Monday, January 2, 2012
Saturday, October 22, 2011
Death of a Seller Prior to Closing
Sometimes after a series of unfortunate events the Buyer, or more likely the Seller of a parcel land dies after signing a binding contract for the purchase, but prior to completion (and signing the transfer).
At common law, where a contract was for “personal services”, the death of the party providing those services would “frustrate” the contract making it impossible to perform. For example, a man’s promise to marry was not held to be binding after his death (Mc Bride [1962] SCR 202).
This is not the situation for Real Estate Contracts. Real Estate Contracts are financial obligations and the foundation or subject matter of the contract, being real property, continues to exist after the death of any one of the parties. Canadian courts have consistently upheld the principal in Witicki v. Midley [1976] 6 WWR 471, wherein a contract for the sale of land was binding on the deceased’s estate despite the seller dying prior to signing the transfer document.
But… procedurally, the executor cannot sign the transfer until probate is granted… what happens? Usually, the parties (and their lawyers) will grant a pre-closing possession/ tenancy on the strength of having all the necessary documents (except the transfer) held in trust until such a time as probate can be granted.
Sunday, September 25, 2011
Saving Your Client Money in a Real Estate Transaction
This weeks blog post is definitely not legal advice, however growing up in the Real Estate industry for the past 34 years, there are definitely a few ways I have discovered that both Realtors and Lawyers can add value to their clients transaction:
- What is the BEST outcome if the deal does NOT go through? And
- What is the WORST outcome if the deal does NOT go through?
These two questions very quickly get to the heart of your client’s motivation.
Setting good dates – everyone wants to close at the end of the month, this means that you client is just one of many people needing services from lawyers, movers, strata companies. The best advice here is to remove subject conditions at least 30 days prior to closing, and have closing occur on the "off-weeks" during a month (ie; those weeks that do not contain the 15th or 30th).
Knowing the Local Area – there are many areas in the Central Okanagan where housing costs will be dramatically different for a number of reasons that are not immediately apparent from the listing, for example:
- Are you too far from a fire hydrant/ protection area to obtain cost effective fire insurance (Some parts of the Upper Mission)?
- Does the area you are in have such poor water quality which will necessitate you bringing in outside sources (ie; Glenmore – Ellison Irrigation District)?
- Does the smaller municipality mean that you property taxes are going to be markedly higher (ie; Lake Country, Peachland)
Search out Hidden Costs
- Get a good home inspection, but then get a follow-up expert inspection if anything substantive arises (ie; roof, foundation, building envelope/ water, electrical, plumbing).
- Get to know your strata council – everyone reads strata docs, this is standard. However don’t be afraid to take the extra step of calling the Strata Council President, you’d be surprised what doesn’t make it into the minutes.
Monday, September 19, 2011
Dealing with Divorcing Clients - Fiduciary Obligations
As a professional, dealing with clients who are undergoing a divorce is always very difficult. Recently there was a local news story highlighting some these issues (http://www.chbcnews.ca/kelowna+lawyer+suspended+from+practice/6442483996/story.html)
As Agents where we know a client is undergoing a divorce it is important to get clear and unequivocal instructions from "your client". Realtors and Lawyers owe a duty of care to their clients, this includes, in the context of a Divorce, duties of:
1) Full Disclosure - to BOTH parties (for example, cc the other spouse on ALL emails)
2) Undivided Loyalty - You cannot favor the interests of one spouse over another
3) Confidentiality - Without your client's permission, you have to keep your conversations with both spouses confidential and not publicly disclose that information (ie; the fact that they are getting a divorce).
A caveat - the fact that there is an ongoing divorce proceeding MUST be disclosed to the lawyer representing the separating parties (who also must keep the information confidential) as this effects the legal work that needs to be done at closing.
Failure to ensure that both spouses are "on board" will quickly "scuttle" a real estate deal. For Realtors this means getting CLEAR and UNEQUIVOCAL instructions, preferably written, from both spouses. This is even true where only one spouse is "on title".
At Pihl Law Corporation, upon file opening we always ask all our clients whether they are aware of a pending family dispute among the parties as this is such an important issue. Both spouses must sign and approve an "Order to Pay" which sets out all deductions from the purchase price (including commissions and legal fees).
As Agents where we know a client is undergoing a divorce it is important to get clear and unequivocal instructions from "your client". Realtors and Lawyers owe a duty of care to their clients, this includes, in the context of a Divorce, duties of:
1) Full Disclosure - to BOTH parties (for example, cc the other spouse on ALL emails)
2) Undivided Loyalty - You cannot favor the interests of one spouse over another
3) Confidentiality - Without your client's permission, you have to keep your conversations with both spouses confidential and not publicly disclose that information (ie; the fact that they are getting a divorce).
A caveat - the fact that there is an ongoing divorce proceeding MUST be disclosed to the lawyer representing the separating parties (who also must keep the information confidential) as this effects the legal work that needs to be done at closing.
Failure to ensure that both spouses are "on board" will quickly "scuttle" a real estate deal. For Realtors this means getting CLEAR and UNEQUIVOCAL instructions, preferably written, from both spouses. This is even true where only one spouse is "on title".
At Pihl Law Corporation, upon file opening we always ask all our clients whether they are aware of a pending family dispute among the parties as this is such an important issue. Both spouses must sign and approve an "Order to Pay" which sets out all deductions from the purchase price (including commissions and legal fees).
Friday, September 9, 2011
A Commercial Landlords Remedies Under a Valid Lease
A landlord has five basic options when a commercial lease goes into default:
1. affirm the lease and sue for amounts due;
2. affirm the lease and distrain the tenant’s goods on the premises for rent in arrears;
3. terminate the lease and re-enter the premises;
4. affirm the lease and relet the premises on the tenant’s account; or
5. negotiate a surrender of lease.
Importantly: Choosing one of these options will often foreclose the possibility of choosing another alternative, therefore it is often in your best interest to discuss these options with your lawyer prior to proceeding.
1. Sue for Amounts Due:
The landlord can refuse to accept the repudiation of the lease by the tenant and do nothing to alter the relationship of landlord and tenant. The landlord can then insist on performance of the terms under the lease and sue for rent or damages on the basis that the lease remains in force.
2. Distress when rent has not been paid:
If the lease has not been terminated and the tenant owes rent, the landlord may seize the tenant’s goods at the leased premises and hold them as security for payment of the outstanding rent.
A landlord cannot distrain a tenants' fixtures or improvements. A fixture is personal property that is attached to land or a building and is regarded as an irremovable part of the building. A landlord can then sell the seized moveable property (chattels) and apply the proceeds of that sale to the outstanding rent.
A landlord must be careful not to commit an illegal distress. An illegal distress occurs when:
- there is no tenancy (if the possession is characterized as a mere license or other interest);
- no rent is due; or
- rent is due, but:
a. the landlord has terminated the lease;
b. the landlord or the bailiff break into the premises, or enter during a prohibited period;
c. exempt goods are seized, such as personal property of someone who is not the tenant;
d. the distress is made more than six months after the end of the term;
e. the landlord continues the distress after the tenant tenders the rent and costs of the distress; or
f. goods are seized off the premises when not permitted
When dealing with large items, a landlord should have a bailiff state that the goods are seized, secure and sell the property on the premises rather than removing them. If the tenant retakes them, then the landlord can recover damages and costs.
3. Re-entering and Terminating the Lease
The landlord will have terminated the lease if the landlord's actions made it clear that the landlord had no intention of allowing the tenant to re-enter the premises again or to carry on with the lease unless the money owing was paid. Once a tenancy is terminated and the landlord has taken possession of the premises, the landlord is then only able to sue only for rent due or for damages for breaches of covenant committed before the date of termination.
4. Affirming the Lease and Re-letting the Premises
The landlord can refuse to accept the repudiation or abandonment of the lease, but advise the tenant that it will re-enter the premises and re-let the property “on the tenant’s behalf”. The landlord then holds the tenant liable for any deficiency in rental for the balance of the lease term.
This is foregoing is generalized information only and not legal advice for any particular set of facts.
For more information, please contact Peter Borszcz at PIHL Law Corporation:
250-762-5434
Twitter: @pihllawcorp
Friday, July 22, 2011
Higher Standards for Property Disclosure Statements
In BC, Sellers have a choice with Property Disclosure Statements ("PDS"), they could either:
a) simply cross them out and do not complete the questionaire and mark "as-is"; thus the principal of "buyer beware" would apply (Smith, 2005 BCSC 635); or
b) they would have to fill out the PDS "to the best of their knowledge" (Curtin v. Blewett, 28 RPR 3d 115).
Now, a recent Ontario Court of Appeal case, Krawchuk v. Scherbak 2011 ONCA 352, seems to impose a markedly higher standard on sellers who chose to fill out the PDS. The ONCA stated that Sellers, once they have chosen to complete a PDS have an obligation to "provide to the extent possible, accurate and complete information" and the Court went onto say that the Vendor was liable despite the fact that they "tried to be honest".
Although not technically the "law" in British Columbia, this case will be compelling for BC Courts. Realtors should always advise Sellers that they have an obligation to "look further" if there are "issues" with a property of which they are aware.
Of note also in this case, the Realtor, who has a dual agent, was liable to both the Buyer and Seller and had judgement against them for over $100,000 for failure to a) emphasize the importance of a home inspection to the Buyer and b) emphasize the importance of making full and complete disclosure to the Seller.
Addendum:
For those looking for the full text of the case it can be found here:
http://www.canlii.org/en/on/onca/doc/2011/2011onca352/2011onca352.html
The BC Real Estate Association in its July 2011 Issue of "Legally Speaking" discussed this case and came to the conclusion that "the outcome of the case would have been different had the case been decided in BC". With respect this ignores the fact that the Court on Ontario has changed the law in Ontario and this case now gives more traction to a BC Court wishing to similarly change the law in BC.
But... stay tuned... this case has submitted for leave to appeal to the Supreme Court of Canada...
a) simply cross them out and do not complete the questionaire and mark "as-is"; thus the principal of "buyer beware" would apply (Smith, 2005 BCSC 635); or
b) they would have to fill out the PDS "to the best of their knowledge" (Curtin v. Blewett, 28 RPR 3d 115).
Now, a recent Ontario Court of Appeal case, Krawchuk v. Scherbak 2011 ONCA 352, seems to impose a markedly higher standard on sellers who chose to fill out the PDS. The ONCA stated that Sellers, once they have chosen to complete a PDS have an obligation to "provide to the extent possible, accurate and complete information" and the Court went onto say that the Vendor was liable despite the fact that they "tried to be honest".
Although not technically the "law" in British Columbia, this case will be compelling for BC Courts. Realtors should always advise Sellers that they have an obligation to "look further" if there are "issues" with a property of which they are aware.
Of note also in this case, the Realtor, who has a dual agent, was liable to both the Buyer and Seller and had judgement against them for over $100,000 for failure to a) emphasize the importance of a home inspection to the Buyer and b) emphasize the importance of making full and complete disclosure to the Seller.
Addendum:
For those looking for the full text of the case it can be found here:
http://www.canlii.org/en/on/onca/doc/2011/2011onca352/2011onca352.html
The BC Real Estate Association in its July 2011 Issue of "Legally Speaking" discussed this case and came to the conclusion that "the outcome of the case would have been different had the case been decided in BC". With respect this ignores the fact that the Court on Ontario has changed the law in Ontario and this case now gives more traction to a BC Court wishing to similarly change the law in BC.
But... stay tuned... this case has submitted for leave to appeal to the Supreme Court of Canada...
Friday, May 27, 2011
Who Should be on Title?
When buying a house, you must decide whose name will go on title. Will you be the sole owner? Should you be on title at all? Will you and your spouse go on title together? If so, will you be joint tenants or tenants in common? What about your children?
What is the difference between Joint Tenancy and Tenancy in Common?
Joint Tenancy means that two or more people own property in equal undivided portions, with an equal right to use the whole property. When one joint tenant dies, the property is transferred to the surviving joint tenant immediately before the moment of death. This means the property does not become a part of the estate of the person who died and the property will not be subject to probate fees, will not be taxed as a part of the estate and will not be distributed among the beneficiaries of the estate.
Joint tenancy is generally preferred for most spouses.
If two or more people own property as a Tenancy in Common, it does not have to be divided equally. Tenants in Common can own different proportions of the property, for example ¼ and ¾, and they can sell or mortgage their portion as they please. If one tenant in common dies, that person’s share of the property becomes a part of the deceased’s estate. It is subject to probate fees and it will be distributed to the beneficiaries of the deceased’s estate. As you can imagine, property can be a difficult thing to “distribute”.
Tenants is generally preferred for blended families and other unique arrangements (like a shared vacation cottage).
Can I hold title in only one name, excluding my spouse or common law partner?
Having title in your name does not always mean you are the only one with an interest in the property. If you are in a relationship and have been living together for at least two years, your partner may have a claim to part of the property even though they are not on title.
If you are a self-employed professional, you want to protect your assets from any business creditors. Some people attempt to protect their assets by placing title in their spouse’s name or have title held by a holding company. This protection is not absolute and most bank will require a spouse to, at the very least be a Guarantor or Covenanter on the Mortgage.
What about going on title with my Adult Child ?
If you are thinking of holding a property in joint tenancy with an Adult Child for estate planning purposes, you should consult a lawyer. There can be many unintended consequences and pitfalls for such an arrangement. For example:
-loss of control: you cannot sell or mortgage without the consent of the child
-taxes: there may be capitals gains consequences for the parent or the child
-property transfer tax: depending on whether the property is a principal residence, you may have to pay property transfer tax
-creditors: the property will be at risk to claims by the child’s creditors
-uncertainty: it is possible that you may not be successful in creating a joint tenancy if the child does not live in the house. The joint tenancy may be unintentionally severed by a number of events.
Friday, May 20, 2011
Property Transfer Tax: First Time Home Buyers
First time home buyers get an exemptions from paying the property transfer tax and this "tax break" can save FTHB thousands of dollars. However, First Time Home Buyers need to carefully ensure that they qualify for this tax savings. Persons claiming a FTHB credit are regularly audited by the PTT Office.
The Criteria to Qualify are as follows;
Purchaser must:
a) be a Canadian Citizen, or a permanent resident as determined by Immigration Canada,
b) have lived in British Columbia for 12 consecutive months immediately before the date
you register the property, or you have filed 2 income tax returns as a British Columbia
resident during the 6 years before the date you register the property,
c) never owned an interest in land anywhere in the world at anytime,
and
d) you have never received a first time home buyers’ exemption or refund.
The Property you purchase must also qualify as follows:
a) the price must be less than $425,000
b) the land must be less than 0.5 hectares (1.24 acres), and
c) the property will only be used as your principal residence.
Importantly, if you sell the property or acquire a new principal residence within 12 months of purchase, you will lose the exemption and the Province will demand for the tax to be paid.
More information here:
http://www.sbr.gov.bc.ca/documents_library/brochures/firsttimehomebuyer.pdf
The Criteria to Qualify are as follows;
Purchaser must:
a) be a Canadian Citizen, or a permanent resident as determined by Immigration Canada,
b) have lived in British Columbia for 12 consecutive months immediately before the date
you register the property, or you have filed 2 income tax returns as a British Columbia
resident during the 6 years before the date you register the property,
c) never owned an interest in land anywhere in the world at anytime,
and
d) you have never received a first time home buyers’ exemption or refund.
The Property you purchase must also qualify as follows:
a) the price must be less than $425,000
b) the land must be less than 0.5 hectares (1.24 acres), and
c) the property will only be used as your principal residence.
Importantly, if you sell the property or acquire a new principal residence within 12 months of purchase, you will lose the exemption and the Province will demand for the tax to be paid.
More information here:
http://www.sbr.gov.bc.ca/documents_library/brochures/firsttimehomebuyer.pdf
Tuesday, May 17, 2011
Key Supreme Court of Canada Case for Developer Disclosure
In the last few years, there had been a landslide of litigation over pre-sale contract under the Real Estate Development and Marketing Act. In a recently released Supreme Court of Canada case (Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23) , the Supreme Court critically defines what information is "material" and gives rise to a disclosure obligation what does not.
Under the terms of the Real Estate Act (now the Real Estate Development and Marketing Act), a Developer MUST disclose all material information, which means:
"Information is material if there is a substantial likelihood that it would have been considered important by a reasonable investor in making his or her decision to invest. In other words, information is material if there is a substantial likelihood that its disclosure would have been viewed by the reasonable investor as having significantly altered the total mix of information made available."
One of the critical points here is that the standard is that of a "reasonable investor" meaning that it is an objective test, and not subject to the variety of factors which may motivate individual purchasers.
Critically Developers who make a false statement in a disclosure statement will be provided a defense where:
"the statutory defence contained in s. 75(2)(b)(viii) of the Real Estate Act would preclude [a developer] from being found liable under s. 75(2). To rely on the defence, [a developer] had to show that it subjectively believed the representations it made were true and that it objectively had reasonable grounds for such a belief."
Developers who use and reasonably rely on experts to produce the information in their disclosure statements may have a defense under this provision.
Under the terms of the Real Estate Act (now the Real Estate Development and Marketing Act), a Developer MUST disclose all material information, which means:
"Information is material if there is a substantial likelihood that it would have been considered important by a reasonable investor in making his or her decision to invest. In other words, information is material if there is a substantial likelihood that its disclosure would have been viewed by the reasonable investor as having significantly altered the total mix of information made available."
One of the critical points here is that the standard is that of a "reasonable investor" meaning that it is an objective test, and not subject to the variety of factors which may motivate individual purchasers.
Critically Developers who make a false statement in a disclosure statement will be provided a defense where:
"the statutory defence contained in s. 75(2)(b)(viii) of the Real Estate Act would preclude [a developer] from being found liable under s. 75(2). To rely on the defence, [a developer] had to show that it subjectively believed the representations it made were true and that it objectively had reasonable grounds for such a belief."
Developers who use and reasonably rely on experts to produce the information in their disclosure statements may have a defense under this provision.
Thursday, April 7, 2011
Sales of Waterfront Property
Who Owns the Water?
All water in BC is owned by the Crown and strictly regulated. As property lines extend to, but do not include the foreshore, the upland owner has no rights to use or “possess” the water, only a right to access. A license from the Provincial Crown is require to use/ possess.
Waterfront Boundaries Can Change
The Crown owns all property which exists below the high water mark therefore if the high water mark changes, the property boundaries will change. A new survey is required to re-define the property after erosion (loss) or accretion (gain), especially for:
- Property tax issues
- Building on property (building envelope)
- Building on water (dock location)
General Public has a Right of Access to Foreshore.
In Minor v. Van Ewyk, 2008 BCSC 558 the Court said that “the foreshore is open to public use…. The only rights the [land owner] may assert are her common law riparian right to unrestricted access to and from the water frontage, and the right conferred under a “License of Occupation””.
Dock Licenses
As Docks occupy Crown Land, a License is required for a legal dock. A License is a Personal Right and is not transferred with a transfer of the upland. There are Three Types of Dock Licneses commonly found on Okanagan Lake
A. License of Occupation (pre-2008)
B. Specific Permission (non-exclusive)
C. Water Lot Lease (exclusive occupation)
Importantly, unlike other some other lakes in BC, there is no General Permission on Okanagan Lake to build a dock!
The License will often have Limitations, for example:
A. Not to interfere with other rights or navigation (Fixed Impediments)
B. Environmental Covenants
C. Limitations on Use (# of slips/ commercial v. residential)
D. Cannot interfere with Public Access
E. No “non-moorage” purposes, incl.: patios, sundecks, hot tubs, roofs/ gazebos.
Assignment (Sales) of Dock Licenses
As a License is NOT conveyed with land, must be assigned
Suggested Contract Language:
The Seller assigns and the Buyer assumes all right, title and interest to the License of Occupation [or Permission] #19978722 with the Province of British Columbia, a true copy of which is attached to this Contract, for, inter alia, the Dock adjoining the property.
The Seller represents and warrants that the License of Occupation [or Permission] #19978722 is in good standing.”
Monday, January 17, 2011
Deposits on Residential Real Estate Contracts
A DEPOSIT is usually made from the BUYER in the BUYER’s AGENTS trust account and is held according to the stakeholder provisions of the Real Estate Services Act.
This means that the DEPOSIT can generally ONLY be released prior to completion where:
a) it is paid into COURT or in accordance with a COURT ORDER; or
b) by WRITTEN AGREEMENT of the parties.
Currently, there is a “gap” in RESA whereby a Buyer who does not remove his subject conditions could be faced by a stubborn Seller who refuses to release the deposit. This would force the Buyer (who doesn’t want the home anyway) to go to Court to get his deposit returned. In light of this I recommend that Buyer's do not make a deposit is made until subject removal.
The BC Court of Appeal expanded our understanding of “Deposits” in the recent case of Agosti v. Winter 2009 BCCA 490. The court distinguished between true deposits (amounts up to 10% of the purchase price) and excessive deposits. Absent other evidence, EXCESSIVE DEPOSITS (over 10%) may be characterized as punitive by the court and subject to “review and relief” under the Law and Equity Act.
With TRUE DEPOSITS, the court upheld the general rule that a true deposit is “earnest money” and is forfeit in the event of the Buyer’s failure to complete. This upholds the “ordinary meaning” of the word deposit and is reinforced by words such as “non-refundable” and “absolutely forfeited” upon breach by the Buyer. According to the Court, a Seller would be able to claim the TRUE DEPOSIT, even if such amount did not amount to a genuine pre-estimate of damages.
Importantly, this decision did not LIMIT the liability of the non-completing BUYER to the deposit amount alone. If forced to litigate, most Sellers are likely to seek amounts over and above the deposit, including (but not limited to) loss of profit, re-marketing costs, upkeep costs, and interest costs.
How can Realtors advise their clients?
a) no deposit should be made until subjects are removed;
b) a maximum deposit of 10% to ensure the deposit is a TRUE DEPOSIT;
c) once made to the brokerage, inform client that the deposit can ONLY be returned according to RESA; and
d) the minimum claim of a Seller in breach is likely the deposit amount, however the maximum claim may be substantially higher.
Addenda:
The Professional Standards Manual says that Listing Agents should, if no deposit is received, "advise sellers of the merits of a deposit being received from buyers". "Merits of a Deposit" is difficult language for Realtors and it will necessitate "what if" discussions in the event of non-completion. From a Realtor's perspective this is a good time to discuss what lawyer your client wishes to use.
This means that the DEPOSIT can generally ONLY be released prior to completion where:
a) it is paid into COURT or in accordance with a COURT ORDER; or
b) by WRITTEN AGREEMENT of the parties.
Currently, there is a “gap” in RESA whereby a Buyer who does not remove his subject conditions could be faced by a stubborn Seller who refuses to release the deposit. This would force the Buyer (who doesn’t want the home anyway) to go to Court to get his deposit returned. In light of this I recommend that Buyer's do not make a deposit is made until subject removal.
The BC Court of Appeal expanded our understanding of “Deposits” in the recent case of Agosti v. Winter 2009 BCCA 490. The court distinguished between true deposits (amounts up to 10% of the purchase price) and excessive deposits. Absent other evidence, EXCESSIVE DEPOSITS (over 10%) may be characterized as punitive by the court and subject to “review and relief” under the Law and Equity Act.
With TRUE DEPOSITS, the court upheld the general rule that a true deposit is “earnest money” and is forfeit in the event of the Buyer’s failure to complete. This upholds the “ordinary meaning” of the word deposit and is reinforced by words such as “non-refundable” and “absolutely forfeited” upon breach by the Buyer. According to the Court, a Seller would be able to claim the TRUE DEPOSIT, even if such amount did not amount to a genuine pre-estimate of damages.
Importantly, this decision did not LIMIT the liability of the non-completing BUYER to the deposit amount alone. If forced to litigate, most Sellers are likely to seek amounts over and above the deposit, including (but not limited to) loss of profit, re-marketing costs, upkeep costs, and interest costs.
How can Realtors advise their clients?
a) no deposit should be made until subjects are removed;
b) a maximum deposit of 10% to ensure the deposit is a TRUE DEPOSIT;
c) once made to the brokerage, inform client that the deposit can ONLY be returned according to RESA; and
d) the minimum claim of a Seller in breach is likely the deposit amount, however the maximum claim may be substantially higher.
Addenda:
The Professional Standards Manual says that Listing Agents should, if no deposit is received, "advise sellers of the merits of a deposit being received from buyers". "Merits of a Deposit" is difficult language for Realtors and it will necessitate "what if" discussions in the event of non-completion. From a Realtor's perspective this is a good time to discuss what lawyer your client wishes to use.
Friday, December 3, 2010
2010 – The Year in Review
December is a wonderful month, the snow is falling and the ski hill is open. It provides a great time to look back and reflect on 2010 and look ahead to 2011. Some of the highlights for me this year have been:
1) Great Referrals from Great Realtors – in the past year I am proud to say that we have doubled our market share for real estate conveyancing. However, we did not do this alone. We only do this with the support of the first class professional realtors in OMREB who use and recommend our services everyday. Thank you all very much for you support in 2010.
2) HST – You’re probably thinking, seriously Peter? This is a highlight? From a lawyer’s point of view, Yes it is. The HST gave me a great opportunity to help out many realtors and clients through a difficult transition in the law. As lawyers, we don’t make the law but our job is to assist clients in working with it. So HST is something that 2010 will be remembered for. It will be interesting to see if the transition out of HST (and back to PST?) is something 2011 will be remembered for.
3) JUNE 30- We closed a record number of deals that day. The combination of pent up demand and the tax changes made for a very busy day. The economy looks to be aligning again for a similar June 2011 as buyers are putting off purchases as the prognosticators forecast the eventual demise of HST.
4) The Hard Deals – 2010 was the year of the hard deal. IRD penalties were rampant, Vendor’s were having trouble closing, and the economic uncertainty has lead to many properties being “underwater”. I am very proud to say that our firm did a great job of keeping these deals together. Having the litigation strength we do, we have been able to go to court and get the job done for a number of clients who have been on the innocent end of a deal gone wrong.
2011 is shaping up to be a very exciting time for us at Pihl Law Corporation. Some of the things “coming down the pipe” for us include:
1) Expanding our office space – we have taken over the first floor of our building and we are completing a state of the art “client centre”. I really look forward to inviting all of you to our “office warming” reception early in the New Year.
2) Expanding our staff – we are pleased to welcome Jody Serviss to our staff. She brings with her 6 years of conveyancing experience at a top tier law firm. New time you are in the office, please feel free to say hi to Jody.
3) Expanding our support of Realtors – we are constantly looking for a new and novel ways to assist Realtors to be “dealmakers”. Coinciding with the launch of our new office space, we are planning to launch a new toolbox to further assist local Realtors with their legal matters.
So, thank you all for a GREAT 2010, and I am looking forward to what is shaping up to be a Busier and Brighter 2011.
1) Great Referrals from Great Realtors – in the past year I am proud to say that we have doubled our market share for real estate conveyancing. However, we did not do this alone. We only do this with the support of the first class professional realtors in OMREB who use and recommend our services everyday. Thank you all very much for you support in 2010.
2) HST – You’re probably thinking, seriously Peter? This is a highlight? From a lawyer’s point of view, Yes it is. The HST gave me a great opportunity to help out many realtors and clients through a difficult transition in the law. As lawyers, we don’t make the law but our job is to assist clients in working with it. So HST is something that 2010 will be remembered for. It will be interesting to see if the transition out of HST (and back to PST?) is something 2011 will be remembered for.
3) JUNE 30- We closed a record number of deals that day. The combination of pent up demand and the tax changes made for a very busy day. The economy looks to be aligning again for a similar June 2011 as buyers are putting off purchases as the prognosticators forecast the eventual demise of HST.
4) The Hard Deals – 2010 was the year of the hard deal. IRD penalties were rampant, Vendor’s were having trouble closing, and the economic uncertainty has lead to many properties being “underwater”. I am very proud to say that our firm did a great job of keeping these deals together. Having the litigation strength we do, we have been able to go to court and get the job done for a number of clients who have been on the innocent end of a deal gone wrong.
2011 is shaping up to be a very exciting time for us at Pihl Law Corporation. Some of the things “coming down the pipe” for us include:
1) Expanding our office space – we have taken over the first floor of our building and we are completing a state of the art “client centre”. I really look forward to inviting all of you to our “office warming” reception early in the New Year.
2) Expanding our staff – we are pleased to welcome Jody Serviss to our staff. She brings with her 6 years of conveyancing experience at a top tier law firm. New time you are in the office, please feel free to say hi to Jody.
3) Expanding our support of Realtors – we are constantly looking for a new and novel ways to assist Realtors to be “dealmakers”. Coinciding with the launch of our new office space, we are planning to launch a new toolbox to further assist local Realtors with their legal matters.
So, thank you all for a GREAT 2010, and I am looking forward to what is shaping up to be a Busier and Brighter 2011.
Tuesday, November 9, 2010
Power of Attorney
In Kelowna, it is common place that real estate closings occur with another party signing on behalf of the Seller and executing documents by a power of attorney. A power of attorney is a document whereby one person (the DONOR) confers authority on another person (the ATTORNEY) to take certain actions on their behalf.
A power of attorney can be LIMITED in scope. For example it can only allow a person to deal with banking affairs and it may specifically exclude the right to deal with real estate. There are specific limitations on powers of attorney with respect to real estate, for example, s.27 of the Property Law Act prohibits an ATTORNEY from selling land to himself and s.56 of the Land Title states that a filed Power of Attorney will (unless expressly excluded) expire 3 years after the date it was signed.
To be valid to transfer land, a lawyer is looking for a number of items including:
a)ascertaining the true identity of the parties involved;
b)make inquiries to ensure the POA has not been revoked;
c)ensuring that the ORIGINAL must be filed with the Land Title Office with a DF#;
d)ensuring that the POA was properly witnessed by an OFFICER under s.42(3) of the Land Title Act;
e) ensuring the POA has sufficient powers to transfer land; and,
f)ensuring that the attorney must be at least 19 yrs old.
Realtors should:
a)ensure they obtain a copy of the Power of Attorney for their file;
b)ensure they know the identity of their clients (both DONOR and ATTORNEY); and
c)ensure their client’s lawyer is aware that the Closing will be occurring by Power of Attorney.
A power of attorney can be LIMITED in scope. For example it can only allow a person to deal with banking affairs and it may specifically exclude the right to deal with real estate. There are specific limitations on powers of attorney with respect to real estate, for example, s.27 of the Property Law Act prohibits an ATTORNEY from selling land to himself and s.56 of the Land Title states that a filed Power of Attorney will (unless expressly excluded) expire 3 years after the date it was signed.
To be valid to transfer land, a lawyer is looking for a number of items including:
a)ascertaining the true identity of the parties involved;
b)make inquiries to ensure the POA has not been revoked;
c)ensuring that the ORIGINAL must be filed with the Land Title Office with a DF#;
d)ensuring that the POA was properly witnessed by an OFFICER under s.42(3) of the Land Title Act;
e) ensuring the POA has sufficient powers to transfer land; and,
f)ensuring that the attorney must be at least 19 yrs old.
Realtors should:
a)ensure they obtain a copy of the Power of Attorney for their file;
b)ensure they know the identity of their clients (both DONOR and ATTORNEY); and
c)ensure their client’s lawyer is aware that the Closing will be occurring by Power of Attorney.
Tuesday, October 12, 2010
Non-Resident Vendors: The Need for Changes to s.116 of the ITA
Recently I was asked to write an article for the Lawyers Weekly (a national newspaper in Canada directed to lawyers), this is a re-post of that article originally published by the Lawyer's Weekly October 8, 2010:
When we speak to law reform, real estate is generally a tortoise among hares and for good reason. Given that, for a majority of the population their home is their single biggest investment, there is a strong demand for a system that is efficient, fair and predictable.
However, for real estate lawyers in the current economic climate we are now dealing with the inability of Vendors to clear title in increasingly greater numbers. Unfortunately, the bureaucracy involved with Section 116 of the federal Income Tax Act adding to the uncertainty by delaying and jeopardizing sales of residential real estate. The eight month delays caused by procedural meandering, which has been readily acknowledged by the civil servants of the International Audit Division, gives purchasers in this buyers real estate market the opportunity to simply “walk” away from contracts with non-resident Vendors who are unable to clear title due to the requirement of a Section 116 holdback.
Section 116 requires a purchaser of residential real estate to withhold between 25% and 50% of the purchase price subject to a vendor obtaining a certificate of compliance from the Canada Revenue Agency (CRA). In the normal course of residential real estate transactions, this is accomplished by way of solicitor’s undertakings between the parties. In the past, these undertakings did not present a hurdle to non-resident vendors as the growth in the value of the property allowed the vendor to close, payout their lender, and simply wait to receive the holdback funds upon issuance of the certificate of compliance by CRA.
The current economic climate has dramatically changed this reality for non-resident vendors. Many non-resident vendors are required to payout high loan to value ratio mortgages and other sources of funds are no longer readily available. In the Okanagan Valley, where a large number of non-residents own secondary residences in our resort communities, this pressure has been compounded by the recent changes to the financing rules, which now require a minimum 80% loan to value ratio for secondary residences, and in turn this has decreased the pool of eligible buyers for any given property.
Often, with desperate sellers and fickle buyers, the real estate agents must cobble these deals together down to the last penny and leaving little if any additional funds for the holdback on the closing date. The nature of residential real estate practice (at least in British Columbia) is that the contract is often firm and binding on the non-resident vendor when the vendor is informed by their lawyer of the holdback amount thereby putting the vendors in a position where they are unable to close. In Epp v. Yung (1993), 35 R.P.R. (2d) 1 (B.C.S.C.) the court held that, even if the vendor disagrees with the amount of the holdback, the vendor must still close without access to the holdback funds and provide title free and clear of all financial encumbrance.
In 2008, CRA introduced changes to the s.116 certificate of compliance requirements; however these changes have not adequately addressed the issue. CRA personnel have acknowledged the delays and have recently provided advice to the Institute of Chartered Accountants, as published by their member advisory in September 2009, on the steps a vendor can take to minimize the time it takes to obtain a certificate of compliance. These steps include: a) ensuring forms are submitted early (ideally well in advance of closing); b) ensuring the vendor is registered for a tax number; c) ensuring that all the supporting documentation is available (eg; form T2062) to allow CRA to determine the adjusted cost base as well as the proceeds of disposition; and d) ensuring the cover letter requests a “Certificate of Compliance” (as opposed to a clearance certificate which causes confusion with another CRA program). CRA has been reported to be piloting a regional intake centre to quickly deal with “low risk files”, however there have been no reports on this program’s success or if it will be expanding.
The fundamental problem with the process for obtaining Certificate of Compliance is not a lack of manpower, however it is the associated purchaser’s requirement to withhold and investigate the nature of the vendor’s tax liability that, in the context of residential real estate needs to be statutorily changed. The objectives of the Income Tax Act would be much better served if, subject to receipt of a vendor’s statutory declaration of no gain, the liability for the vendor’s taxes remained with vendor and the CRA would cease to rely on purchasers as indemnitors.
This call for reform is not new and the need for change to the section 116 procedure has been noted by the Advisory Panel on Canada’s System for International Taxation in December 2008, wherein they recommended that the government “eliminate withholding tax requirements related to the disposition of taxable Canadian property where the non-resident certifies that the gain is exempt from Canadian tax because of a tax treaty”.
Absent a fundamental change in the legislation, the current requirements set out in section procedure are inefficient and have created instability in the residential real estate market, at a time when greater stability is needed. Since most residential contracts of purchase and sale are entered into without legal advice and lawyer s are often only engaged a short time prior to closing, it is often too late for legal counsel to complete the step necessary to get the transaction back on track for a timely closing. The end result is that this statutory requirement is doing more harm than good in our current real estate market.
When we speak to law reform, real estate is generally a tortoise among hares and for good reason. Given that, for a majority of the population their home is their single biggest investment, there is a strong demand for a system that is efficient, fair and predictable.
However, for real estate lawyers in the current economic climate we are now dealing with the inability of Vendors to clear title in increasingly greater numbers. Unfortunately, the bureaucracy involved with Section 116 of the federal Income Tax Act adding to the uncertainty by delaying and jeopardizing sales of residential real estate. The eight month delays caused by procedural meandering, which has been readily acknowledged by the civil servants of the International Audit Division, gives purchasers in this buyers real estate market the opportunity to simply “walk” away from contracts with non-resident Vendors who are unable to clear title due to the requirement of a Section 116 holdback.
Section 116 requires a purchaser of residential real estate to withhold between 25% and 50% of the purchase price subject to a vendor obtaining a certificate of compliance from the Canada Revenue Agency (CRA). In the normal course of residential real estate transactions, this is accomplished by way of solicitor’s undertakings between the parties. In the past, these undertakings did not present a hurdle to non-resident vendors as the growth in the value of the property allowed the vendor to close, payout their lender, and simply wait to receive the holdback funds upon issuance of the certificate of compliance by CRA.
The current economic climate has dramatically changed this reality for non-resident vendors. Many non-resident vendors are required to payout high loan to value ratio mortgages and other sources of funds are no longer readily available. In the Okanagan Valley, where a large number of non-residents own secondary residences in our resort communities, this pressure has been compounded by the recent changes to the financing rules, which now require a minimum 80% loan to value ratio for secondary residences, and in turn this has decreased the pool of eligible buyers for any given property.
Often, with desperate sellers and fickle buyers, the real estate agents must cobble these deals together down to the last penny and leaving little if any additional funds for the holdback on the closing date. The nature of residential real estate practice (at least in British Columbia) is that the contract is often firm and binding on the non-resident vendor when the vendor is informed by their lawyer of the holdback amount thereby putting the vendors in a position where they are unable to close. In Epp v. Yung (1993), 35 R.P.R. (2d) 1 (B.C.S.C.) the court held that, even if the vendor disagrees with the amount of the holdback, the vendor must still close without access to the holdback funds and provide title free and clear of all financial encumbrance.
In 2008, CRA introduced changes to the s.116 certificate of compliance requirements; however these changes have not adequately addressed the issue. CRA personnel have acknowledged the delays and have recently provided advice to the Institute of Chartered Accountants, as published by their member advisory in September 2009, on the steps a vendor can take to minimize the time it takes to obtain a certificate of compliance. These steps include: a) ensuring forms are submitted early (ideally well in advance of closing); b) ensuring the vendor is registered for a tax number; c) ensuring that all the supporting documentation is available (eg; form T2062) to allow CRA to determine the adjusted cost base as well as the proceeds of disposition; and d) ensuring the cover letter requests a “Certificate of Compliance” (as opposed to a clearance certificate which causes confusion with another CRA program). CRA has been reported to be piloting a regional intake centre to quickly deal with “low risk files”, however there have been no reports on this program’s success or if it will be expanding.
The fundamental problem with the process for obtaining Certificate of Compliance is not a lack of manpower, however it is the associated purchaser’s requirement to withhold and investigate the nature of the vendor’s tax liability that, in the context of residential real estate needs to be statutorily changed. The objectives of the Income Tax Act would be much better served if, subject to receipt of a vendor’s statutory declaration of no gain, the liability for the vendor’s taxes remained with vendor and the CRA would cease to rely on purchasers as indemnitors.
This call for reform is not new and the need for change to the section 116 procedure has been noted by the Advisory Panel on Canada’s System for International Taxation in December 2008, wherein they recommended that the government “eliminate withholding tax requirements related to the disposition of taxable Canadian property where the non-resident certifies that the gain is exempt from Canadian tax because of a tax treaty”.
Absent a fundamental change in the legislation, the current requirements set out in section procedure are inefficient and have created instability in the residential real estate market, at a time when greater stability is needed. Since most residential contracts of purchase and sale are entered into without legal advice and lawyer s are often only engaged a short time prior to closing, it is often too late for legal counsel to complete the step necessary to get the transaction back on track for a timely closing. The end result is that this statutory requirement is doing more harm than good in our current real estate market.
Thursday, September 23, 2010
The Story of a Collapsing Deal
(based on real life events)
At the end of August 2010, Dave and Jane were buying their first home. Nervous about finding the “right” home for themselves and their two kids they look at property after property. Finally, at the beginning of August 2010, the house at 3245 McLeod Road came up for $375,000. It was the right price, close the schools, and close to Dave’s work at the Gorman Mill. The Seller, John, had been anxious to sell for a long time, and needed to simply walk away from the home, his credit union mortgage was $355,000 and he needed a fresh start in a new town. Both parties were anxious to see the deal get done.
They came into see Peter, their real estate lawyer on August 22, 2010 and at that meeting they signed all the documents. He explained the process to them, including if the “what ifs” happen, and how the court process worked. Although there was only a very small chance these bad things would happen he wanted them to be armed with knowledge.
Dave and Jane were very excited and they booked their moving truck for September 1, 2010 (their Possession Date) and they have picked out paint colors for their daughter’s new bedroom and began to plan their lives in their new home.
On August 31, a series of unfortunate events occurred. First, the Land Title Office (which is electronic) went “offline” and no land title transfers were permitted to be registered at the end of the month. Closing was delayed, but not to worry the contract had been drafted to allow for this hiccup.
Then, on September 1, with the moving truck in the driveway, the Vendor’s lawyer “discovered” that they had an “IRD” penalty (of $21,000) on their mortgage and now the Vendor (John) did not have enough money to “payout” the mortgage on title. The Vendor (John) could not complete and could not fulfill the promise he made to give the “title free and clear of all encumbrances”. Dave and Jane had already moved out of their rental house and they were now homeless, forced to live in a motel. The moving company (for a small ransom) placed all their belongings in storage.
Crestfallen, Dave and Jane came to see Peter and Eric (a real estate litigator in the same firm) to ask what to do, they had remembered that part of their prior meeting dealing with the “what ifs” in real estate. The two lawyers explained that Dave and Jane could sue for damages or specific performance to get their dream home and they immediately started to put pressure on the Vendor to complete by “tendering” a “ready, willing and able to complete” letter, placing a caveat on the property title, and commencing legal proceedings.
Within 3 weeks there was a very happy ending, the Vendor was able to negotiate with the bank, and to avoid a lawsuit paid the additional costs (including legal fees) for Dave and Jane.
The moral of this story: For buyers, hope for the best, be prepared for the worst. For Realtors, ensure your sellers can clear title prior to signing the deal, or, at least, place a “subject to the seller ensuring they can clear title” so that you have pointed out the issue to them.
At the end of August 2010, Dave and Jane were buying their first home. Nervous about finding the “right” home for themselves and their two kids they look at property after property. Finally, at the beginning of August 2010, the house at 3245 McLeod Road came up for $375,000. It was the right price, close the schools, and close to Dave’s work at the Gorman Mill. The Seller, John, had been anxious to sell for a long time, and needed to simply walk away from the home, his credit union mortgage was $355,000 and he needed a fresh start in a new town. Both parties were anxious to see the deal get done.
They came into see Peter, their real estate lawyer on August 22, 2010 and at that meeting they signed all the documents. He explained the process to them, including if the “what ifs” happen, and how the court process worked. Although there was only a very small chance these bad things would happen he wanted them to be armed with knowledge.
Dave and Jane were very excited and they booked their moving truck for September 1, 2010 (their Possession Date) and they have picked out paint colors for their daughter’s new bedroom and began to plan their lives in their new home.
On August 31, a series of unfortunate events occurred. First, the Land Title Office (which is electronic) went “offline” and no land title transfers were permitted to be registered at the end of the month. Closing was delayed, but not to worry the contract had been drafted to allow for this hiccup.
Then, on September 1, with the moving truck in the driveway, the Vendor’s lawyer “discovered” that they had an “IRD” penalty (of $21,000) on their mortgage and now the Vendor (John) did not have enough money to “payout” the mortgage on title. The Vendor (John) could not complete and could not fulfill the promise he made to give the “title free and clear of all encumbrances”. Dave and Jane had already moved out of their rental house and they were now homeless, forced to live in a motel. The moving company (for a small ransom) placed all their belongings in storage.
Crestfallen, Dave and Jane came to see Peter and Eric (a real estate litigator in the same firm) to ask what to do, they had remembered that part of their prior meeting dealing with the “what ifs” in real estate. The two lawyers explained that Dave and Jane could sue for damages or specific performance to get their dream home and they immediately started to put pressure on the Vendor to complete by “tendering” a “ready, willing and able to complete” letter, placing a caveat on the property title, and commencing legal proceedings.
Within 3 weeks there was a very happy ending, the Vendor was able to negotiate with the bank, and to avoid a lawsuit paid the additional costs (including legal fees) for Dave and Jane.
The moral of this story: For buyers, hope for the best, be prepared for the worst. For Realtors, ensure your sellers can clear title prior to signing the deal, or, at least, place a “subject to the seller ensuring they can clear title” so that you have pointed out the issue to them.
Thursday, August 12, 2010
Getting Ready to Sell – Cleaning Up Your Land Title
As we move into another Buyer’s market cycle, it is important to remember the lessons Seller learnt the “last time around”. Realtors often recommend to Sellers to “declutter” and “stage” the interior of their homes, however, it is important to remember that, at its foundation Buyers are purchasing “PROPERTY RIGHTS” and therefore its important to ensure, as a Seller, that your Land Title is also “squeaky clean”.
A couple of things to do:
1. Remove any “extra” encumbrances on title – usually Buyers are expecting to see typical first mortgages on title, however where Uncle Buck lent you some money and registered a non-institutional second mortgage, or, where you have a small claims judgment registered against you, these “extra” encumbrances on title, including 2nd mortgages, judgments, builders liens, or certificates of pending litigation, can raise big RED FLAGS for Buyers, if they can be removed prior to closing (or even listing), it can make for a much smoother process.
2. Ensure you (as Seller) and only you are on title as the registered owner – did you inherit the property in a Will? Or, did your parents go on title as this was your first home? Or, have you gone through a legal separation? If you have the full legal rights to sell the home, ensure that you (and only you) are on title. In most cases the transfer to a surviving joint tenant, or to from parent to child, or a transfer in the course of a legal separation is easy (and most of the time a Property Transfer Tax exemption is available and no tax is payable!) Best to take care of these items prior to listing so there is no question when you sign the Contract that you are the person with the ability to sell the property.
3. Return the Duplicate Certificate of Title – A Duplicate Certificate of Title may be removed from the Land Title Office by some banks as security for loans (with or without registration of the mortgage). In the event that the Duplicate Certificate of Title is outstanding, no further transfer or mortgage may be registered on title. Therefore if this has been removed from the Land Title Office, it will bar any sale or mortgage of the property until it is returned and refiled with the Land Title Office.
A couple of things to do:
1. Remove any “extra” encumbrances on title – usually Buyers are expecting to see typical first mortgages on title, however where Uncle Buck lent you some money and registered a non-institutional second mortgage, or, where you have a small claims judgment registered against you, these “extra” encumbrances on title, including 2nd mortgages, judgments, builders liens, or certificates of pending litigation, can raise big RED FLAGS for Buyers, if they can be removed prior to closing (or even listing), it can make for a much smoother process.
2. Ensure you (as Seller) and only you are on title as the registered owner – did you inherit the property in a Will? Or, did your parents go on title as this was your first home? Or, have you gone through a legal separation? If you have the full legal rights to sell the home, ensure that you (and only you) are on title. In most cases the transfer to a surviving joint tenant, or to from parent to child, or a transfer in the course of a legal separation is easy (and most of the time a Property Transfer Tax exemption is available and no tax is payable!) Best to take care of these items prior to listing so there is no question when you sign the Contract that you are the person with the ability to sell the property.
3. Return the Duplicate Certificate of Title – A Duplicate Certificate of Title may be removed from the Land Title Office by some banks as security for loans (with or without registration of the mortgage). In the event that the Duplicate Certificate of Title is outstanding, no further transfer or mortgage may be registered on title. Therefore if this has been removed from the Land Title Office, it will bar any sale or mortgage of the property until it is returned and refiled with the Land Title Office.
Wednesday, June 16, 2010
Foreclosures
The roller coaster real estate market has brought with it many "non-traditional" deals for Realtors. Foreclosures have become more common (about 6% of LISTED properties in the OMREB, and much less common than in the United States) many Realtors have asked questions on how to sell these distressed properties.
The first sign that a property may be in foreclosure (aside from the lawn sign!) is that a Certificate of Pending Litigation may appear on title.
The Steps in a Foreclosure action in British Columbia are as follows:
1. Default
2. Demand for Payment
3. Filing of Petition
4. Order Nisi (final order, usually with time for Redemption (~ 6 m)
5. After Redemption Period, either:
5a. Order for Conduct of Sale (special circumstances), OR
5b. Order Absolute of Foreclosure
A Buyer can make an Offer at any stage of this process and therefore it is important for parties to ensure they are dealing with the party (either the Seller or the Lender) with "Conduct of Sale".
In the event that a party wishes to submit a competing bid, the original contract of purchase and sale will be attached to the Lender's affidavit and this is a public document that can be found by searching the Court Registry in BC.
Where a Lender has obtained an "Order for Conduct of Sale" the Lender's Realtor will be required to attached a Schedule "A" to any proposed Contract of Purchase and Sale which generally states the following terms and conditions:
1. Court Approval of the Offer is required After Subject Removal
2. Court will have full discretion, the lender will not advocate for the buyer
3. Other Offers May be Entertained
4. Title Transfer by Vesting Order of Court
5. Lender makes no Warranties as to: Title, Condition of Premises, Environmental Condition
Buying a foreclosure in B.C. can be an unpredictable ride. For those investors familiar with the process, some "deals" may be had but generally, as the Court often has fair market value property appraisals, foreclosures in B.C. are not a panacea of "good bargains".
First Time Home Buyers should not view the foreclosure market as a good way to buy their first home. The inherent uncertainty in the process, the "as-is" nature of the home, and the higher acquisition costs mean that most First Time Home Buyers are better off buying non-distressed property on their first foray into home ownership.
The first sign that a property may be in foreclosure (aside from the lawn sign!) is that a Certificate of Pending Litigation may appear on title.
The Steps in a Foreclosure action in British Columbia are as follows:
1. Default
2. Demand for Payment
3. Filing of Petition
4. Order Nisi (final order, usually with time for Redemption (~ 6 m)
5. After Redemption Period, either:
5a. Order for Conduct of Sale (special circumstances), OR
5b. Order Absolute of Foreclosure
A Buyer can make an Offer at any stage of this process and therefore it is important for parties to ensure they are dealing with the party (either the Seller or the Lender) with "Conduct of Sale".
In the event that a party wishes to submit a competing bid, the original contract of purchase and sale will be attached to the Lender's affidavit and this is a public document that can be found by searching the Court Registry in BC.
Where a Lender has obtained an "Order for Conduct of Sale" the Lender's Realtor will be required to attached a Schedule "A" to any proposed Contract of Purchase and Sale which generally states the following terms and conditions:
1. Court Approval of the Offer is required After Subject Removal
2. Court will have full discretion, the lender will not advocate for the buyer
3. Other Offers May be Entertained
4. Title Transfer by Vesting Order of Court
5. Lender makes no Warranties as to: Title, Condition of Premises, Environmental Condition
Buying a foreclosure in B.C. can be an unpredictable ride. For those investors familiar with the process, some "deals" may be had but generally, as the Court often has fair market value property appraisals, foreclosures in B.C. are not a panacea of "good bargains".
First Time Home Buyers should not view the foreclosure market as a good way to buy their first home. The inherent uncertainty in the process, the "as-is" nature of the home, and the higher acquisition costs mean that most First Time Home Buyers are better off buying non-distressed property on their first foray into home ownership.
Wednesday, April 28, 2010
Home Buyer FAQs
Common Home Buyer Questions
By: Peter Borszcz
1. Will this contract force me to buy this home?
A contract is a legally enforceable promise. Therefore, you are obliged to carry out its terms if the contract is firm and binding. However, a contract can be “subject to” the performance of other terms (for example, obtaining a mortgage). Most Realtors draft “subject to” conditions to allow Buyers time to find out more about the home they are buying and to ensure they are able to obtain financing to purchase it.
2. What happens if I can’t get financing or I am not happy with my home inspection?
Usually a Realtor has written in these items as “subject conditions”, if so, you will instruct your Realtor that you are “unable to waive or fulfill” you contract. If you are unable to waive or fulfill a subject condition, your obligation to purchase the home will cease.
3. Why do I have to give a deposit to the Realtor? Will I get it back if I back out of the deal?
A deposit is “earnest money” meaning that it signifies to the Seller how serious you are to proceed with the transaction. Your Deposit is not a “down payment”, as your cash in the deal (in addition to your mortgage) will be paid on the Closing Date. Whether a Deposit is returned depends on the factual situation which caused a deal to collapse (see below), however your Realtor cannot simply return your deposit without first complying with the provisions of the Real Estate Act.
4. If I can’t complete on the Completion Date will that be a problem?
The contract provides that “time is of the essence” this means that the strict timelines in the contract are enforceable by the Court. In the event that you fail to complete “on time” you may be liable for damages (money damages) or specific performance (where the court orders you the complete the deal). If you find out that the original dates will simply not work for you, please let your Realtor and Lawyer know so that they can attempt to obtain an extension for you.
5. If I back out the deal after removing my subject conditions, will I just lose my deposit?
Assuming that the Seller has not misrepresented and is able to complete, generally a Buyer cannot simply “walk away” from their deposit. Should a Buyer fail to complete a firm and binding contract, the Buyer may be liable to the Seller for all of the Seller’s damages including: a) loss of profit, b) interest costs, c) marketing costs, and d) legal fees. In many cases, the amount of the Seller’s damages may exceed the deposit. If you are considering this, please call your lawyer immediately.
6. I really like the bedroom light, how do I know this is included with the house?
Generally, all fixtures are included with the sale of the house. Fixtures are those items that are affixed (ie; attached to) the structure and foundation (eg; chandeliers). Sometime, exactly what “is” and “is not” a fixture has to do with the “degree of attachment” and this can be confusing for both buyers and sellers. Given this confusion, sometimes Sellers remove items (ie; wall shelving) when they move out, so if there is something of importance which you want included with the purchase of you home please let your Realtor know.
7. The property has an “in-law suite”, can I rent it out to other people?
A secondary suite can only be rented in the City of Kelowna or the District of West Kelowna where the property has been zoned “S”. If you require that the suite to be rented to afford to live in the property, we strongly recommend that you inquire with the applicable municipality.
8. If I own the property can I do whatever I want with it?
Although an owner can do many things with a property that a tenant cannot do, your ownership may be subject to restrictions that are found in local statutory building schemes, homeowner’s associations, strata councils, and municipal bylaws. If your purchase of the property is dependant on a change in structure (ie; major renovation) or use (ie; home based business) please discuss this with your Realtor.
9. If my spouse goes on title alone and we separate, will I have no claim to my house?
The Family Relations Act creates an interest in land upon the breakup of a marriage, even if there is no interest noted on the land title (subject to a prenuptial agreement or the Act). The Act allows for filing of an interest in land, upon marriage breakup, in the land title office.
10. A clause on my contract (i.e.; title search or tax advice) is “subject to review by the Buyer’s lawyer [or accountant]” what should I do?
Prior to subject removal, you should take the contract to your lawyer or accountant and discuss your proposed purchase with them. Your Realtor has placed this clause into your contract to ensure that you obtain personalized professional advice in a specialized area (such as tax or a title search).
11. What are my closing costs?
Closing cost vary with each transaction. These include Property Transfer Tax, Municipal Property Tax, Strata Documentation and Adjustment Fees (if applicable), Land Title Office Filing Fees, and Legal Fees. We provide all clients with a quote on Legal Fees and an estimate of the other costs you can expect after we receive your contract, to ensure there are no surprises on closing.
Have another question? We’re happy to help:
By: Peter Borszcz
1. Will this contract force me to buy this home?
A contract is a legally enforceable promise. Therefore, you are obliged to carry out its terms if the contract is firm and binding. However, a contract can be “subject to” the performance of other terms (for example, obtaining a mortgage). Most Realtors draft “subject to” conditions to allow Buyers time to find out more about the home they are buying and to ensure they are able to obtain financing to purchase it.
2. What happens if I can’t get financing or I am not happy with my home inspection?
Usually a Realtor has written in these items as “subject conditions”, if so, you will instruct your Realtor that you are “unable to waive or fulfill” you contract. If you are unable to waive or fulfill a subject condition, your obligation to purchase the home will cease.
3. Why do I have to give a deposit to the Realtor? Will I get it back if I back out of the deal?
A deposit is “earnest money” meaning that it signifies to the Seller how serious you are to proceed with the transaction. Your Deposit is not a “down payment”, as your cash in the deal (in addition to your mortgage) will be paid on the Closing Date. Whether a Deposit is returned depends on the factual situation which caused a deal to collapse (see below), however your Realtor cannot simply return your deposit without first complying with the provisions of the Real Estate Act.
4. If I can’t complete on the Completion Date will that be a problem?
The contract provides that “time is of the essence” this means that the strict timelines in the contract are enforceable by the Court. In the event that you fail to complete “on time” you may be liable for damages (money damages) or specific performance (where the court orders you the complete the deal). If you find out that the original dates will simply not work for you, please let your Realtor and Lawyer know so that they can attempt to obtain an extension for you.
5. If I back out the deal after removing my subject conditions, will I just lose my deposit?
Assuming that the Seller has not misrepresented and is able to complete, generally a Buyer cannot simply “walk away” from their deposit. Should a Buyer fail to complete a firm and binding contract, the Buyer may be liable to the Seller for all of the Seller’s damages including: a) loss of profit, b) interest costs, c) marketing costs, and d) legal fees. In many cases, the amount of the Seller’s damages may exceed the deposit. If you are considering this, please call your lawyer immediately.
6. I really like the bedroom light, how do I know this is included with the house?
Generally, all fixtures are included with the sale of the house. Fixtures are those items that are affixed (ie; attached to) the structure and foundation (eg; chandeliers). Sometime, exactly what “is” and “is not” a fixture has to do with the “degree of attachment” and this can be confusing for both buyers and sellers. Given this confusion, sometimes Sellers remove items (ie; wall shelving) when they move out, so if there is something of importance which you want included with the purchase of you home please let your Realtor know.
7. The property has an “in-law suite”, can I rent it out to other people?
A secondary suite can only be rented in the City of Kelowna or the District of West Kelowna where the property has been zoned “S”. If you require that the suite to be rented to afford to live in the property, we strongly recommend that you inquire with the applicable municipality.
8. If I own the property can I do whatever I want with it?
Although an owner can do many things with a property that a tenant cannot do, your ownership may be subject to restrictions that are found in local statutory building schemes, homeowner’s associations, strata councils, and municipal bylaws. If your purchase of the property is dependant on a change in structure (ie; major renovation) or use (ie; home based business) please discuss this with your Realtor.
9. If my spouse goes on title alone and we separate, will I have no claim to my house?
The Family Relations Act creates an interest in land upon the breakup of a marriage, even if there is no interest noted on the land title (subject to a prenuptial agreement or the Act). The Act allows for filing of an interest in land, upon marriage breakup, in the land title office.
10. A clause on my contract (i.e.; title search or tax advice) is “subject to review by the Buyer’s lawyer [or accountant]” what should I do?
Prior to subject removal, you should take the contract to your lawyer or accountant and discuss your proposed purchase with them. Your Realtor has placed this clause into your contract to ensure that you obtain personalized professional advice in a specialized area (such as tax or a title search).
11. What are my closing costs?
Closing cost vary with each transaction. These include Property Transfer Tax, Municipal Property Tax, Strata Documentation and Adjustment Fees (if applicable), Land Title Office Filing Fees, and Legal Fees. We provide all clients with a quote on Legal Fees and an estimate of the other costs you can expect after we receive your contract, to ensure there are no surprises on closing.
Have another question? We’re happy to help:
Monday, March 22, 2010
After subject removal - what now?
You have toured lots of homes and gone through all the negotiations and home inspections, you've signed a contract and gotten your financing approved... now what do I do?
For home buyers and sellers, this can be a big question, hopefully this blog helps with some answers....
Ask your Realtor to Submit Contract
Once all subjects and conditions are removed from the Contract, only then does the Contract become firm and binding. Once this takes place, it is important that the Buyer requests his or her Realtor to send the Contract over to their lawyer as soon as possible. If available, the Survey Certificate should be attached, if there is no Survey Certificate attached to the Contract, title insurance is often required by the Lender (at an additional cost).
Some clients want a land title review, or they have another legal issue which they want cleared up prior to purchase, if so, please contact your lawyer before subject removal.
Upon receipt of your Contract of Purchase and Sale your file is opened and our law firm contacts you immediately to have our representation of you confirmed and we provide you with a quote for the legal fees to expect in your transaction.
Ask your Mortgage Broker or your Banker to Submit Mortgage Instructions
Whether a conveyancer has 3 days to complete or 3 months, they tend to always be waiting for mortgage instructions. To ensure mortgage instructions are received in a timely fashion the lender should be advised well in advance of closing details such as, Purchase Price, Completion Date (date funds will be advanced), Name of Firm, Lawyer’s Name, address, phone/fax number and email address.
Contact your Lawyer or your Conveyancer
Conveyancers tend to be working on the current month closings and very rarely any further than that in advance. Nevertheless, if a Buyer has questions or concerns they should feel free to call their lawyer or thier conveyancer to ask these questions. We are here to answer your client's questions and concerns so your client can remain at ease throughout the buying process.
It is important for clients to be available prior to the closing date, as depending on the delivery of information from other parties (ie; getting mortgage instructions), sometimes we are not able to call in our clients to sign documents until just prior to closing.
When you talk to your lawyer or your conveyancer, it is important to have the following information available:
1. Who will be appearing on title and on mortgage, if applicable (Full legal names and occupations)
2. Is there anyone who is a First Time Home Buyer (if so, date of birth, SIN number and address for the past two years would be required)
3. Is GST/HST applicable? Is the Seller a non-resident?
4. If there is a mortgage, are there any Covenantors/Guarantors (contact information would be required)
5. Who is the insurance agent? (Contact info required)
6. Book an Appointment with the Lawyer for signing (or if out-of –town clients process of signing via email/fax will be explained at that time)
Arrange for Home Insurance/ Movers/ Utility Companies etc.
If financing for the subject property is involved, the lender requires your fire insurance coverage to be confirmed by your lawyer prior to registration of Mortgage and disbursement of funds. It is important that insurance is effective at 12:01am on the Completion date, not possession date. The Buyer should arrange thier insurance well in advance of the completion date.
Signing Documents and the Balance of Funds to Complete
Depending on the receipt of information from third parties and the complexity, documents may be signed with the lawyer anywhere from the day of Closing to 2 weeks prior to completion date depending on the complexity of the file. Prior to signing, your conveyancer will contact you to advise you of the amount of funds necessary to complete your transaction. These funds are usually brought to the appointment by way of bank draft and deposited into the lawyers trust account until the completion date.
Closing Date
Generally, first time clients often think they have to meet with the lawyer on this date to do “something” but in fact, this is the day where the clients, getting ready to move, need to ensure there is a phone nearby and wait for the call from their lawyers office (and their Realtor) advising them that the transfer documents have been registered at the land title office and funds are being transferred. Then, they will need to get in touch with their Realtor to arrange the pick-up of keys so they can start moving in to their new home.
This post was drafted by my real estate paralegal (also called a conveyancer), Terri Lavertu, who assists me as we guide our clients through the process of buying a new home. If your clients have questions, they are welcome to call myself or Terri at 250-762-5434.
Thursday, January 7, 2010
HST - Key Points for Realtors
HST will be chargeable on every supply of real property (including mobile homes and floating homes) in Canada. However, Used Residential Housing is an Exempt Supply and therefore resale homes will not be subject to HST (they are not subject to GST either).
Generally the Vendor is liable to the government to collect and remit the HST; However in certain cases the Buyer must remit where either a) the Seller is a Non-Resident or b) the Buyer is a GST/HST registrant.
HST is due and payable on all NEW residential homes with a COMPLETION DATE on or after July 1, 2010 unless the transaction is grandfathered. A "grandfathered" transaction is one where the contract of purchase and sale was signed prior to November 18, 2009. However, in the event the "grandfathered" contract is assigned to a third party, special rules will determine whether HST is payable. The rules are in place to prevent fraudulent "grandfathering" transactions.
The HST rebate threshold has been increased to include home valued up to $525,000. The government is states that additional rebate makes the purchase of homes (with a value of less than 525k) before of after July 1, 2010, tax neutral. Buyers considering the purchase of homes below the 525k threshold should not purchase prior to July 1, 2010 simply to get a tax break.
The HST rebate threshold also applies to Rental Housing. Therefore investors looking at the condo market to place in the rental pool should be encouraged that the new HST will not effect their purchasing power.
The important take home message is that HST will not be the hyped "big bust" for the BC real estate industry. HST will have very little effect on the majority of BC residential home sales.
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