When real estate is sold, whether it is residential real estate or commercial real estate there are a number of documents that need to be prepared including, the Transfer and the Statement of Adjustments. The Transfer is the document whereby title is transferred from the Seller to the Buyer. Except in limited circumstances the lawyer acting for the Seller cannot act for the Buyer. This is a requirement of the Law Society of Upper Canada, the organization which licenses and regulates lawyers. Ontario has established an electronic Land Registration System and in order to register real estate documents you need a lawyer.
Among the documents prepared by the lawyer acting on behalf of the Seller the Statement of Adjustments is critical as it is necessary to determine the amount of money the Buyer has to pay to the Seller at the time of closing. In addition to accounting for the deposit the Statement of Adjustments addresses items such as the sharing of the property tax obligation between the Buyer and the Seller, addressing the issue of fuel oil or propane, the rental of propane tanks or other items. Typically, a Buyer pays for a full tank of fuel oil so a Buyer should determine the anticipated cost of a full tank of fuel when planning the budget for the purchase.
The Buyer’s lawyer has number of responsibilities associated with the purchase of real estate. The Buyer’s lawyer verifies that the documents prepared and provided by the Seller’s lawyer are correct and the lawyer searches the title to ensure that the Buyer is acquiring good title to the property they are buying so that the Buyer does not experience legal difficulties when the property is sold.
A mortgage is a form of security which is granted by the owner of land to a Lender. The land and any buildings located on the land are security for the loan made by the Lender. A mortgage may be for a fixed term at a fixed rate of interest or a variable term and a variable rate of interest or some combination thereof.
A secured Line of Credit is a mortgage although all of the particulars and the amount of the loan may not be known. There will, however, be a cap on the amount that can be borrowed on the Line of Credit. When property is sold the mortgage must be repaid to the Lender. The Lender usually has a discharge fee which needs to be paid to the Lender for the preparation of the mortgage discharge documentation. There may also be a fee paid to the lawyer who prepares the discharge.
Land Transfer Tax
The Buyer of real estate pays a tax to the Ontario government based on the purchase price of the property. The tax is payable no matter how many times the property has been sold. A schedule for the calculation of Land Transfer Tax is set out below.
$0 to $55,000 .005 x purchase price
$55,001 to $250,000 .01 x purchase price minus $275
$250,001 to $400,000 .15 x purchase price minus $1525
over $400,000 .02 x purchase price minus $3525
First time home buyers may have all or part of the Land Transfer Tax waived. The Land Transfer Tax may be waived or reduced depending on the purchase price of the property. For purchases up to $227,500.00 all of the Land Transfer Tax is waived. If the purchase price of the property exceeds $227,500.00 the amount of the Land Transfer Tax in excess of that which would be charged on a purchase of $227,500.00 is payable by the Buyer.
Title insurance is insurance coverage which protects the legal title to your property. A one time fee is paid at the time of purchase or if after you have purchased a property you put a mortgage on the property you may obtain title insurance to protect the Lender however, the premium is paid once and is valid for as long as you own the property. If it subsequently is determined that there is a title defect the title insurance will respond and the title insurer will undertake the necessary steps to remedy the defect. Title insurance will also protect the Buyer against fraudulent claims.
Because real estate particularly homes are very valuable criminals look to real estate as a source of income. While real estate fraud takes a variety of forms it frequently involves someone pretending to be someone they are not in order to obtain a mortgage. Having obtained the mortgage the fraudster takes the money and disappears often leaving the unsuspecting homeowner (generally these frauds are against homeowners) with a mortgage against their property which the homeowner knows nothing about. The lending institution wants to be repaid the money it has loaned and may want the unsuspecting homeowner’s property sold to satisfy the mortgage. Title insurance can be of assistance in this type of situation. In an effort to address the concerns regarding fraud we will obtain 3 pieces of identification for you. This identification will in all likelihood include any of: a) driver’s license; b) passport; c) naturalization documentation; d) birth certificate; e) credit cards; and f) other government issued identifying documentation other than health cards.
Fees and Disbursements
The legal fees we charge are dependent on the size of the real estate transaction. We will provide you with a quote for the real estate fees and disbursements and Land Transfer Tax if applicable. Disbursements are incurred for items such as tax certificates, municipal work order searches, conservation clearance letters, title searches and the like.
For further information regarding buying, selling or mortgaging real estate contact Thomson & Tuer.