Residential Purchase and Mortgage

The Agreement of Purchase and Sale is the key to the completion of the sale. Therefore, whenever possible, I would like the opportunity to review your Agreement of Purchase and Sale before you sign it or at least before you have waived all of the conditions. However, the reality is that most Agreements of Purchase and Sale are finalized before they reach the lawyer. I must then work within the rules and terms contained in the Agreement of Purchase and Sale you have signed. The Agreement of Purchase and Sale is a binding contract between you and the vendor. Each of you is required to honour and abide by its terms and conditions.

The lawyer for the vendor prepares the Statement of Adjustments. In accordance with the Agreement of Purchase and Sale, the balance due on closing will be adjusted so that each party pays its proportionate share of those items that have to be paid prior to the closing of the transaction. Common examples are taxes, fuel oil, and mortgage payments when a mortgage is being assumed. These adjustments could amount to several hundred dollars in favour of either party, depending upon the circumstances. If you are arranging to finance your new home purchase with a mortgage with a bank or trust company, in most cases your lawyer prepares the mortgage documents for the bank. It will therefore be necessary that you ensure your bank, or trust company, has delivered the mortgage instructions to your lawyer. The mortgage lender will usually send a copy of the mortgage commitment which summarizes the terms you have negotiated for the mortgage. These terms may include repayment of other debts, proof of income and employment, proof your down payment is not borrowed and your promise that there will be no second mortgage.

It may often be convenient for you to schedule the closing date of your purchase transaction to be a few days before the closing date of the sale of your existing home. This arrangement makes your move easier and allows you access to the new home in advance of your furniture, pets and family arriving so that you have an opportunity to clean or paint the new home. It may also be advisable to arrange staggered closing dates if you are moving between different towns and cities. For example, if you are selling your existing home in Barrie and purchasing your new home in Brampton, both on the same day, you must complete the sale in Barrie in order to have the money available in Brampton for your purchase transaction. If the sale in Barrie is delayed for any reason and if it is not completed until late in the day, it may be difficult or at times impossible, to receive the money in time to complete the purchase in Brampton that same day.

The potential anxiety and certain inconvenience which inevitably arises in these situations can be avoided if you negotiate a bridge loan with your mortgage lender. To return to the last example, a bridge loan involves borrowing all of the money you need to close your purchase in Brampton on Friday, and paying it back (except for the amount of your new mortgage) when you close your sale transaction in Barrie the following Monday. As long as you have a firm Agreement of Purchase and Sale on your sale transaction, your bank should cooperate and fund a bridge loan. There will be an administrative charge by your bank to set up the bridge loan and you will be required to pay interest on the bridge loan until it is repaid, however in my opinion and experience, these costs far outweigh the frustration and inconvenience which arises when there is a delay in closing a purchase and sale in different jurisdictions and Land Registry Offices on the same day.

It is important for you to remember that your mortgage lender (mortgagee) will require the property to be insured under a fire and extended perils insurance policy in an amount equal to at least the amount of the mortgage. You may wish to arrange for greater coverage.

The mortgagee’s name and address must appear on the face of the policy which must include the standard mortgage clause of the Insurance Bureau of Canada. If there is more than one mortgage, each mortgagee must be named on the face of the policy. Proof of insurance will be required before the lender will release the funds to your lawyer for the closing of the purchase. You should be sure to contact all of the local utility companies to ensure your accounts are properly organized prior to the closing.

Please Note: This information is not intended to contain advice specific to your situation. There are no cookie cutter solutions. After all, you are reading this information on the internet. Your situation is special and unique and you must be guided by specific individual advice from your Lawyer, Certified Financial Planner or Accountant.

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