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Category: First-time buyers

  • My seller won’t close.  Now What?

    My seller won’t close. Now What?

    We've all heard of buyer's remorse. But what if a seller won't close?

    Finally. You signed an agreement last night to buy your dream home.  You’re so excited that you can’t sleep.  You think about all those other homes you saw and lost out on.  All the bidding wars you’ve lost, and the emotional rollercoaster you went through.

    At last, your dream home is within reach.  You drop off your deposit the next day and start making a massive “to-do” list to prepare for your move.

    Suddenly a call comes in from your lawyer.  Your seller refuses to close.  As you try to grasp what just happened and wait for someone to pinch you so you can wake up from this nightmare, reality sinks in.   

    Although most real estate transactions do close, there’s always a small percentage that may fall through.  More common are situations where the buyer can’t or won’t close.  Although this may happen for various reasons, in most cases, it is more likely that the buyer experiences remorse on their purchase and tries to back out of the deal.

    But what if a seller won’t close or experiences seller’s remorse?  This situation is becoming more common as the home prices continue to appreciate and a seller starts pondering if they’ve left too much money on “the table”.

    For example, John agreed to sell his house to Martha for $500K.  Both parties signed a binding agreement to close the transaction within 60 days.  Two weeks later, John’s neighbour, who has a very similar property puts their house on the market and ends up selling for $600K.   John starts feeling that he has missed out on the opportunity to get an additional $100K for his home.  This is commonly called seller’s remorse.   Seller’s remorse can be for a variety of other reasons such as sentimental value, or others.  After all, selling your home is a highly emotional experience.

    So parties can have remorse.  What does it mean for the transaction?

    A firm agreement of purchase and sale is a binding contract. When a seller won’t close or does not complete an agreement without cause the seller can be responsible for making the buyer “whole”. 

    This means that the buyer is entitled to be put in the same position as they would have been had the seller completed the transaction as promised and scheduled.

    So, continuing with our example above, if John ends up backing out of the agreement to sell his house for $500K and Martha now has to buy another home and paid $600K due to the appreciating market conditions, John, as the seller may be liable to his Martha for the difference between the original contract price and the price that Martha will ultimately buy a comparable the home for, plus any related costs incurred by the buyer, such as legal, carrying, moving or accommodation costs etc.

    As a buyer, your damages must be reasonable and foreseeable and you must do your best to mitigate the amount of damages suffered (so staying at Four Seasons while you're shopping for a new home, is not your best option). 

    As soon as you sense the seller won't close, speak to your lawyer and Realtor to discuss your options as there may still be a way to get the deal done.

    Since every situation is different, you should, first-and-foremost, consult a lawyer to seek proper legal advice and understand your rights and remedies. It's best to do so at the earliest sign of issues. Your lawyer and Realtor can also help establish a line of communications with the seller, while removing the emotional aspects out of the equation. In many situations expensive litigation can be avoided by understanding the interests of both sides and figuring out a way to move forward.

    If all sides are cooperating, then there is a good chance you might be able to reach a compromise solving the issue quickly and getting you into your new home.

    But I Put Down a Deposit, What Happens To it?

    If a seller backs out and decides to breach the agreement, you are generally entitled to a return of your deposit upon either signing a mutual release or a court order. 

    A mutual release is a document used in real estate when a deal falls through.  It releases both parties from the Agreement of Purchase and Sale. The buyer gets their deposit back and the seller is free to sell their house to someone else or hang onto it.  It also means that both the buyer and seller release each other from any future liabilities or damages.

    As a buyer, while it may be tempting to just get you deposit back and move on, it is wise to seek legal advice prior to signing a release to understand your options.

    If you have any further questions, rest assured that 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.

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  • What is a mutual release?

    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.

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  • Behind the scenes:  What happens on closing day

    Behind the scenes: What happens on closing day

    One of the biggest questions during a Real Estate transaction is “when do we get our keys?”

    Before getting your keys, there are several steps that need to be completed first and this all (believe it or not) happens behind the scenes on closing day. 

    What is Closing Day

    Closing day is the day when you take legal possession and finally get to call your new house your home. Prior to closing day, the buyer will be signing and reviewing documents prepared by the lawyer with regards to their mortgage loan, down payment, closing costs & purchase price. They will also review a statement of adjustments, which outlines the final closing numbers. Lastly, the buyers must arrange for funds to be deposited in the lawyer's trust account, while the lawyer requests the remaining funds from the mortgage lender. The funds are then transferred to the seller's lawyer who releases the property to be registered in the buyer's name, along with a mortgage (also called charge) which will be registered in the favour of the lender.

    When Should You Schedule Your Closing Day?

    Picking a closing day may seem like a simple decision, however there are many factors to keep in mind to avoid major issues from arising. Picking a closing on a Friday may cause issues if you cannot get everything before 5:00pm, businesses and systems will close for the weekend leaving you unable to close which may cause you to pay extra costs. The same principal is recommended for avoiding closing days before long weekends. 

    In addition, you should also keep in mind, Real Estate transactions peak in month-end especially during the Spring. Be aware this means everything, and everyone will be busier, such as movers, lawyers, realtors, and lenders. Therefore, it may be more difficult to ensure all parties are available and able to attend your closing. Overall, it is recommended to avoid picking a closing day before Fridays, long weekends, and month-ends wherever possible.

    What Happens on or near Closing Day?

    On the actual day of closing there are a number of tasks that must be completed by each party before the keys can change hands.

    • • The buyer will sign a variety of documents prepared by their lawyer relating to the mortgage loan, and the purchase of the home.
    • • Your lender will send the mortgage funds to your lawyer.
    • • You must provide the rest of the purchase price to your lawyer as well as the additional closing costs.
    • • Your lawyer transfers the funds to the seller's lawyer.
    • • Your lawyer will register the property in your name with the Land Title / Land Registry Office. If applicable, they will also register a mortgage (also commonly referred to as "charge") in favour of your lender.
    • • You will receive a closing report, which includes a copy of the deed/transfer of title.
    • • Your Lawyer will provide instructions on how and where you can get your keys. At Deeded, we will typically arrange for lockbox so you can easily access your new property.
    • • Additionally, please make sure you contact all appropriate utilities to inform them you are the new owner (i.e., hydro, electricity, water, condo fees, taxes etc.) so they can update their billing information.

    As you can see, there's a whole lot that happens on or near your closing day, with most steps happening behind the scenes. The goal is to have all these tasks completed by 4pm to 5pm which is when many agencies and lenders close for the day. If the deadline isn't met, the closing is typically extended to the next business day. Hence closing on a Friday or before a holiday weekend is not recommended.

    Additional Closing Costs

    • Your Deposit- The deposit is a portion of the total home purchase price that will be paid out-of-pocket by the buyer. Typically, the down payment is between 5-20% of the total purchase price.
    • Land Transfer Taxes (LTT) – The LTT is calculated as a percentage of the purchase price of your home. The exact percentage varies from province to province and sometimes individual municipalities like Toronto have additional costs. Alberta does not have LTT.
    • CMHC Insurance – Should you use less than 20% for your down payment, you will be required to obtain CMHC insurance. This is an insurance policy that protects your lender should your borrower default on your loan repayment.

    This is not an exhaustive list, visit this blog for additional information on closing costs, however we always recommended speaking to your realtor and lawyer to ensure you know exactly what your circumstances will be at closing.

    Can Deeded Help with My Closing?

    Of Course! When it comes to purchasing a home, our team at Deeded strives to make the process as easy as possible so you can “close” and get your keys as quick as possible. 

    Our team helps you understand your obligations, help you navigate the legal documents that need to be signed before funds are released to you and can expedite the closing process, all to ensure you have a fantastic closing experience. Please feel free to contact us anytime.

    Final Thoughts

    The closing process is a complicated and high-stress event, not just for the buyers and sellers but the realtors, lawyers, and lenders as well. Although it is understandable that you want the closing process to be done as quickly as possible, being patient will help things go much more smoothly. 

    If you have any further questions our experienced team is ready and able to make your closing a simple, quick, and painless process. Feel free to contact our team if you have any questions on our closing procedure, and to obtain a quote, please click here.

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  • Gifting a Downpayment:  What You Need to Know

    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.

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  • 3 Questions You Need to Ask Your Alberta Real Estate Lawyer

    3 Questions You Need to Ask Your Alberta Real Estate Lawyer

    If you just firmed up your purchase or sale (Congratulations!), you’ll likely need to choose a Alberta Real Estate lawyer to facilitate your closing.  

    No matter which lawyer you choose, asking the right questions before moving forward with having the lawyer (or law firm) who is going to handle your transaction can make the entire experience smoother and more predictable. 

    Here are some questions you must ask any Alberta Real Estate lawyer when buying or selling a house:

    What Are the Fees, INCLUDING Disbursements?

    Legal fees are the professional fees your lawyer charges for completing your real estate transaction. In addition to legal fees, disbursements are third-party costs paid by your lawyer in connection with completing your transaction. Disbursements usually include costs such as land title fees, tax searches, title insurance, and courier costs.

    Can I Sign My Documents Virtually and How Do You Conduct Your Virtual Meetings?

    An Alberta Real Estate lawyer can now witness real estate closing documents remotely. This means you can meet with your lawyer through video-conferencing to have your closing documents signed and witnessed. However, not all lawyers conduct virtual signing meetings in the same manner.

    At Deeded, virtual signings are easy, efficient and client friendly. Our lawyers can remotely witness Alberta real estate closing documents regardless of where you are located, either inside or outside of Alberta.  All you need is a computer or tablet with a webcam, an internet connection, and a mobile phone.

    What is Your Process?

    Home buying/selling is exciting but can also be one of the most stressful experiences of your life. Whoever you choose needs to be able to explain the closing process so that you can anticipate what is required and know what to expect.

    At Deeded, our goal is to make the process as smooth and seamless as possible. Our welcome package provides you with everything you need to know about the home closing process. Further, at every stage of the transaction, we will let you know what’s happening next. If you have any questions during the process, please do not hesitate to call, email or text us.

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  • Most Common First Time Closing Mistake

    Most Common First Time Closing Mistake

    We love working with first time home buyers and are always striving to educate clients to ensure their first closing experience is a smooth one.

    Let’s face it. Buying a home isn’t easy.  There’s a lot to know about buying and closing a home and while there’s a flood of information out there, it is important to get the right professionals working with you to make your home buying experience as smooth and stress-free as possible.

    The most common first time closing mistake we see with buyers is forgetting to budget for closings costs. With all the excitement, first time buyers often forget that these closing costs must be paid upfront in cash, unlike the mortgage which is amortized and paid in instalments over time.

    Before the keys can be handed over, however, there are still a few expenses buyers need to shell out for. These closing costs must be paid upfront in cash, unlike the mortgage which is amortized and paid in installments over time.

    Below we've broken down the closing costs you need to know about as a buyer so you don't fall for the most common first time closing mistake:

    Down Payment

    While your lender will provide your mortgage funds to your real estate lawyer on closing day, as a buyer, you must have the cash down payment ready to go, minus any amount that has already been paid as part of your deposit.

    If you aren’t liquid (meaning you don’t have the down payment money sitting in cash), make plans to have the down payment cash ready at least 3-4 days prior to closing.  Keep in mind that if you have your money with an online bank, it may take a few days to transfer funds, so plan accordingly.

    Your lawyer will be in touch a few days prior to closing to let you know the exact amount to bring towards the closing.  This amount will include any adjustments, legal fees, land transfer tax and other costs we’ll discuss shortly.

    For information on how your family may be able to help you cover this cost visit our gifting a down payment blog post.

    Adjustments

    What's an "adjustment"?

    If you are buying a resale or new construction property, you will likely have to pay for several adjustments on closing. Adjustments can include payments for utilities, property taxes or in cases of new construction, account setup fees, development charges, and others.

    Adjustments can range from a few hundred to several thousand dollars.   For example, if the seller of your property has paid property taxes for the year and you are buying the property halfway through the year, you will owe the seller your portion of the property taxes.  

    Your lawyer will inform you of adjustments a few days prior to closing.

    Land Transfer Tax or Property Transfer Tax (LTT / PTT)

    Home purchases in Ontario and British Columbia are subject to a provincial land transfer tax. Outside of the down payment, this is likely the largest outlay to be paid at the time of closing so it is very important to budget for.

    Home buyers in the City of Toronto pay municipal land transfer tax (MLTT) in addition to the Ontario LTT, which effectively doubles the land transfer amounts owed.

    Legal Fees, Disbursements, Title Insurance

    Legal costs include a number of services, such as registering the transfer of the property and registering the mortgage. Your lawyer will also facilitate the purchase of title insurance, which protects the buyer from any other claims made toward the property. It can also include the ordering of the property survey, should the buyer wish to obtain one.

    Legal fees and title insurance premiums can vary depending on the property type, location, and several other factors.

    When you can anticipate and budget properly, the stress associated with closing your first property can be drastically reduced. Remember to consult with professionals such as your Realtor, Mortgage Broker and Real Estate Lawyer, and ask lots of questions... there's no bad or silly questions you can ask.

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