You have decided to sell your home. You listed your property with a Realtor; there have been “open houses”, numerous people touring your home during evenings and weekends; and a few offers that went nowhere. Finally, your Realtor brought you an offer from an interested buyer and a Contract of Purchase and Sale (the “Contract”) was negotiated. After all subject condition clauses have been removed or waived and a deposit has been paid by the buyer, the Contract is firm and binding on both parties. The question posed by most sellers at this point is: “what is left for me to do to ensure that the sale of my house completes smoothly, that I receive the sale proceeds that I expect and that my mortgage is either paid out or “moved” to my new house?”
This Guide has been prepared to explain the “conveyance” process from the seller’s perspective and to highlight the steps that are taken by your lawyer between your signing of the Contract and your receipt of the net sale proceeds.
1. THE CONTRACT
If questions of a legal nature arise during the negotiation process, it is recommended that you consult a lawyer specializing in real estate law.
Once the Contract has become firm and binding, your Realtor will notify your lawyer of your impending sale. Your Realtor’s office will send a Transaction Record Sheet, commonly referred to as a “Deal Sheet”, to your lawyer’s office. It is at this point that your lawyer’s office will contact you to confirm the Realtor’s instructions and to gather some preliminary information from you. This preliminary information will include details with respect to any mortgage(s) or other financial encumbrances, that are registered against your title to the property.
The standard form printed Contract used by Realtors for residential transactions in British Columbia stipulates that it is the buyer’s responsibility to prepare most of the documentation necessary to complete the transaction. This means that the buyer’s lawyer will prepare the necessary documents and forward them to your lawyer’s office for your signature.
2. THE DOCUMENTS
Typically, the documents that you will be asked to sign will include: a Seller’s Statement of Adjustments; a Form A Transfer (the “Transfer”); documents concerning the applicability of GST/HST to the particular sale and documents concerning your residency. On occasion, if you have agreed to supply an existing site survey to save the buyer the added expense, you will be asked to attest to the accuracy of that survey by making a Statutory Declaration.
The Transfer is the document which, when properly executed and registered in the Land Title Office, transfers legal ownership of the property from the seller to the buyer.
The Seller’s Statement of Adjustments sets out the exact amount of money that your lawyer will receive from the buyer’s lawyer as net sale proceeds. Items adjusted on the Statement of Adjustments include: the real estate commission that you will pay; municipal property taxes; utility levies; and strata fees, if applicable.
Generally speaking, the sale of “used residential housing” is not subject to GST. However, there are certain circumstances where the sale of used residential housing will attract GST. Although GST is payable by the buyer, and collected by the seller, it is the seller’s use of the property that determines whether or not the sale is exempt from GST. Therefore, the buyer buying a used home may require a certificate confirming that the sale is not subject to GST because the home is used residential property that has not been substantially renovated. A buyer will also wish to confirm that the seller did not claim input tax credits on the purchase or capital improvements made to the used home. It is essential that a seller determine, prior to agreeing to sell the property, whether or not the sale will attract GST liability
To ensure that non-resident sellers pay Canadian tax owing on the gain resulting from the disposition of Canadian property, the Income Tax Act requires a non-resident seller to report the sale to the Canada Customs and Revenue Agency (“CCRA”) and to obtain a clearance certificate for the taxes potentially owing as a result of the transaction. If a non-resident seller fails to comply with the procedures established by the CCRA, the buyer may become liable to pay the tax on behalf of that non-resident seller. To avoid this potential liability, the buyer is required to make a reasonable inquiry (which will usually include requesting a statutory declaration from the seller) to determine whether or not the seller is a “non-resident” of Canada. Consequently, the buyer will usually require you to make a statutory declaration stating that you are not a “non-resident” of Canada, within the meaning of the Income Tax Act. If you are, or may be a non-resident of Canada, you should take steps to obtain a clearance certificate from CCRA well in advance of the date that the sale is to complete. Failure to obtain a clearance certificate prior to completion will result in the buyer lawfully withholding 1/3 (in most cases) of the gross sale price and holding it in trust until 30 days after the month of closing at which point in time it must be remitted to CCRA if the seller has not yet provided the clearance certificate. This withholding may leave insufficient funds to pay the outstanding balance owing on your mortgage. As a result, you will not be in a position to provide clear title to the buyer, you will not be able to complete your sale and you will be in breach of contract.
A site survey may be required by the buyer’s lender, before it will advance funds under a mortgage. A site survey shows the location of the dwelling in relation to the boundary lines of the property and will ensure that the dwelling is situated on the lot and is not encroaching on neighbouring properties or within municipal by-law set-back requirements.
If you have agreed to supply the buyer with a site survey, you will be asked to make a statutory declaration as to the continued accuracy of the site survey. The Statutory Declaration is merely a declaration from you that, to the best of your knowledge, the foundation or boundaries of the dwelling have not been altered since the site survey was completed. If no site survey is available or if additions have been made to improvements on the property, the buyer will have to obtain a new site survey, or arrange for title insurance, at their expense. Generally, a seller is under no obligation to provide a site survey, however, if the seller is in possession of an up to date survey, it can save the buyer the expense of either obtaining a new one or arranging for title insurance instead of the survey.
While the buyer’s lawyer is busy preparing the documentation described above, your lawyer will have contacted the lender that holds your mortgage in order to request a payout statement indicating the monies that will be owing to the lender on the completion date as specified in the Contract.
Once your lawyer has received the above documentation from the buyer’s lawyer, it will be reviewed to ensure that it is accurate and that it correctly reflects the terms of the Contract. Based upon the seller’s statement of adjustments as prepared by the buyer’s lawyer, your lawyer will prepare an Authority to Pay for your signature. By signing this document, you authorize your lawyer to make certain disbursements on your behalf from the sale proceeds that will be received from the buyer’s lawyer. The most common disbursements that will be found on the Authority to Pay are the amount required to pay out the mortgage on your property and the legal fees, disbursements and taxes incurred by your lawyer in acting for you in the sale transaction. The balance of funds remaining after payment of your mortgage, legal fees and any other disbursements, are the “net sale proceeds” that will be paid to you.
After your lawyer has reviewed the seller’s documents and prepared the Authority to Pay, your lawyer’s office will contact you to arrange a meeting so that you and your lawyer can review and sign the necessary seller’s documents.
3. CLOSING PROCEDURES
Once you have signed the seller’s documents, your lawyer will return them to the buyer’s lawyer who will attend to registering the Transfer in the Land Title Office on the completion date. It is at this time that undertakings (i.e., promises or guarantees) are arranged between your lawyer and the buyer’s lawyer.
Undertakings are relied upon by real estate lawyers to establish the conditions upon which the closing documents are released to the buyer’s lawyer and to establish the conditions upon which the sale proceeds will be paid to the seller’s lawyer. The buyer’s lawyer will undertake not to register the Transfer until the buyer has deposited into his lawyer’s trust account enough money to complete the purchase. Your lawyer will undertake that, after having received the net sale proceeds from the buyer’s lawyer, all financial charges currently registered against the property will be paid out and discharged.
On the completion date as specified in the Contract, the buyer’s lawyer will attend to the registration of the Transfer and, if necessary, the buyer’s mortgage. After registration is complete and the buyer’s lawyer has all the funds necessary to complete the transaction, the buyer’s lawyer will contact your lawyer’s office to advise that the net sale proceeds due to you are available for pick up. Pursuant to the Contract, the buyer’s lawyer must ensure that the funds are available for pick up on the completion date as specified in the Contract. It then becomes your lawyer’s responsibility to arrange for the pick-up of the funds and their deposit into your lawyer’s trust account. However, the call to your lawyer’s office may not come until late that afternoon, often after the banks have closed. Consequently, it may not be until the next weekday that your lawyer will be able to pay your mortgage lender the amount required to pay out the mortgage as well as make the net sale proceeds available to you. Your lawyer will also advise the Realtors involved that the sale has completed and that the deposit monies can either be released to you or applied toward the real estate commission now owing, whichever is the case.
It is important to realize that it is difficult, and on occasion impossible, to have the seller’s mortgage lender paid out on the day of completion or to have the net sale proceeds available to the seller on the day of completion. Therefore, if you require the net sale proceeds on a specific day (e.g., to complete the purchase of your next home), the Contract should establish the “completion date” as at least one day before the date that you will require the funds from your sale. This will usually ensure that you receive the funds from the sale of your house in a timely fashion.
Finally, possession of the property is granted to the buyer upon the possession date as specified in the Contract. It is at this point that the sale of your home is complete.