How to Guide Your Business Through a DivorceMay 19, 2012
Prudent Purchasers Should Examine the Title to Their Property (Continued)July 21, 2012
The Standard Residential Real Estate Purchase Contract was developed by the Alberta Real Estate Association and is used by most, if not all, licensed realtors to evidence the agreement between the seller and buyer. The contract identifies the three Ps of any residential sale/purchase contract – the parties, the property and the price.
As with any contract, there are numerous terms and conditions which should be examined or considered before the contract is signed.
Paragraph 1.5 of the Standard Residential Real Estate Purchase Contract states that: “Unless otherwise agreed in writing, title will be free and clear of all encumbrances, registrations and obligations except the following:
– non-financial obligations now on title such as easements, utility rights-of-way, covenants and conditions that are normally found registered against property of this nature and which do not affect the saleability of the property.”
Generally, it is assumed that the purchaser, after paying the purchase price, will obtain title to the property free and clear of any adverse registrations or encumbrances. The purchaser’s lawyer, once the transaction is completed, will normally provide the purchaser with a certified copy of title from the Land Titles Office showing the property is registered in the name of the purchaser. If the purchaser put on a new mortgage in order to complete the purchase, which is typical, the mortgage will be shown as a registration on the title.
There may, however, be other registrations on the title and a prudent purchaser would be wise to examine the title to ensure that these registrations are “non-financial obligations that do not affect the saleability of the property”.
What is the nature of these types of registrations or encumbrances, and are there circumstances where they might affect the saleability of the property?
Financial encumbrances or obligations are specifically identified as such (i.e. mortgage) and will identify the specific financial institution or mortgagee (i.e. Royal Bank). Careful examination of the title should be made to ensure that any financial encumbrance on the title relates to your liability or indebtedness and not someone else. Even once the mortgage or debt has been paid, the mortgage will not automatically be discharged. The bank will forward you a discharge of mortgage but it will be your responsibility to register the discharge at the Land Titles Office. It is not unusual to find a mortgage or caveat filed by a financial institution or mortgage company still on the title, even though the debt has long since been paid.
The Land Titles Act allows anyone who claims an interest in the land to file a caveat against the title. The word caveat means “let him beware” and it is a warning to anyone searching the title that the person filing the caveat, or caveator, is claiming some form of interest in the property. The claim must relate to an interest in land and must identify the nature of the claim being made with reasonable certainty. For example, a purchaser under an agreement for sale may file a caveat against the property being purchased to give notice to everyone that the property is being or has been sold. Likewise, a person who has an option to purchase property or who has a right of first refusal will usually file a caveat to protect their interest. These types of registrations are financial encumbrances and clearly affect the saleability of the property.
A prudent owner or purchaser should examine the title to property owned, purchased or being purchased, and reasonable inquiry should be made as to the nature and extent of any registrations that may appear on the title.
In future we will examine other non-financial encumbrances that might appear on your title – easements and UROW’s.