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To Rent or To Buy
Posted on February 28, 2013

Q: I am presently renting an apartment and have the objective of purchasing my first home someday. I hear talk of interest rates being at an all-time low and that now is the time to buy. I have some money saved but I am not sure if now is the right time. What would you advise?

A: Although this falls outside the scope of legal advice, I have a wealth of exposure to this scenario so I can give you some food for thought.

Admittedly, the purchase of a home is probably the best investment you will ever make. In fact, for many, it is the only major investment many people will make in their lifetime. However, sometimes it still makes sense to rent.

Say for example you are renting at a relatively low rental rate. If you wanted to purchase a similar home, you may have to increase your monthly payments to cover a more expensive mortgage. In this case, it may not make sense to buy a home right now. That being said, because of the low interest rates, many people are finding that the cost of the mortgage is similar to the cost of rent. Then, you are certainly in a better position to consider purchasing. Another factor that you need to consider is that because there is a buying spree in the spring air, there is not as much inventory out there to choose from. In many cases, properties are being purchased for well above the listing price and there are bidding wars going on. This is not a great situation to be in if you are a first time homebuyer.

Renting makes even more sense if you were to take the difference you would pay in the augmented mortgage payments and invest those funds in a solid investment which will put you further ahead than if you purchased. You also have to consider that home ownership also includes property tax, utilities, insurance, hydro and upkeep. Most of these items are included in the price of your rental.

So, although you may be enticed by the idea of home ownership, you should weigh the pros and cons seriously. Admittedly, interest rates are low and are expected to go up soon so now might be the time to buy. However, my crystal ball is no better than anyone else’s so you will have to make a well researched and informed decision instead. Best of luck.
Tricky Line of Credit
Posted on February 28, 2013

Q: We recently applied for some additional credit with our bank that was going to be secured against our property. On review of the title, we discovered that the bank had already secured a line of credit on the house for almost double what our limit was. This effectively blocked getting any additional finances and jeopardized our cash flow as the additional funds were needed to address some pressing debts. How can we move forward with this situation?

A: Your problem is not all the uncommon. Often, when banks place lines of credit on a property, they will register the amount on title for a larger amount than what they are prepared fund. That way, if in the future, you need additional funds they can provide them to you and still have security over your property without having to register a new secured line of credit.

I would assume in this situation that your bank was not prepared to provide you with more funds so you proceeded to go to an alternate source of financing. In order for that secondary financier to be satisfied, that there was adequate equity in your home to protect their loan, they would want an amended line of credit registered on title that accurately reflected the actual amount they were willing to forward to you. This may take some time and will probably involve your lawyer but in the end, if you need the money you will have to follow the steps set out to satisfy your second lender.
The Changing Face of Co-Habitation
Posted on February 28, 2013

Q: We purchased our home in 2007 and at the time, my partner was not working and had limited resources to contribute to the down payment or the ongoing household expenses. We were counseled by our real estate lawyer that we might want to consider a co-habitation agreement. We seriously considered this document but felt the added costs were prohibitive considering we were already stretching our budget to make the down payment and to cover closing costs. Now, 5 years later, we are re-financing our mortgage and the issue has come up again. Luckily, our finances have changed and my partner is on much more stable footing and is contributing on an equal basis. What do you think we should do on a going forward basis?

A: As one might say, ‘you dodged that bullet’. The use of co-habitation agreements is most applicable and important when there is a difference between the contribution of the parties that purchase a property together. This is even more significant when you are common law partners because there are less stringent property division rules (although this is a moving case by case target). I think the approach you should take at this time is to attempt to document the historical contributions and both parties acknowledge that if the relationship were to break down in the future that there would be some form of equalization based upon the numbers.

In terms of co-habitation agreements, and in more general terms relationships, although we don’t want to over-analyze, over-document and suck the life out of exciting and often romantic events, one should always keep an eye on the ‘what if’s’ because your story could easily be one of conflict rather than congratulations.
Condo Special Assessment
Posted on February 28, 2013

Q: I am in the process of purchasing a condo and one of the components of the due diligence we complete is to have my lawyer review the status certificate. When she did so, she uncovered that the Board of Directors had issued a special assessment against the condominium as a whole. What does this mean and how will it affect my purchase?

A: When a condo Board issues a special assessment it is usually to make up for a shortfall in the reserve fund. This fund is used to maintain the common elements of the building and saves for a rainy day, for such large repairs as a new roof or work on the parking garage.

In your case, the Board would have determined the amount that the building as a whole needed to bring the reserve fund back into line and then provided a notice to each owner what their proportionate contribution would be. These payments are usually made in installments and could easily extend beyond your closing date. Therefore, your lawyer should determine what installments still need to be made and this amount should be deducted from the purchase price or adjusted for on closing.

Either way, because it was a charge that was declared before you took ownership, it should be the responsibility of the current owner.
Property Comes Up Short
Posted on February 28, 2013

Q: I recently put an offer in on a property which I am planning on tearing down and building a new home. The lot is nice and big but the house is nearly 60 years old, so basically, I was paying (quite a bit) for the land. The agreement set out the dimensions of the lot which is shaped irregularly. I signed the agreement based on these dimensions and then uncovered a survey that indicated that the lot was substantially smaller than the measurements set out in the agreement. What are my options?

A: In this day and age of houses being in short demand, a lot of people are turning to purchasing existing homes and based upon the lot size, planning to tear them down and build anew. Basically, you should be able to rely on the dimensions of your lot as they are set out in the Agreement of Purchase and Sale. If the actual lot size varies more than 7% less than it measures in the Agreement, you have a major argument on your hands. This is magnified by the fact that you purchased the lot, as opposed to the home as your primary goal.

You should engage your lawyer to determine if you want a release from the Agreement with a return of your deposit, a reduction in the purchase price based upon the decrease in the lot size or a litigation battle (which would be the least desirable of your options). Not a nice problem to be up against.
Family Problems with Refinancing
Posted on February 28, 2013

Q: My sisters and I are attempting to re-finance our family cottage with our Mom, who is having difficulty interacting and therefore we need to use our Power of Attorney for her signature. We approached the bank to increase the amount of financing on the cottage and they would not process the transaction at the bank. It was indicated that we needed to engage a lawyer to assist us with this process. We had the financing instructions forwarded to our lawyer and she attempted to perform her due diligence on the title to the cottage. It turns out that there are three portions and only two of them have the original Line of Credit on them while the third portion has another amount. To make matters worse, two of the portions are still in the old Land Registry system while one has been converted to Land Titles. Our lawyer says it is a mess and it will take some time and cost to clean it up. What can we do?

A: It sounds like you have a problem on your hands that is not going to be an easy fix. I can only surmise that along the way, when you were re-financing with the bank that they applied the secured Line of Credit to two out of three portions of the property. Realistically, all three portions should be under the same registration system in order to proceed with new financing.

It may have happened at the bank level when they refinanced or perhaps when one of your former lawyers set about to transfer the property. Either way, it sounds as though you need to head off on a fact finding mission to determine how to finish this process. You should engage the services of your lawyer to assist you. Unfortunately, this may be a costly process for which you may have no recourse.
Mortgage Closing Issues
Posted on February 28, 2013

Q: We recently sold our home and purchased a new one. Everything was scheduled to close the same day. We had an appointment with our lawyer the morning of closing and when we arrived, he indicated that the vendor of our new home had just informed his lawyer, and then him, that he couldn’t close because he owed more on the property than we were paying for the home. Our lawyer offered his advice that we should proceed with our sale and that we extend for a couple of days to allow the vendor the ability to raise more funds in order to pay his mortgage out. We are at a loss and wonder if you have any advice?

A: Well, the first thing you need to be aware of is that the sale of your present home and the purchase of your new home are not legally linked together. Therefore, if you considered not closing your sale so you had a place to stay while the new home was possibly ready, you are putting yourself at jeopardy of a law suit on the sale of your home.

Secondly, your lawyer should be able to give you a feeling for the proposed delayed transaction and if he had any indicators that the transaction was not going to close. Obviously, your lawyer cannot tell you without some hesitation whether he thinks you will close but there are a number of factors at play here. If the vendor’s lawyer suggested that he was almost certain that the vendor just needed a couple of days to get his finances straightened out, then you are much further ahead.

Your lawyer should insist that your out-of-pocket expenses are paid (hotel and storage of your worldly goods) as if you had moved the same day.

Extensions of closings happen more often than you might think. They are your lawyer’s worse nightmare so don’t think the calm exterior of your lawyer doesn’t have underlying jitter. Best of luck with a situation outside of the control of your lawyer and remember, you have hired him to work on your behalf, to do his best to get you into the home of your dreams (so don’t shoot the messenger).
Mortgages and Second Properties
Posted on February 28, 2013

Q: I am considering purchasing a second property as an investment but I am confused about financing (a mortgage) and also declaring my principal residence for tax purposes. What are the rules around this?

A: You should be engaging an accountant with respect to the tax issues and talk to your banker about the mortgage issues. However, I can give you some general information.

In Canada, you can only declare one property as your principal residence for capital gains tax purposes. This means that if you have two properties, one of them will be subject to capital gains tax when you sell it; for the amount that you have increased in the value of the property. This effectively amounts to 25% of the increase in the value, and you need to pay this tax the following year you disposed of the property on your tax return.

Financing a second property is a much more complex matter. There are new mortgage rules set in place by the federal government concerning mortgage fund ratios to investment and also the bank concerns about a property that will not be owner occupied. You should consult your financial institution before you consider purchasing at second property because you may find that they are not open to financing a second property for you even if you have a spotless credit rating.
Leaky Issues
Posted on February 28, 2013

Q: I rented a town house in Mississauga in June and in August of the same summer during a rain storm and water seeped into basement through the drywall. I reported the incident and the management fixed the problem. However, once again a year later, the same seepage happened and then re-occurred in September. The management agreed to fix the matter but nothing has happened.

I wrote to the property manager but there is no fix in sight and a significant portion of the space that I rent and pay for is unusable. Can I reduce my rent by the amount of space I am not able to use until there is a fix?

A: Funnily enough, although this may seem a question that a real estate lawyer should be able to answer, there is a specialization in law that deals directly with landlord and tenant law. In Ontario, there is the Landlord and Tenant Board (www.ltb.gov.on.ca/en/index.htm) which deals with all of these matters.

Although your natural tendency is to simply reduce your rent by the estimated amount of rental space you can’t use, I would consult this user friendly agency to get the answers on how to address this issue. I would hate for you to be found in default of your rent because you hadn’t paid the full rent and were now subject to eviction proceedings. Tread carefully.
Understanding ‘Land Only’ Taxes
Posted on February 28, 2013

Q: We recently purchased a newish home from someone who had bought the property six months ago. Once the dust settled, we started receiving tax bills from the municipality for ‘land only’ value. We attempted to contact our lawyer but he wasn’t available to explain what this meant. How should we approach this?

A: When a new home is built, the municipality usually has a ‘land only’ value for the property which is basically the value of the empty lot without a structure on it. Once the builder constructs your home the value of the lot goes up substantially for tax purposes. The issue at this point is that municipalities are behind in assessing the new value of the property and so they will often continue to issue ‘land only’ tax bills which are very comforting to the new owner but there is a hidden issue.

Once the taxing authority gets around to assessing the property and giving it the appropriate taxing value, they will retroactively go back and tax the property from the date it was occupied. This could not only mean the time that you have owned the property, but also the previous owner who sold you the property. This is something you will require the assistance of your lawyer and a wee bit of patience because people who no longer own a property, generally are reluctant to pay taxes.