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Preparing Contracts of Purchase and Sale for Foreclosure Properties

This information is given to assist realtors in preparing the Contract of Purchase and Sale when selling a property that is in foreclosure. By following these simple procedures it will save your clients time and money.

For Foreclosures:

  1.  Please ensure that the Purchaser’s full legal names are used on the Contract.  In non foreclosure contracts the full legal name is not necessary; however, for foreclosure properties it is extremely important.  
  2.  Please also determine if the property is to be purchased by more than one person, and if so that second, and possibly sometimes third, person’s full legal names should also show on the initial offer.

Why these points are important is because when the offer is submitted into Court, and if it is accepted, the lawyer for the Foreclosing party will prepare the Court Order in the name as it shows exactly on the Contract of Purchase and Sale, and will NOT make any changes to that, by adding middle names or another person, unless a new Court Application is made, which not only delays the sale, but will cost the purchaser extra legal costs of approx. $1,000.00 to do so.

Also, if the purchaser’s full legal name (which means using all middle names) is not used on the contract, then their identification will not match when it comes time to drawing and signing their mortgage documents, and the purchasers now have an additional problem.  So, to be absolutely sure that you are using the correct name(s), please ask to see the buyer’s driver’s licence or passport, and take their name(s) from that document.

If the buyer's are obtaining financing, then they may not be able to qualify for the mortgage on their own, and the Lender's may require that a second person (usually a spouse or parent) be a joint borrower in order to qualify for financing.  If this is required, then that joint Borrower must also be registered on title.  If the contract has been drawn in one person's name, then the buyer’s will have to pay the additional approx. $1,000.00 of legal costs to get an amended Court Order to add the second name, and may have to request an extension of the completion date as well, in order to allow sufficient time for that to be done.

It would be prudent to have the buyer's pre-qualified for a mortgage before putting in the offer to determine if the property should be in more than one name.

We would also suggest that the buyer's occupations and whether they are Joint Tenants or Tenants in Common (and as to what percent) be shown on the Contract of Purchase and Sale as well.  

Example:  JOHN WILLIAM SMITH, Fisherman, and SARAH MARY LOUISE SMITH, Engineer.

First Time Home Buyers:

Another point is that for First Time Home-Owners, they may wish to put the property into just one name, so that the spouse not going on title can claim the First Time Home buyer's exemption on their next purchase, or they may decide to show different interests on title, to assist in getting the full benefit of the Property Transfer Tax exemption as possible.

i.e.  John William Smith has owned a property before, however, his wife Sarah Mary Louise Smith has never owned a property, but the bank wants both of them to be registered on title, as they need both incomes to qualify for the mortgage.  In a case like this we could show John William Smith as to an undivided 1/100th interest and Sarah Mary Louise Smith, as to an undivided 99/100ths interest.  This way, they are both on Title, they are both on the mortgage and they save 99% of the Property Transfer Tax.

If the Court Order is not drawn showing the actual interests, then it will be deemed to be 50/50 and the Property Transfer Tax exemption can only be claimed on half of the value of the property, not the 99% interest, hence causing your buyer's to pay additional Transfer Tax.

Joint Tenancy:

If  the Contract is drawn in one name only and the buyer's actually wanted to have it in two names (usually this applies to spouses), but this does not happen because of the extra costs involved to make the change, then the spouses do not have Joint Tenancy or Right of Survivorship.  Now that creates a whole new set of problems if the spouse on title passes away.  The surviving spouse would have to go to the time and expense of probating the property, and if deceased owner did not have a Will, then the surviving spouse may not inherit the entire property if they have children.

So in summary to cover yourselves, please determine with the buyer's and their bank who should show on title, use their full legal names and occupations when preparing the initial Contract of Purchase and Sale and if the purchaser's are first time home owners, please contact the buyer's legal representative to determine what interest should be shown for each buyer on the Contract. Please do all of this before submitting the offer to the sellers.

I hope that you will find this information to be of assistance, however, if you have any questions at all, please do not hesitate to contact the writer.

GST on New Home Sales:

GST = 5%

GST Rebate =36%

No Rebate after the price exceeds $450,000.00

Partial rebate for prices between $350,000.00 and $450,000.00

GST is due when selling new properties or commercial properties or on properties that have been recently subdivided. Once the property has been lived in the property is no longer considered new and is instead considered used residential. If a company is selling raw land GST is always payable. It is the responsibility of the seller to determine if they are collecting GST and it should be noted in the contract if it is payable or not.

If the property is being moved into the purchaser may be eligible for a GST Rebate of 36% but only if the purchase price is less than $350,000.00 (this does not include the gst).

If the property is between $350,000.00 and $450,000.00 the purchaser may still be eligible for a rebate but this rebate is slowly tapered down until it reaches the price of $450,000.00 at which point the purchase price is too high for a rebate. To calculate the GST rebate Please see my link to the GST rebate calculation form:

There are a few ways to add GST to the contract.

-The purchase price can include NET GST

-The Purchase price can include GROSS GST

-The Purchase price can add GST

For example.

Let say a new house you are buying is worth $280,000.00. You can either write in the contract $280,000.00 + GST, $280,000.00 plus NET GST or you can show the price inclusive of GST or inclusive of NET GST.  

So let’s look at how these 4 options play out;

Option 1 Price is Plus GST:

$280,000.00 plus 5% ($14,000.00) = $294,000.00 which is paid to the seller; But the buyer will still be eligible to obtain a rebate which in this case works out to 36% of the GST for a total of $5,040.00. So at the end of the day once the buyer pays for the house and gets their rebate back in the mail their end cost is $288,960.00.

Option 2 Price Plus NET GST with rebate assigned to the Seller.

$280,000.00 plus 5% GST (14,000.00) less 36% Rebate ($5,040.00) for a total of $288,960.00 which is paid to the seller. So in this Scenario the rebate has already been worked into the price. At the end of the day the buyer pays the same amount however in option 1 they have to wait for months to get their rebate of $5,040.00 back in the mail from the government and have to come up with that difference at closing, whereas option 2 they get credited for the rebate up front and do not have to wait for this rebate cheque.

Option 3 Price Includes GST

If the Price is $280,000.00 including GST, then to find the actual consideration it is as simple as dividing the purchase price by 1.05 which gives you a consideration of $266,666.66 Plus $13,333.34 for a total price of $280,000.00.the buyer is still eligible for a rebate which in this situation works out to $4,800.00 (36% of the GST). The buyer would then file the rebate form with the GST department and wait for a rebate a few months later in the mail. So at the end of the day once they receive their rebate the buyers cost works out to a grand total of $275,200.00.

Option 4 Price includes NET GST with rebate assigned to the Seller.

If the price is $280,000.00 inclusive of NET GST with the rebate assigned to the seller, then the breakdown is much different. We must factor into the price the rebate already. In this situation the consideration is actually $271,317.83 (as opposed to the option 3 consideration of $266,666.66) plus GST of $13,565.89 LESS the rebate of $4,883.72 which brings us back to the price of $280,000.00. In this scenario the seller assigns the rebate to the buyer so there is no rebate cheque coming back in the mail like the previous example, this rebate has already been factored into the contract.

So just by putting the words including NET GST as opposed to including just GST can make a $4,800.00 difference to the buyer’s bottom line. As option 3 works out to a cost of $275,200.00 after the rebate and option 4 ends up to a total of $280,000.00. If you have questions about GST please feel free to contact our office.

Reviewing The Title And Bylaw Contravention Notice:

Most contracts are subject to the purchaser reviewing and approving the title search to the property they are buying, if they do not, they should. This is a very important issue for a few reasons. The first is to ensure that the purchaser is aware of what they are buying and this includes the non financial encumbrances that are on title (as it is the Notary/ Lawyers’ job to ensure the financial charges are gone). Things such as right of ways, building schemes or covenants can all affect your client’s property and they should be obtained and reviewed by the client before removing this subject from the contract. Other important things to look for in the title search include BYLAW CONTRAVENTION NOTICES. These do not show up like the other charges on a title but instead are placed in the legal notations of a title search and are very easy to miss. A Bylaw contravention notice is usually placed on title by the City of Nanaimo that shows that the city is aware of an unauthorized suite in the building and that they may be knocking on the door in the near future demanding that it is removed or up graded to comply with building codes. It however may be something else (Like notice of a previous Grow Op) but this is usually what it is for. The city in recent years has been much tougher on known illegal suites and this could be a problem for the purchaser. The main problem is in obtaining mortgage proceeds. If a property has a Bylaw Contravention notice on title most banks will not fund the mortgage due to the fact that they have probably approved the mortgage on the fact that there is a mortgage helper suite. If the city orders this suite removed this would negatively affect the banks security and this is why they will not fund the mortgage. If subjects are removed and there is a Bylaw Contravention notice on title that has not been dealt with this could prevent the purchase from going through and your client could be sued for breech of contract at which point they will probably be going back to the realtor for remuneration. If a bylaw contravention notice is on the title search you must deal with this immediately by either getting it removed (which usually means the vendor must upgrade the property to conform with the city by laws) or getting your client to sign a form acknowledging that this is on the property to help protect yourself. You should also advise your client right away about what this means and what could happen if it is not dealt with and to make sure they advise their bank that this may be staying on the title to give them enough time to find a lender that is willing to accept this on the title.

Well & Septic

Depending on what bank the purchaser’s are using, a well and septic certificate may be required before the bank will fund the mortgage. It is thus important to ensure that these certificates are satisfactorily obtained before removing the subjects if your client is getting a mortgage. If this contract is subject free and the bank requires these and it is later found that perhaps the water quality is not up to standards or the septic field is damaged the clients may find themselves in a very difficult situation as they may not be able to get their mortgage funds from the bank and would be unable to complete the deal causing them to be in breech of contract and perhaps sued for damages and lose their deposit. If the property is on a well we highly recommend that you get the full test done which can take upwards of a week to get back, that tests everything from Arsenic to Zinc and everything in between.

Builders Lien Holdback

Builders Lien Holdbacks should be in place on every New Construction file where the occupancy Permit has not been issued for more than 55 days. This hold back needs to be for 10% of the value of the improvements. If you do not include a builder’s lien hold back provision worked into the contract, the buyer’s Notary / Lawyer cannot arbitrarily hold back this amount unless it is agreed to in the contract. Most lenders require this for their mortgage approvals and without a builders lien hold back you are placing your client at a risk of future liens being placed against their property. If however this is a strata property, then we can hold back 7% of the purchase Price as per the Strata properties Act, even if it is not in the contract. There is no need for a builders Lien Hold Back if the occupancy permit has been issued for longer than 55 days.