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The purchase of a home by a first time purchaser can be an intimidating process filled with both excitement and anxiety. The stress associated with purchasing your new home can be relieved if you have some basic knowledge and understanding of the legal process involved.
Offer to Purchase
The Offer to Purchase or standard Residential Real Estate Purchase Contract will be forwarded by your realtor to the lawyer of your choice, who will do the necessary Land Title searches, property tax searches and other enquiries in order to ensure that your legal interests are protected.
You should notify your bank or mortgage company which lawyer you have retained to act on your behalf so that the mortgage instructions can be sent to him or her in a timely manner.
Joint Tenancy vs. Tenants in Common
If title to the property is being transferred into both names (ie. husband and wife), the lawyer will need the proper names of both parties and whether the title will be transferred to your names as Joint Tenants or as Tenants in Common. Most couples acquiring property together will want the title in joint names as Joint Tenants as opposed to Tenants in Common. Joint Tenancy has what is referred to as a right of survivorship which means that once the title has issued, if one of the co-owners dies the surviving co-owner will automatically become the sole owner of the property by operation of law. The title can be transferred or transmitted into the name of the survivor by submitting a copy of the death certificate and a simple affidavit to the Land Titles Office, at which time a new title will be issued.
Tenants in Common, conversely, has no right of survivorship such that the ½ interest of each owner will go upon death to his or her beneficiary according to their will.
Statement of Adjustments
Once the lawyer has the required information as to your description for the title to the property and has received mortgage instructions from your bank, he will request from the vendors lawyer the closing documents, which will include a Transfer of Land and Statement of Adjustments.
The Statement of Adjustments is a document that sets out the basic terms of the transaction including sale price, deposit, and any other adjustments, for example, real property taxes.
The Offer to Purchase typically provides that real property taxes are adjusted between the vendor and the purchaser as of the possession or completion date. Taxes are based upon a calendar year – January 1 to December 31 even though they are paid in the middle of the year (June 30). So for example, if the completion date is August 1st and the taxes have been paid for the full year, the vendor is entitled to receive a credit on the Statement of Adjustments representing the purchasers share of taxes from August 1 to December 31. This will be shown on the Statement of Adjustments.
Your lawyer should provide you with a Consolidated Cost Estimate that outlines your cash requirements to complete the purchase. It will take into account the deposit, the net mortgage proceeds of the new mortgage being registered and any other adjustments, for example, taxes plus estimated legal fees. Be sure to review this cost estimate carefully with your lawyer and do not be afraid to ask questions.
Real Property Taxes
The purchaser is responsible for paying the annual municipal property taxes. The bank or mortgage company (lender) will require that this be done as part of the covenants or promises contained in the mortgage which also include making the mortgage payment and keeping the property insured.
Most banks or mortgage companies will give an option to the purchasers (mortgagors) to pay taxes as part of the mortgage payment. This is referred to as a P.I.T. payment (principal, interest and taxes). Payments are made to the bank or mortgage company and a portion of the monthly payment (an estimated 1/12 of the annual taxes) is set aside into a tax credit account for the future payment of the annual taxes.
The mortgagors have the option rather that making a P.I.T. payment of paying the annual real property taxes directly to the municipality. Some municipalities (ie. City of Medicine Hat) have established a TIPPS program. This program allows mortgagors to arrange for a monthly debit of 1/12 of the annual taxes from their bank account. The City allows the taxes to be paid on a monthly basis over the calendar year without any penalty being incurred, notwithstanding that the annual taxes are due at the end of June in each year. If you decide to use the TIPPS program, the bank will likely require confirmation that you have enrolled in the program. You should talk to your lawyer regarding which option for the payment of the real property taxes is best suited for your needs.