How to buy a home, step by step
Author: David Warren, LL.B
While the role of the lawyer is critical in the purchase of a home, they are not the only professional you need to consult in the process. You will also need to deal with a realtor, a bank or other lender, or a mortgage broker, an insurance broker and possibly a home inspector. The lawyer’s role, for example, does not include the budgeting process, as to whether or not you can afford a particular home, which would be your lender or mortgage broker, or the habitability of a particular home, which will be the purview of the home inspector.
Agreements of Purchase and Sale
These are often drafted by realtors, but may be drafted by your lawyer, often if the purchase is a private one and does not involve real estate agents. It is very important, however, to have your lawyer review your draft of Agreement of Purchase and Sale before it is signed and submitted to the vendor or the vendor’s agent. The Agreement is a legal contract and if there are any problems with the Agreement, they can rarely be fixed after signing by the lawyer.
Your offer may have conditions such as a financing condition or a home inspection condition. The offer does not become final until the conditions are waived. In today’s hot market people often choose not to insert conditions to make their offer more attractive to the vendor, but this is not a legal decision but rather a marketing one. Pre-approval of mortgages also eliminates the need for a financing condition.
To Lawyer – Searching Title
Once the offer has been accepted and signed by both parties, you should immediately forward it to your lawyer who will begin the process of searching the title. This confirms that you are buying the property that you expect to buy, free and clear of building or statutory liens, charges or work orders, and that the vendors have the right to sell the property, possibly subject to a mortgage to be discharged by their lawyer.
Various forms of home ownership
Primarily freehold and condominium. Freehold means that one or possibly two people (usually in the case of spouses) own the house and land outright. This may include detached and semi-detached homes, duplexes and townhouses. Condominium ownership means that you own the unit you live in but share ownership rights in common spaces such as corridors, the grounds and special facilities such swimming pools and party rooms. Condominiums are run by condominium owners as an association and your lawyer must contact the association or their designate to obtain legal documents including the condominium organizing documents, its annual budget and a status certificate which confirms such things as whether the condominium is a party to any lawsuits. The lawyer must review these documents carefully.
Your lawyer will send a letter to the vendor’s lawyer known as a requisition letter which will detail any issues needed to be resolved before closing. The most common of these is the discharge of one or perhaps two mortgages. If they are mortgages from the major financial institutions your lawyer can accept the other lawyer’s promise to discharge them immediately following closing, so long as the vendor’s lawyer provides a discharge statement from that institution.
If you are utilizing a mortgage to buy your home, you will need to give your financial institution your lawyer’s contact information, as they will need to provide him or her with instructions for the preparation and signing of your mortgage prior to closing.
You will also need to arrange for home insurance prior to closing. If you are buying with a mortgage, it is your lawyer’s legal responsibility to confirm that the lender is covered by your insurance policy.
It is also recommended that your lawyer obtains Title Insurance for you prior to closing. Title Insurance which is especially useful protecting against title fraud is a onetime charge and is good for as long as you own your home. It also reduces the need for certain other kinds of searches which would otherwise have to be performed by your lawyer such as municipal building and tax searches.
You will sign the mortgage and other legal documents required for signing, usually a day or two prior to closing. At that time you will need to provide your lawyer with a certified cheque for the balance due on closing, the lawyer’s fees, and the other closing costs. A document that your lawyer should have received prior to your attendance at his office for signing is the Statement of Adjustments. Adjustments which are things like payment for a full oil tank or for a portion of overpaid taxes by the vendor will be detailed by the vendor’s lawyer. You will also be paying disbursements such as search costs and title insurance. You will also need to pay land transfer tax. In Toronto there is both Municipal and Provincial land transfer tax, elsewhere there is only provincial land transfer tax. If you have never owned a home or portion of a home anywhere in the world you may be eligible for an elimination or reduction of land transfer tax as a first time home buyer.
On closing day, the lender will provide the mortgage money to your lawyer. These funds plus the funds you have provided prior to closing by certified cheque or bank draft, will be enough to pay the balance due on closing to the vendor’s lawyer, the land transfer tax and registration fees, and your estimated legal fees and disbursements. Your lawyer pays the vendor, registers the home in your name, registers your mortgage and advises you and the realtor that the transaction has closed. Usually you will get the keys for the new home directly from your lawyer.
Sometimes your closing has to be extended. It could be that your bank financing is a little slower than you expected, or the vendor could be having difficulty resolving a title issue. If you are requesting the extension, you may have to pay a little more, quite often the interest on the vendor’s mortgage during the period of delay plus his or her increased legal fees. If the vendor is requesting the delay, they may have to give you a small reduction in the purchase price plus pay any of your increased legal fees. Usually this is handled by the lawyers, although occasionally straightforward extensions can be dealt with by amendments to the Agreement of Purchase and Sale and can be handled by the realtors.
Usually a month or so after closing you will receive a detailed report including a copy of your deed, mortgage and other legal documents and an account detailing funds received, disbursed and fees and disbursements. Although people sometimes expect that these documents will be available forthwith after closing, a proper report cannot be made available until after the vendor’s lawyer has discharged any outstanding mortgage on the property and this often takes a month or two.
The lawyer’s report will provide a summary of the legal services that they have provided for you. These may include the resolution of any unusual title matters, a copy of your deed and mortgage documents, a copy of the documents signed by both you and the vendor prior to closing with brief explanations of the purposes of these documents. You will also get an account outlining the fees and disbursements charged by the lawyer together with a trust ledger showing funds received from you and the mortgage company, and how these funds were spent, or in legal terms, disbursed. Any balance should be returned to you with the trust ledger.
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