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Author: rebeccadeeded-ca

What is a mutual release?

Congratulations.  You signed on the dotted line last night and you’re so excited to become a homeowner. 

In today’s dynamic real estate market, we all know it was quite the emotional rollercoaster to get to this point and while you should be excited, today’s topic is two words that no buyer or seller hope to intentionally encounter:  mutual release.

If you’re reading this blog, odds are you might be considering signing or asking for a mutual release, so we’ll cut right to the chase.

What is a mutual release?

A mutual release is a document designed to be signed by both the buyers and sellers to cancel an agreement of purchase and sale.  When executed, this document cancels the agreement and “releases” all parties from any future liabilities or claims.

The most important point to underscore is that a mutual release requires the agreement of both parties (buyer and seller) and cannot be executed without both parties agreeing to the terms.

When is a mutual release used in Real Estate?

A mutual release is used when both parties wish to nullify an agreement of purchase and sale.  The two most common scenarios where a mutual release may be used are:

Conditional agreement – When a condition is not met

Buyers and sellers may set various conditions in their agreement of purchase and sale such as financing or inspection.  If these conditions are not satisfied within the particular time frame set in the agreement, a mutual release signed by both buyers and sellers enables both parties to essentially “walk away” from the deal. 

Despite the name, in almost all cases it is one side who wants to be released from the deal and who must convince the other side to let them out.

In a conditional deal that has fallen through, the seller often has little choice but to sign a Mutual Release.  Given that conditions have short time frames, there may be an inconvenience to the seller, but it is rare to see a market shift where the seller can experience a significant loss if they needed to re-list and sell their property again. 

Nonetheless, relisting the property and selling to someone else is an onerous task and most sellers may take some time to get over the fact that the deal is no longer and that they must move on.

On a firm agreement

In a today’s highly competitive seller’s market seeing conditions on an agreement of purchase and sale has become an exception rather than the norm, leaving buyers often making firm offers (without any conditions attached).

What if you gave or a “firm offer” and it got accepted by the sellers?  Can a mutual release still be possible?

When a firm deal encounters problems, it is most often on the buyer’s side, although it is no longer uncommon to see sellers who are having “seller’s remorse”. 

Whether changing their mind or a change in circumstances that makes the purchase not desirable or possible, when a buyer wants out of a firm deal it can be quite challenging.

In this case, the buyer must convince the seller to agree to release them from the deal.  If you put yourself in the seller’s shoes for a moment, that is not an easy decision as they may have bought another home or made other plans whereas relying on their current home closing on a specific date.   If a seller refuses to consider a mutual release, you may still be bound by the agreement unless you can negotiate some form of compensation that may get them agree.

This is where the discussion may focus on the alternatives, which could include the buyer walking away without a mutual release and the potential legal consequences as a result.

This is also a time where having the right professionals working for you becomes critical. Your real estate agent and lawyer can establish a line of communications between the buyer and seller to better understand their intentions and remove the emotional aspects from the situation. 

Whether you’re the buyer or seller, it is important to speak with your lawyer to seek proper legal advice to understand your options prior to signing a mutual release.

If you have any further questions, The Deeded team is here to support you in any way we can.

Important Note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

Deeded automates onboarding to dramatically speed up closings

The most anticipated part of a Real Estate or mortgage transaction is being done with it.  Closing is by nature the most complicated part of buying a home or refinancing a mortgage.  

Tying together every loose end and officially sealing the deal involves coordinating dozens of documents and data that come from various sources, often triggering numerous follow-ups and manual tasks. 

Above all, when time comes to close a transaction, it is often the homebuyer or borrower that ends up becoming the “quarterback” for chasing down documents, many of which may have previously shared with other parties such as their Real Estate agent or Mortgage agent earlier in the process.  Combined, these factors make for a slow, stressful, and highly inefficient closing experience.

“It’s unimaginable how much effort and manual coordination goes into gathering all the documents needed to close on a home or mortgage. Dozens of emails, documents and faxes are flying around for each transaction. It’s grossly inefficient, unsecure, slows things down to a crawl. It’s a huge divergence from what today’s consumer expects.  It puts them in a stressful situation, at a moment when they should be happy and excited”.   says Reuven Gorsht, Co-founder and CEO at Deeded

At Deeded, our vision is to make the closing experience seamless, transparent, and affordable for all those involved. 

We are excited to introduce new onboarding technology within our robust platform that effectively automates the process of collecting the necessary documents and data needed for closing a transaction.  Leveraging artificial intelligence and machine learning, we are dramatically speeding up the closing process and reducing the inefficiencies that previously burdened clients, lenders, and real estate professionals. 

Homebuyers are increasingly looking for frictionless ways to simplify the home buying process, all the while having access to expert advice” said Gorsht. 

By automating the most inefficient parts of the process, we divert our efforts to better serving our customers, ensuring they have a seamless experience while drastically simplifying the process for everyone involved in the transaction” added Gorsht.

Customers who have recently experienced our virtual closing process have noted the immediate benefits of the new onboarding technology.  Recent Toronto homebuyer Neil said “Working with Deeded made purchasing a home easy. They have excellent online systems for intaking the request and the signing process. Their responsive and clear communication made the transaction easy and provided reassurance in what can otherwise seem like a complicated process.

While we’re already seeing tangible progress in making the architecting the Real Estate transaction of the future, we’re continuing to relentlessly focus on making the closing experience frictionless, transparent and affordable.  This is just one of many game-changing innovations we plan to introduce as we reimagine the Real Estate transaction” added Gorsht.

Understanding the Statement of Adjustments and Trust Ledger

The Most Important Documents in your Closing – Statement of Adjustments and Trust Ledger Statement.

When you’re buying or selling a home, you will likely encounter two important documents called a Statement of Adjustments and a Trust Ledger Statement.  

These two documents are the two that get the most attention from the buyer or seller, and are incredibly important because they help you make sense of the all costs and expenses that are associated with buying or selling a home. 

To ensure that you manage your budgets and have a smooth closing, understanding your statement of adjustment and trust ledger are vital. They allow you to easily see the breakdown of all expenses and know decisively how much you will owe at the end of the day if you’re the buyer, or how much you should expect to receive if you’re the seller. 

The way these documents are formatted is more like an accounting statement.   We know not everyone has an accounting degree, so follow along and you’ll be able to understand these statement in no-time.

What is a Statement of Adjustment?

A statement of adjustment is very similar to your personal bank statement, however, instead of listing your personal transactions, it is a record of your Real Estate or Mortgage transaction. Statements of adjustment are used by both buyers and sellers to know exactly the proceeds they receive, or how much they owe to complete the transaction. 

Essentially, the statement of adjustment will list the purchase price for the home followed by any additional costs that need to be added, finally subtracting any deposits already made to determine what will be the total cost at the time of closing.

Example of a Statement of Adjustments

Like an accounting statement, when creating a statement of adjustments, costs paid to the seller go under “credit seller“. Whereas costs paid by the buyer go under the “credit buyer” column. 

Here’s an example for a residential property sold in Ontario.

  • The sale price is $500,000
  • There was a deposit of $50,000 made by the buyer
  • The seller pre-paid utilities at a cost of $500, however they only occupied the house for 150 days and need to be reimbursed for the half, therefore $250 will be credited.

If you’re reading this correctly, the buyer will owe the seller $450,250 on closing, after accounting for the deposit and utilities adjustment.

What is a Trust Ledger?

Similar to the statement of adjustment, both the buyer and seller’s lawyers will create a trust ledger, this time with the purpose of showing how the money will be allocated after the closing.  If you are refinancing your mortgage, your lawyer will also prepare a trust ledger statement with the details of mortgage changes.   

A Trust Ledger Statement is prepared for both the buyer and seller to show all remaining expenses for both parties. In the case of the buyer, after completing the statement of adjustments, the full amount payable to the seller is then moved over to the Trust Ledger Statement.

The Trust Ledger Statement shows all of the money involved in the transaction on closing day, but also includes other costs such as legal fees and disbursements, land transfer tax, title insurance, etc. 

For sellers, the closing costs they have are subtracted from the amount owed to them by their buyer to determine the total amount they will receive after closing (after a mortgage is paid off, for example).

Example of Trust Ledgers

In contrast to the statement of adjustment, a trust ledger will vary between a buyer and seller because they each will incur different costs after closing. 

The Trust Ledger Statement shows the remaining expenses for both the buyer and seller on closing day, including legal fees and disbursements, realtor fees, land transfer tax, and so on.

We will create an example trust ledger for the buyer in the previous example assuming he has incurred the following closing fees.

  • Legal fees – $4,800
  • Home inspection fees – $1,200
  • Land transfer tax – $12,000

The seller’s trust ledger will similarly start by bringing the price paid and subtract any associated closing costs to determine the total earnings from the sale for the seller. 

We will create an example of the seller’s ledger assuming the seller pays the below closing costs. 

  • Legal Fees – $2,200
  • Real Estate Commission – $25,000

As your purchase, sale or refinance transaction moves towards closing, you’ll receive copies of the Statement of Adjustments and Trust Ledger to review for accuracy.   It is important that you take the time to understand, review and ask any questions.

If this looks overwhelming to you, rest assured that the Deeded team is here to make things easier and simpler. We walk you through all your documents and ensure that you understand every aspect of your transaction.

Important Note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

Gifting a Downpayment: What You Need to Know

With rapidly increasing home prices greatly outpacing growth in salaries and incomes, it is becoming very difficult for first-time buyers to save for a downpayment so they can get into the housing market.

As a result, it is now becoming more common for parents to assist their children gifting money towards a downpayment for a home.

Gifting money towards a downpayment means that you are not obligated to repay the person gifting you the money. In most cases, the parents who are gifting money towards the down payment will not own an interest in the property either.

In Canada, you can typically buy your first home by paying 5% down. However, it is advisable to put in 20% down. Because, when you pay less than 20%, you are obliged to purchase mortgage insurance, which increases your overall monthly payments.

If you’re one of the lucky ones to receive a cash gift towards your downpayment, the buck doesn’t stop there. Your lender will typically ask for something called a gift letter.

A gift letter may be required by your lender to show and prove that you are indeed getting a part or your entire down payment as a gift and from who. It’s an important distinction that proves that you do not have any other debt obligations when applying for a mortgage. 

Key Takeaways:

  • • A gift letter is a document used by mortgage lenders to ensure that monetary assistance given by family members to help you cover a mortgage down payment will not need to be paid back.
  • • Mortgage Gifts may only be made by direct family members and are non-taxable in Canada.
  • • While gift letters are enough to help you cover your down payment, mortgage lenders require far more proof before they certify your loan.

What is A Gift Letter?

A mortgage gift letter is a document completed by your benefactor (the person or people giving you the money) that declares that a one-time monetary contribution they’ve made to you has been given as a gift to be used for the down payment of the mortgage you are applying for. 

The distinction in a gift letter that the money given, is a gift, is important as your mortgage lender needs to confirm that you will be under no obligation to pay the money back. 

Your mortgage lender wants to know that you are financially capable to make your monthly mortgage payments to them. If they cannot confirm that the money you receive from your benefactor is a gift, they will see it as added debt that will increase your financial stress and make it more difficult to pay your mortgage. Therefore, there is a possibility that they may not approve you for the mortgage.

What Does a Gift Letter Look Like?

Many financial institutions will have templates or examples of gift letters that you may use, however if you choose to write your own, make sure your gift letter includes:

  • • The name of the mortgage borrower.
  • • The donor’s name, address, and phone number.
  • • The donor’s relationship to the borrower.
  • • How much is being gifted and when it was gifted.
  • • A statement saying that the money is a gift and that it is not to be paid back
  • • The property’s address.

Will a Gift Be Taxed?

Unlike the United States, Canadians don’t have to fear a “gift tax”. You can be gifted any amount of money at any time with no tax implications.

Gifting a downpayment must be made by a member of your immediate family. That includes parents, siblings and grandparents. In rare circumstances, individuals with special relationships (such as godparents or close family friends) may request permission from your lender to provide a mortgage gift. 

The amount of your mortgage down payment that may be covered by mortgage gifts can vary from lender to lender.

It’s important to remember that although you may receive help from family to cover your down payment, that may not be enough to ensure you are approved for a mortgage. You will need to ensure that you meet criteria in terms of credit score, income and much more.

As helpful as gift letters can be, there are many rules and criteria you need to review before you can be approved. If this looks overwhelming to you, rest assured that the Deeded team is here to help however we can.

Important Note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

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