Tricky deals: what to sort out early

Most real estate deals close without trouble. The five below often don’t, unless someone spots the issue before the agreement is signed. This guide is for realtors, mortgage brokers and their clients: what to ask up front, what I do, and where these deals usually go wrong.

Realtors and brokers: send me these files as early as you can, ideally before the offer goes in. The earlier I see them, the more options there are.

• Estate sales

• Tenant-occupied homes

• Selling after a separation

• Rural properties: wells and septic systems

• Private and seller take-back mortgages

Estate sales

When the owner has died, the property is sold by the estate trustee, also called the executor.

Ask up front

• Who are the estate trustees? All of them usually have to sign the listing, the agreement and the closing documents, unless the will says otherwise.

• Has a Certificate of Appointment of Estate Trustee (probate) been issued? If not, when was the application filed?

• Was the home owned jointly? A home that passes to a surviving joint owner usually doesn’t need probate.

• Is the house empty, and has the insurer been told? Many policies limit coverage when a home is vacant.

What I do

Before the agreement is signed, I check title and confirm whether a Certificate of Appointment is needed to close. In most cases it is. If it hasn’t been issued yet, set a closing date with room to spare, or make the agreement conditional on it. Probate applications can take months.

Where it goes wrong

• The closing date arrives before the Certificate of Appointment does.

• One estate trustee signs and another doesn’t agree to the sale.

• The buyer expects the usual seller warranties. Estate trustees often can’t give them, because they never lived in the home, so the agreement should say so.

For estate trustees: Estate administration, my estate trustee checklist and my probate calculator.

Tenant-occupied homes

A tenancy survives a sale. The buyer either takes over the tenancy or needs the tenant to leave lawfully, and the second option takes planning.

If the buyer is keeping the tenant

• Get a copy of the lease, the current rent, the date of the last rent increase, and the amount of any last month’s rent deposit.

• Confirm whether the tenant is behind on rent, and get a signed acknowledgement from the tenant if possible.

• On closing, the seller credits the buyer with the rent deposit, the interest owing on it and rent for the days after closing. See how that works on a statement of adjustments.

If the buyer needs the home vacant

• Once the agreement is firm, the seller can give the tenant notice to end the tenancy on the buyer’s behalf (Form N12). This works only for a building with three residential units or fewer, or a condominium unit, and only if the buyer, their spouse, a child or parent of either of them, or a caregiver will live there for at least a year.

• The notice must give at least 60 days and end on the last day of a rental period, or at the end of a fixed-term lease.

• The tenant is entitled to compensation equal to one month’s rent, paid by the termination date.

• The buyer’s intention has to be genuine. If the matter goes to the Landlord and Tenant Board, the buyer swears an affidavit, and a buyer who doesn’t move in can be ordered to compensate the tenant and fined.

Where it goes wrong

• The tenant doesn’t leave. Only the Landlord and Tenant Board can order an eviction, and that takes time. The agreement should say what happens if the home isn’t vacant on closing.

• The closing date is set before the notice period can run.

• The buyer plans to rent the unit out. A notice for the buyer’s own use isn’t available for that.

Selling after a separation

A separation changes who has to sign and where the money goes.

Ask up front

• Are the owners married to each other, or common-law?

• Is there a separation agreement or a court order that deals with the home?

• Does each of them have a family lawyer, and who can give instructions on the sale?

What you need to know

• A married spouse must consent to the sale of the matrimonial home, even if they aren’t on title, unless a separation agreement or court order releases that right. Common-law partners don’t have that right, although a family law claim can still be registered on title.

• If both owners are on title, both sign the agreement and the closing documents. If they aren’t speaking, instructions come in writing, usually through their family lawyers.

• Many separation agreements say the proceeds are held in trust until the parties agree how to divide them. I hold the money in my trust account and pay it out on a written direction signed by both, or under a court order.

• One spouse buying out the other is a transfer, not a sale on the open market. A transfer between spouses under a written separation agreement or a court order can be exempt from land transfer tax. Title transfers and refinancing →

Where it goes wrong

• One spouse signs the listing or the agreement without the other.

• Nobody has decided who controls the proceeds until the week of closing.

• A certificate of pending litigation is registered on title after the agreement is signed.

Rural properties: wells and septic systems

A country property comes with systems a city buyer has never had to think about. The questions belong in the agreement as conditions, not after it’s firm.

Wells

• Make the offer conditional on a bacteria test (E. coli and total coliforms). Public Health Ontario tests private well water for free, and sample bottles are available from the local health unit.

• Test the quantity as well. A flow test shows whether the well can supply a household.

• Ask whether the well is shared. A shared well should be covered by a written agreement and a registered easement.

Septic systems

• Make the offer conditional on an inspection by a qualified septic inspector, including a pump-out.

• Ask the seller for the septic permit and service records. They show when the system was installed and what it was approved for.

Also check

• Road access: a year-round municipal road, or a private or seasonal road with no winter maintenance.

• The survey: rural boundaries often don’t match the fence line.

• Oil tanks and wood stoves: insurers often require an inspection, and some won’t cover an older oil tank.

• Farm use: if part of the property is farmed, HST can apply to part of the price. Sort that out before the agreement is signed.

• Conservation authority rules: land near a river, creek or wetland may need a permit before you build or regrade.

Private and seller take-back mortgages

When a bank won’t lend, or the seller agrees to finance part of the price, the mortgage terms are negotiated rather than standard. That’s where the risk is.

Ask up front

• Who is the lender, and who acts for them? A private lender and the borrower usually need separate lawyers. The Law Society’s rules allow one lawyer to act for both only in limited cases.

• Is it a first or a second mortgage? If it’s a second, does the first mortgage allow it?

• What are the rate, the term, the fees and the payments? Are any fees or interest deducted from the advance? If a mortgage brokerage arranged it, get the cost of borrowing disclosure.

• Can it be paid off early, and at what cost? What happens at the end of the term? Private mortgages often run for only a year.

Seller take-back mortgages

• The seller lends part of the price and takes a mortgage back on closing. Write the full terms into the agreement of purchase and sale rather than leaving them for later.

• If a bank is lending on a first mortgage, the seller’s mortgage ranks behind it, and the bank will want to see its terms.

For mortgage brokers

Send me the commitment as soon as it’s signed. I check title against the lender’s conditions early, tell you if anything could hold up funding, and confirm funding on the day it happens.