONEY LLP
40 Queen Street, P.O. Box 1360
St. Catharines, Ontario  L2R 6Z2
Direct Dial: (905) 688-0079

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