Thank-you for choosing Galbraith Law to assist you with your upcoming purchase. This can be both an exciting and stressful process. Our role is to reduce the stress so that you can more fully enjoy the excitement.
Here are some items that can move us toward a smooth closing.
The vast majority of our work, especially in the area of real estate, is billed on a flat-fee, all-inclusive basis. This means you have the certainty of knowing exactly what it will cost you for us to complete work on your behalf. There are no variables. You have clarity.
Your single-price invoice includes all the fees, other charges, and disbursements or out-of-pocket costs necessary to complete our work on your behalf with a few minor exceptions we will always tell you about. This means charges for photocopies, faxes, couriers, Land Titles registration fees, search fees, and more are all included. There a few minor exceptions which are discussed in more detail here.
For complete details and answer to common questions about our billing practices, please visit our Real Estate Billings FAQ page.
Our team is available at any time during regular business hours to answer any of your questions or concerns. Many of your questions will be answered by the material on our website. We actually start working on your file once we have received mortgage instructions from your lender and real estate instructions from the realtor and all conditions are removed. Sometimes, clients will ask us to start working on their documents prior to all three occurrences as they can see the closing date is fast approaching.
Far too often this results in extra work and increased costs. If we prepare the mortgage documents prior to receiving final mortgage instructions and the final instructions differ slightly from the initial documents, we will have to prepare all the documents a second time. If the terms of the Real Estate Purchase Contract (REPC) are changed just before real estate instructions are sent out by the realtor and we have already prepared some of the documents, we will charge extra fees as we will have to prepare all the documents a second time.
Make sure you leave enough time between finalizing your REPC and your mortgage and the actual completion date so we can finish our work. Take a detailed look at the steps involved in closing a real estate deal, from the contract, to property taxes to a Real Property Report.
Turning to the Real Estate Purchase Contract (REPC), make sure you understand what it says and the timelines involved. Are there any outstanding conditions such as a house inspection or mortgage approval? We are reluctant to start working on your file if there are any outstanding conditions. If these conditions are not removed, the deal will terminate. If we have started working on the file at your insistence, you will then receive an invoice from our office for a deal that does not happen.
Please note that while the seller is obligated to provide certain disclosures, this obligation is limited. Basically, the obligation is to disclose hidden or latent defects if they are aware or ought to be aware of their existence. These are defects that you could not discover through an ordinary inspection. This includes blocked sewer lines or cracked basement foundations that are hidden behind basement walls. There is no obligation to disclose defects or deficiencies that are visible and simply not noticed by you. A house inspector can discover many items you might miss. Also, there is no obligation to disclose building code deficiencies. More importantly, there is no obligation for the seller to remedy any building code deficiencies.
The inspection showed repairs are necessary to the furnace or hot water tank. Or perhaps the Real Property Report shows a deck with a height above ground of more than 0.61 metres (24 inches) with no railings, contrary to the building code. The seller agrees to provide you with a $1,000 credit on closing so you can make the repairs yourself and ensure they are done properly and add any extra enhancements you desire. This credit actually reduces the purchase price by $1,000. Your lender must be notified of this change in the purchase price. This could reduce the amount of your mortgage. If you are using a 90% mortgage, the amount of the mortgage will be reduced by $900. You will only be left with $100 to complete $1,000 worth of repairs. Instead, you decide to have the seller complete these repairs. Since the seller is leaving the property, the seller has no incentive to ensure the repairs are done to any particular level of professionalism. Also, the seller is in a rush to get the repairs done before the closing date. This leaves no room for you to add any enhancements to the repair service. Some people attempt to solve this by having a holdback that will only be released upon satisfactory completion of the agreed repairs. Unfortunately, there can be substantial differences of opinion as to the definition of adequate work. Holdbacks work best when there is a black and white issue with no question of quality or level of service.
So how can you make sure the required repairs are done to your level of satisfaction without “reducing the purchase price” which leads to a reduction in your mortgage? Our preferred alternative is to have the lawyer pay the agreed amount directly to a third party. For example, the $1,000 required for furnace repairs will be paid directly to the furnace repair company of your choice on closing. Or, the $1,000 is paid directly to the building contractor or lumber supply company on closing.
During the course of a real estate negotiation, you may hear someone suggest using a holdback to resolve an issue between the parties. One example is where a deficiency is noted during a home inspection. The buyer may ask the seller to make the appropriate repairs. However, to ensure the seller is sufficiently motivated to make such repairs, the buyer may propose holding back a portion of the sale proceeds until the repair is completed. In general, we recommend avoiding such holdback arrangements. Although they are intended to resolve a situation, they may in fact complicate the real estate transaction. The complication arises out of the following.
If you are considering seeking compensating from the seller for repairs identified during a home inspection, or for any other reason, here are some suggestions to more effectively deal with the situation.
If a deficiency is noted which requires repair, it is far simpler to negotiate a reduction in the purchase price or provide payment to a third party and make the the repairs yourself. Please note, this can lead to complications for you such as a reduction in your mortgage eligibility. This avoids disputes with respect to whether or not a repair has been adequately completed and gives you full control over the manner in which a repair is completed.
Be aware of unintentionally changing the purchase price. This can happen in several different ways. For example, if the seller agrees to provide a “credit of $1,000.00” to repair some deficiency discovered by the home inspector, this is a change in the purchase price. The price has now been reduced by $1,000.00. If we are acting for your lender (and most times we are), we must notify your lender of this reduction in the purchase price. That may trigger the lender to reduce the amount of your mortgage. If your mortgage involves mortgage insurance, the mortgage insurance premium can increase which can also reduce the amount of mortgage money available. For example, if you are obtaining a 95% mortgage and the seller gave you a credit of $1,000, the amount of your mortgage must be reduced by $950. Three consequences can arise:
Your Real Estate Purchase Contract (REPC) may have conditions attached such as financing or inspection. This allows you an opportunity to make sure your mortgage approval is in place or have a professional inspect the property before making your final decision to purchase. You must follow up on these conditions. You cannot use these conditions as a reason to cancel the purchase unless you have taken all the steps necessary to complete the condition and the cancellation relates to that particular condition. For example, if you find another house that you like better, you cannot withdraw your application for mortgage funding on the original home and then cancel the purchase on the grounds that you failed to meet the financing condition. Similarly, if you fail to remove the condition regarding inspection, there must be a substantial deficiency shown on the inspection report. You cannot rely on some minor concern simply because you have had second thoughts about purchasing this particular property.
We must verify your identity before we can complete your purchase. This requires the production of at least one valid non-expired government issued photo identification and a second piece of identification bearing the same name. Obviously, the two most popular choices for picture identification are a driver’s license and a passport. If you do not have either, you can obtain a Provincial Identification Card from any registry office. This card looks the same as a driver’s license except it has a different background color and uses the words “Identification Card”. The second piece of identification can be another piece of government issued identification or in most cases a major credit card. If you do not have these forms of identification, please contact us to determine what identification you do have that may be acceptable. The identification required from you is based on Lender requirements and the Law Society of Alberta.
If you are mortgaging the property you are purchasing, your lender will send us the mortgage instructions. The instructions provide us with specific information so that we can prepare the appropriate documents. We take it from there. We do all the necessary searches and prepare the mortgage and any related documents. Our work can only start once we receive the mortgage instructions. Receiving these documents well in advance of closing increases the likelihood of closing on time. Any efforts you and your mortgage broker (if you are working with one) can take to encourage the lender to provide us with mortgage instructions sooner rather than later are helpful. If you have not done so, please provide us with the contact information for your lender and broker. The name of a specific person and direct contact information is the best.
Think twice about changing your mortgage at the 11th hour. Typically, any changes to the mortgage such as reducing the amortization period or increasing the down payment results in the lender sending us a completely new set of mortgage instructions. If we have already prepared the mortgage documents they will have to be prepared all over again. This will result in additional charges to you along with possible delays in completing the documents and completing the purchase.
What about deficiencies on closing? Although it is rare, purchasers will occasionally get the keys to their new home only to find out damage was done by the previous owners after the last inspection or something has broken such as an appliance. Under contract law, we cannot unilaterally hold back any portion of the purchase price despite the presence of deficiencies. All we can do is contact the lawyer for the seller and hope they are cooperative enough to negotiate some resolution. Ultimately, if the dispute cannot be resolved, your recourse is to file a lawsuit.
Once you become the owner of your new home, you may be able to enroll in the monthly property tax program. This allows you to pay your taxes on a regular monthly basis on automatic monthly withdrawal rather than one large annual payment. Two things to remember. First, you cannot enroll in the program until you are the actual registered owner at Land Titles. Second, enroll within the first few days after you become the owner of the property, otherwise, in certain circumstances, penalties can be triggered. Please note, that some lenders insist that you pay the property taxes as part of your mortgage payments. In this case, you will not be able to enroll in the monthly program directly with the municipality.
If you are purchasing a condominium, the condominium corporation will (except in rare circumstances) provides insurance for the building itself. It is your responsibility to obtain condominium owner’s insurance. This will cover the following three issues that are not covered by the condominium building insurance:
The standard REPC requires the seller to provide you with an Estoppel Certificate. The Estoppel Certificate indicates, among other things, whether or not the condominium fees are paid up to date. All major lenders require an Estoppel Certificate prior to funding the mortgage. This certificate will also show whether a special assessment has been levied against the condominium which has yet to be paid. It also contains a statement as to whether there are any structural deficiencies in the condo buildings.
Prior to removing all conditions on the condominium purchase, you will want to review a package of condominium documents. This includes the reserve fund study, minutes of recent board and shareholders meetings, and the Bylaws along with the financial statements. There are several issues to focus on. Look at the Bylaws to see if there are any restrictions on the use of the property that you find objectionable. Compare the financial statements with recommendations in the reserve fund study to make sure the condominium is setting aside enough money for future repairs. In the absence of this, you may be facing a special assessment. Review the minutes of directors and shareholders meetings to see if there any ongoing issues regarding items such as major repairs or difficult occupants in the unit right next to the one you are looking to buy. You can review these documents with the assistance of your realtor. If you have never purchased a condominium before, you can obtain the service of a professional who will review the condominium documents on your behalf at your cost. By the time we receive the REPC, conditions have been removed and it is too late to back out of the deal if there is something objectionable in the condo documents. Reviewing condo documents includes reviewing items such as financial statements which is outside our skill set. We do obtain and review the estoppel certificate.
If you are purchasing from a developer, there are several issues to consider. If the purchase contract has been prepared by the builder or developer, then make sure you read it carefully. You may wish to have us review this contract on your behalf before you even sign it. This may result in an additional fee. Some issues to address in the contract are as follows.
Does the contract allow for seasonal holdbacks? Does it allow for holdbacks for any items that are not completed? Does the contract include landscaping and grading? Is there new home warranty coverage and in particular is there deposit coverage? Is this a situation where you must make progress payments? If so, does the builder’s schedule of payments match the schedule of payments your mortgage lender is willing to provide?
Many newer subdivisions require a landscape deposit. This deposit is held by the developer and is refunded to the homeowner upon completion of certain minimum landscaping requirements. If you are buying directly from a developer make sure you ask about this issue. If you are buying a house that was completed within the last 2 to 5 years, ask the seller about the status of the landscaping deposit. If the landscaping has not been completed, the deposit may still be in place and you may still be required to complete certain landscaping requirements after you purchase the property. The landscaping deposit must be assigned from the seller to you so that you will obtain the refund when the landscaping is complete and this should be stated in the REPC. The amount of the deposit is typically added to the purchase price of the property.
Municipal bylaws require certain lot grading standards. These ensure that melting snow and rain drain away from your property and away from the neighbor’s buildings. When purchasing a house from a builder or developer or a house that was completed in the last 5 years, you or your realtor should enquire about the status of the lot grading. If the owner has not obtained a Lot Grading Certificate, you will be required to complete this task. You may purchase the property only to find your enjoyment is interrupted by notice from the city requiring you to complete certain lot grading requirements.
Soon after your deal closes, we send you a preliminary report. This is usually done within two weeks of the closing. The report will include a Copy of Title showing you as the new registered owner. We will also include copies of other relevant documents such as the Real Property Report (RPR) in the case of a house or the Estoppel Certificate in the case of a condominium. If the previous owner had a mortgage on title, it will still show up on the title sent to you with the preliminary report. It can take anywhere from 6 weeks to 6 months before we receive an updated title from the seller’s lawyer showing the discharge of the seller’s mortgage or other registrations. Once we receive the updated title, we will provide both you and your mortgage lender with a copy.
Many newer areas in Edmonton will have a Restrictive Covenant registered against the title to the property. Before you plan any major changes to your property, make sure you understand what this Restrictive Covenant requires. These are typically put in place to ensure that there is a certain uniformity amongst all houses in a neighborhood. This prevents your neighbor from making some radical change to the exterior of their house that will decrease the value of all the neighboring properties. It also prevents you from doing the same thing and may require certain minimum standards such as the quality of your roofing material.
An RPR is just that. It is a complete report on the land you are buying completed by an Alberta Land Surveyor. It will show all property boundaries, the location and description of all structures on the land and the location of all boundary fencing. It will also show non-structural items such as a utility right-of-way and encroachments from neighboring properties. A standard Alberta Real Estate Purchase Contract requires the seller to produce a current RPR complete with evidence of compliance at the seller’s expense. In this case, current includes any RPR prepared since 1996 (when the standards changed), so long as there have been no additions or alterations to any of the structures on the property. If boundary fencing has been added since the RPR was created, the seller will must provide an updated report. If a ground cover item is added, the seller is not required to provide an updated report. This would incude portable/moveable sheds, concrete patios or decks that are less than 0.60 metres (24”) off the ground. Whenever possible, have a look at the RPR along with your realtor before removing conditions. If you have concerns, let one of our team look at the RPR.
The RPR must be accompanied by either a Compliance stamp from the local municipality or a covering letter from the municipality stating everything is acceptable. This provides proof that development permits are in place for all structures on the property. Many issues can arise where no development permit is in place. For example, it may not be possible to obtain a development permit for certain structures. Or, the seller can obtain a development permit and then turn it over to you. The seller has no obligation to obtain a building permit. You can then be left with the burden of finalizing the building permit and curing any deficiencies with the building code. A development permit allows the structure based on zoning regulations. A building permit allows the structure based on building code requirements. For example, a covered patio may be allowed in your neighborhood and a development permit will be issued. However, if that covered patio does not have sufficient roof beams and support pillars sunk in concrete below the frost level, it may have to be torn down. One potential remedy for deficiencies in this area is the use of title insurance. This can be used where no RPR is available or where certain deficiencies can be avoided through the use of title insurance.
We highly recommend the use of title insurance in all real estate transactions. For a one-time fee, it provides coverage for the entire length of your ownership of the property. Policies can even be purchased by existing homeowners that provide coverage back to the time of purchase.
As the name implies, title insurance covers many of the risks associated with maintaining secure title to your property. For a one-time fee, some of the insured risks on residential properties include:
In our view, the fraud protection for the lifetime of your ownership justifies the premium you pay for the policy. All the other coverage is an added bonus.
For more information on Title Insurance go to:
Stewart Title Insurance at www.stewart.ca
Chicago Title Insurance at www.ctic.ca
So which is better, an RPR or Title Insurance?
Title Insurance allows a closing to take place in a timely fashion without investigating the status of the property, the buildings and the permits. It also permits closing without registration at Land Titles as any issues that arise during the registration process will be covered by the Title Insurance policy. When there is a rush to get a deal closed, Title Insurance can provide an effective solution.
When time permits, which is typically the case, an RPR offers clarity over a certain defined list of issues. For example, you will know whether the fence or garage eaves encroaches onto the neighboring property or one of their structures encroaches onto your new property. You will also know whether permits have been obtained for all exterior structures such as decks, carports, hot tubs, garages, and the house itself.
Where encroachments exist or permits have not been obtained, the purchaser can make sure the seller looks after these issues as part of the closing process.
Title insurance insures against these same issues, however, it does not fix them. If a purchaser discovers that there are no building permits for a structure long after closing, it may be difficult or impossible to pursue the seller to rectify this deficiency. The purchaser will then be left with the burden of curing this deficiency at their expense before they sell the property. Even though title insurance will cover the cost, there can still be a great deal of work and uncertainty for you to deal with.
Title insurance offers the ability to close on a real estate deal and satisfy all the requirements of the mortgage lender without the cost and potential time delays of obtaining an RPR. If deficiencies are discovered after the closing date, the title insurance typically covers the cost of rectifying unknown deficiencies that are subsequently discovered.
Title insurance also allows closing where there are known deficiencies the parties simply wish to defer, rather than bring to the attention of the municipality. For example, we recently dealt with a house where a small decorative fence encroached onto city property. The cost of obtaining an Encroachment Agreement from the city exceeded $30,000. Both parties agreed they would rather not pay the $30,000 fee. Instead, they closed with title insurance even though the insurance excluded this known defect. This still allowed the buyer enjoyment of the fence without payment of the $30,000 fee. The buyer agreed to accept the risk that sometime in the future the city may require payment of the fee or removal of the fence.
Title insurance also covers many risks that are not touched by an RPR. For example, existing work orders for interior renovations are covered by title insurance. Interior renovations are not touched by RPRs. As another example, a policy recently paid for the cost of relocating a septic tank that was partly under the neighbour’s property. Again, this would not have been included in an RPR. Obviously, fraud coverage for the lifetime of the ownership is not covered by an RPR either.
Anyone selling real estate in Canada who is not a Canadian resident for income tax purposes, or does not file Canadian income tax returns is obligated to report and pay income tax on any required capital gains tax resulting from the sale of the property.
Since the person liable for the tax is non-resident, Canada Revenue Agency may not be able to collect the tax owing. Accordingly, the Income Tax Act states that the responsibility for the payment of tax lies with the purchaser. If a purchaser of real estate in Canada does not ensure that the seller is a Canadian resident for income tax purposes, that purchaser will be liable for payment of the tax that the non-resident seller should have paid.
The standard Alberta contract includes the necessary statements where the seller verifies they are Canadian residents. Your realtor and lawyer can also assist in making sure the seller is a Canadian resident for income tax purposes. This is just one more instance where the services of a professional realtor can be of tremendous assistance.
As a purchaser, you must either obtain from the seller the Certificate issued by Canada Revenue Agency showing that all required taxes are paid or you must send 25% of the entire purchase price to Canada Revenue Agency. CRA will hold those funds until the non-resident seller has filed their tax return. CRA will then release any excess funds to the seller.
If the seller is a non-resident and would like to receive all his sale proceeds on the day of closing, he must file a tax return showing the purchase price, the sale price and any related expenses and then pay any required taxes. All this can be done before the closing date with a Certificate issued in advance of the closing date. The seller should present this Certificate to his lawyer, who in turn provides it to your lawyer, which will allow the seller to receive all of his sale proceeds on the closing date.
Realtors perform a valuable role in the purchase and sale of real estate. Realtors have expertise in marketing properties. They also perform many other valuable functions. Their primary functions can be divided into three categories.
As lawyers, we do not provide the services of realtors. For that reason, we strongly encourage the use of realtors and will refer potential clients to a realtor for their advice and assistance before agreeing to act on a real estate matter. In certain circumstances, such as a transfer between family members or business partners, we will act where no realtor is involved.