Purchasing Residential Property - Important Information for the Closing

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Congratulations on your coming residential property purchase!

Purchasers will need to be informed of and consider the following in relation to their purchase.
Name(s) on the Property’s Deed

Joint Ownership

If more than one person's name will appear on the deed for the new property, the purchasers must consider whether they will collectively own the property as "Joint Tenants" or "Tenants in Common". The difference is the right of survivorship (see definitions below). For compliance purposes, the lawyer acting for the joint purchasers should obtain consent by having the purchasers sign a Joint Retainer.

  1.  Joint Tenants – In the event of death of any owner, the property will pass to the surviving joint tenant(s) by Right of Survivorship.  This manner of taking title is common for owners who are spouses or family members.
  2.  Tenants in Common – The percentage of each owner’s ownership interest is specified on the deed.  In the event of death, the ownership interest of the deceased owner devolves according to his/her respective Will or intestacy rules.  This manner of taking title is common for owners with significantly different financial contributions.

Mortgage (if applicable)

When applying for a mortgage, all persons named on the deed must apply for it together. For an idea on the mortgage amount for the property, the following are a useful mortgage calculator and tools.

The mortgage broker or bank representative must be informed of the lawyer retained for the purchase closing transaction. The lender will then contact the lawyer with details of the mortgage. On the purchase closing date, the mortgage proceeds will be forwarded to the lawyer. To ensure a smooth closing and avoid costly delays for the purchaser, purchaser's are recommended to have their mortgage pre-approved in advance of the closing.

Land Transfer Tax

Land Transfer Tax will be payable on the property to the Ontario government and is calculated on a graduated scale based on the below portions of the purchase price:

On the first $55,000.00 of the purchase price: 0.5%
On the next $195,000.00 of the purchase price (up to $250,000.00): 1.0%
On the next $150,000.00 of the purchase price (up to $400,000.00): 1.5%
On any amount of the purchase price over $400,000.00: 2.0%

To calculate the Land Transfer Tax, it may be helpful to enter your purchase price in this Land Transfer Tax Calculator: http://www.trebhome.com/buying/ltt_calculator/ltt_calculator.htm

First Time Home Purchaser

If the purchaser is a first time home purchaser, s/he may be entitled to a rebate of the Land Transfer Tax up to a maximum amount of $2,000.00 for homes over $227,500 according to the Ontario Ministry of Finance. The rebate will be calculated at the time of closing.

For example:
If the cost of home is $100,000; the tax rebate will be $725.
If the cost of home is $200,000; the tax rebate will be $1725.
If the cost of home is $300,000; the tax rebate will be $2000.
“A first time home purchaser” is defined as an individual:

  • who is at least 18 years old;
  • who has never owned an eligible home anywhere in the world; and
  • whose spouse has not owned an eligible home anywhere in the world while he or she was a spouse of the individual.
    The refund amount is reduced when one or more of the purchasers are not a first time home buyer. The reduction will be proportionate to the interest in land acquired by the individuals who is not first time home purchasers. This reduction does not apply to spouses. For example, a parent who is not a first time home buyer and child who is a first time home purchaser, purchase a home with equal 50/50 interests, the child may claim 50% of the land transfer tax refund. The child’s claim cannot exceed 50% of the maximum allowable refund, i.e., 50% of $2,000.

Fire Insurance

All properties (other than condominiums) are required to have fire insurance. The coverage should note the mortgagee (bank) as the “First Loss Payee” and insure the Guaranteed Replacement Cost effective as of the purchase closing date. The insurance agent will need to email or fax the insurance binder to the lawyer prior to the purchase closing date.

If the purchase is a condominium property – The condominium corporation is required by law to have fire insurance coverage, and is paid through the condominium common expenses. Therefore, no action is required by the purchaser. However, it is recommended that insurance coverage be obtained for other liabilities and losses, such as property loss, water damage, etc.

Title Insurance

Title insurance is an insurance policy that protects residential property owners and their lenders against losses related to the property’s title or ownership. Many real estate professionals recommend it as no lawyer can provide a legal opinion that may 100% guarantee the accuracy of government records, genuineness of prior owners’ signatures, or whether there are undisclosed claims.

The cost of residential title insurance varies based on the value of your property, and the insurance company selected. If required, your lawyer may help purchase title insurance on your behalf. The purchaser will need to pay a one-time fee, called a premium. Title insurance may provide protection from such losses as:

  • Unknown title defects (title issues that prevent the purchaser from having clear ownership of the property);
  • Existing liens against the property's title (e.g. the previous owner had unpaid debts from utilities, mortgages, property taxes or condominium charges secured against the property);
  • Encroachment issues (e.g. a structure on the property needs to be removed because it is on the neighbour’s property);
  • Title fraud;
  • Errors in surveys and public records; and
  • Other title-related issues that can affect the ability to sell, mortgage, or lease your property in the future.

Purchaser's must read their title insurance policy carefully. It is possible that the policy may not provide protection from such losses as:

  • Known title defects (that were revealed to you before you purchased your property);
  • Environmental hazards (e.g. soil contamination);
  • Native land claims;
  • Problems that would only be discovered by a new survey orinspection of your property (e.g. the property is smallerthan originally thought);
  • Matters that are not listed in public records (e.g. unrecorded liens and encroachments); and
  • Zoning bylaw violations from changes,renovations or additions to your property orland that you are responsible for creating.

Newly-Constructed Homes and Condominiums

Newly-Constructed Homes and Condominiums in Ontario are under a statutory warranty protection by Tarion. The purchaser need not apply for it. Tarion warranty is already in place for new homes and new condominiums.

Signing Closing Documents

A few days prior to the purchase closing date, the purchaser will have to sign closing documents and transfer sufficient funds to the lawyer in trust by way of certified cheque or bank draft to pay for the closing balance, Land Transfer Tax, and other closing costs which are over and above the mortgage proceeds. The purchaser will be required to provide identification such as Driver’s License and Passport.

Closing Adjustments

An Agreement of Purchase and Sale states that the balance of the purchase price on the closing date will be paid by cash or by certified cheque subject to the usual adjustments.

New Homes

If you have purchased a new home from a builder, the closing adjustments are greater than on a resale home since adjustments (when buying from a builder) can include hydro and water meter installation costs, Tarion New Home Warranty Enrolment Fee, boulevard tree planting, driveway paving, grading deposit, gas water heater, educational lot levy, municipally required fencing (if needed) and many other items not normally adjusted when one buys resale property.

The adjustments included in a new built home are usually found in the Schedules attached to the Agreement of Purchase and sale that was entered into with the builder.

Resale Homes

Adjustments include items that have been prepaid beyond the closing date by the Seller that benefit the Purchaser beyond the Closing Date. A credit will be given to the Seller as an adjustment on closing.

For example, if your closing date is June 21st, the Seller has likely already prepaid the property taxes until June 31st. The Purchaser is responsible for all property expenditures from June 21st onward and therefore the Seller is to receive a credit for the overpaid taxes from June 21st to June 31st.

After the Purchase Closing Date

After the purchase closing date, the lawyer will notify the property tax department of the change in ownership.

Most utility companies now only accept communications and correspondence from the account holder due to privacy legislation. The purchaser will therefore need to contact all utility companies servicing the new property to set up new accounts after the closing.

If the purchase is of a condominium property, the lawyer will also notify the condominium corporation of the change of ownership. However, the purchaser will need to attend at the management office of the condominium to submit owner’s information and set up pre-authorized monthly payments of condominium common expenses.

Additional useful information may be found in TitlePLUS's Real Simple Real Estate Guide: http://www.titleplus.ca/real_simple_real_estate_guide/index.html

Landmark Law Professional Corporation will be pleased to assist with your real estate purchase.

Disclaimer: This article does not contain legal advice and only provides general information. It is not intended to replace advice from a qualified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter referenced in this article before making decisions. Use of this article does not establish a lawyer-client relationship.

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Winnie J Luk, BA, JD, MBA, founder of Landmark Law, is a seasoned Ontario lawyer practicing in Wills and Estates, Real Estate, and Business Law and frequent speaker of free legal education seminar.