Topics include: Adjustments on closing, Tarion, The Status Certificate, Insurance (Home owners’ insurance, Condominium owners’ insurance, Mortgage insurance, CMHC insurance and Title Insurance)
ADJUSTMENTS ON CLOSING: This term is found in all agreements of purchase and sale. When a deal is closed all costs with respect to the property are deemed to be the responsibility of the buyer commencing on the day of closing. The most common item requiring an adjustment is property taxes. We make a determination of what the taxes are or are expected to be for the calendar year. We determine the number of days of the year that have passed up to the day prior to closing. We determine how much is charged for taxes per day and by multiplying the daily rate by the days the seller owns the property we determine what the seller’s share of taxes for the year will be. We than compare this amount with the amount the seller has actually paid and if the seller’s payment is less than his share the buyer will receive a credit or reduction in the balance due on closing to cover the balance of the seller’s share. Conversely, if the seller has paid more than his share the overpayment will be added on to the purchase price.
If the property is a condominium the monthly maintenance fees or common expenses will be adjusted in the same manner as property taxes, except that the current monthly charge is used to calculate the adjustment.
If the property has a tenant, rent and last month’s rent (if paid) are adjusted in the same manner.
If the home is heated by fuel oil or propane the seller will have the tank topped up on the day of closing and the buyer will be charged for the cost of a full tank, plus HST, as the fuel is not included in the purchase price.
Utilities that are metered such as hydro, water and gas are dealt with by the seller having the meters read on the day of closing and paying the final bill for consumption to that date. Therefore no adjustment is required.
If the property is a brand new home or condominium in addition to taxes (usually just the vacant land component) are adjusted in the same manner. However, builders typically use the term adjustment to include any charges that your contract states you will pay in addition to the purchase price. The items included in this category are limited only by the builder’s creativity. Typical charges will include the Tarion enrollment fee, the cost of meters and utility hook ups, tree planting fees, levies (charges imposed by the town and region where the property is located), increases in existing levies, certain of their lawyers expenses, mortgage discharge fees, the cost of a blue box and the list can go on and on from there and HST will be charged on top of these adjustments. Be certain to get dollar amounts for any such charges referred to in your purchase agreement or you will have no way of determining what you will have to pay on the date of closing. Until very recently these types of charges could be found just about anywhere in the agreement. Now builders are required to list all such charges on schedule B to the Tarion pages that form part of the agreement. However there are transitional provisions that permit builders to use the old method for pre-existing projects.
TARION is the current name for the warranty plan that covers new homes and condominiums purchased from a builder. All builders must be registered in this program and the warranty is mandatory.
The warranty protects deposit money paid, up to certain limits. ($25,000.00 for condominiums and $40,000.00 for freehold homes)
It will ensure you receive compensation for delayed closing costs up to a maximum of $7,500, if the builder extends the closing date and does not provide you with sufficient notice as required by Tarion.
It warrants materials and labour with respect to minor matters for up to one year from the closing date (Occupancy date in the case of Condominiums). It covers systems and water penetration for a period of two years and major structural issues for up to seven years.
The cost of the warranty is normally paid by the buyer. The amount charged is based on your purchase price.
For complete information on the Tarion program and other matters related to new home or condominium purchases I suggest you go to their website http://www.tarion.com/Pages/default.aspx .
THE STATUS CERTIFICATE
If you are considering purchasing a resale condominium your agreement of purchase and sale should always be conditional upon the seller providing you with an up to date status certificate and having an opportunity for your lawyer to review it before your transaction is a firm deal.
The status certificate is prepared by the Condominium Corporation and provides you with a considerable amount of information that you need to be aware of before deciding to go ahead with your purchase.
It will tell you if the seller is up to date with the payment of the common expenses as well as the current amount being charged.
It will show how much money is in the reserve fund and contain a copy of a summary of the most recent reserve fund study.
It will contain budget information, recent financial statements and a copy of the condominiums insurance binder.
It will provide a copy of the condominium documents; including the Declaration, By Laws and Rules such as whether pets are permitted.
It will let you know how many units have provided notice that they have rented their condominium to tenants. It will also confirm whether permission was given to do any work affecting the common elements relating to your unit.
Normally the seller pays for this document. The cost is $100.00 and it provides a wealth of information you must consider before deciding to buy.
You must purchase the insurance that is appropriate for the property you are purchasing. If you are buying a freehold property it will be referred to as Home Owner’s Insurance. It will protect you from loses resulting from certain damages to you home, theft of contents or liability if someone is injured. If you have jewellery, collections or hobby equipment you may additional coverage to full protect the value of these possessions. If you are going to rent out your home you will need a special insurance for properties with tenants. Insurance policies are very complex and should be reviewed in detail with your insurance broker. Generally you will get the best rate if you insure your home and vehicles with the same company. In the case of a freehold property, if you have a mortgage or secured line of credit the lender must be named in the insurance policy. Your lawyer will require proof of home owners insurance when a mortgage is to be registered on your property.
If you are purchasing a condominium you will also require your own Condominium Owner’s Insurance. Even though the structure is insured by the Condominium Corporation the interior of your unit will require your own insurance. In addition, it will protect your contents and provide you with liability coverage.
Mortgage Insurance and Disability Insurance are generally offered by most major banks. The purpose of this type of insurance is to pay off your mortgage in the event of the death of an insured party, or to make payments in the event an insured party is disabled and unable to work. If you are considering this type of insurance I recommend you shop around as you may find a life insurance company that offers a better premium or you may decide term insurance is adequate to provide the protection you desire. With bank issued mortgage insurance it is only the particular mortgage you have that would be paid off by the insurance proceeds. If in the future you became uninsurable you would not be able to change your mortgage company and retain the protection of your mortgage insurance.
CMHC Insurance. I will only mention this briefly to ensure you don’t think it protects you in anyway. When you purchase this insurance you receive no protection. It is designed only to protect your bank. If you are unable to make your mortgage payments and the bank takes your property away from you and sells it and in the process they lose any money the lost will be repaid to the bank by this insurance and the insurance company will then come after you to collect payment of the sum it paid to the bank. This insurance is mandatory if the mortgage you are arranging is for more than 80% of your purchase price. You must have a down payment of at least 5% of your purchase price to obtain this insurance. The amount of the premium and sales tax will be added to your mortgage debt and you will be charged interest on that sum until the mortgage is paid off. For more information see http://www.cmhc-schl.gc.ca/en/co/moloin/index.cfm
I believe it should be purchased by all home purchasers. I will be adding more comments at a later date.
For further general information see http://www.fsco.gov.on.ca/en/insurance/brochures/Documents/undstitins.pdf