Role Of The Lawyer In A Real Estate Purchase In Ontario
THE ROLE OF THE LAWYER IN A REAL ESTATE PURCHASE
The purchaser’s lawyer’s role is to protect you, the buyer, throughout the transaction and ensure that you obtain a good title to your new property. Traditionally, the purchaser’s lawyer also represents your mortgage lender’s interests in preparing and registering the documents per your mortgage commitment. At the end of the transaction, you and the lender each receive a report from your lawyer.
WHEN DO I RETAIN MY LAWYER?
Note: (Retaining a lawyer means hiring them. When you decide to buy real estate, it is wise to have a lawyer in mind who you want to hire.)
As soon as you have a firm Agreement of Purchase and Sale for your property and all the conditions have been satisfied, you or your Realtor should get all of the legal “papers” into the lawyer’s hands so that the lawyer can begin preparing documents, and can start the time-sensitive searches including the title search.
HOW DO I SELECT A LAWYER?
Ask your family and friends to recommend a lawyer who has given them good service. Or, ask your Realtor for a list of reliable real estate lawyers. At this stage, many first-time buyers make the mistake of asking only about professional fees, as if they are getting quotes for a standard consumer product such as an appliance, and the lowest price is all that matters. But remember that legal fees are relatively low with your new property’s cost and that the fees do not vary much from one law firm to another.
You want a law firm that will give you good service. Why would you accept poor service to save $200.00 on a purchase of $500,000.00? Use the initial interview to assess the law firm for basic courtesy and professionalism and to probe for information:
- If I retain your firm, what exactly are the next steps?
- What is the lawyer’s experience?
- Will I meet the lawyer personally?
- Will you keep me informed as the transaction progresses?
- May I phone you from time to time for progress reports or advice?
- When will you tell me about the final closing costs?
- When do you require me to bring in the funds?
- Sign the papers?
- How soon after closing will I get my reporting letter?
LEGAL FEES, DISBURSEMENTS, “ADJUSTMENTS,” CLOSING FUNDS.
Your lawyer should quote a block fee for professional services for all aspects of the transaction. Expect this figure to be firm unless something unusual happens, such as a Court application. Your lawyer should also estimate the disbursements, which are the lawyer’s expenses over and above fees. “Disbursements” include the Title Insurance premium, the cost of a title search, government charges to register documents, Land Transfer Tax, HST, courier charges, and the like.
Your lawyer can also prepare you for Adjustments on closing. Here are two examples of “Adjustments”:
- The seller has paid municipal taxes for the entire calendar year, and your purchase closes July 1 – you, therefore, owe the vendor on closing a reimbursement of one-half the year’s taxes;
- The seller paid the condo fees a month in advance.
- Or consider the following, which is not strictly an “adjustment” but is an additional closing cost that may be an unpleasant surprise: you have selected a high-ratio mortgage with mortgage insurance to protect the lender; the lender deducts the insurance premium from the mortgage, reducing the available money for closing.
Usually, your lawyer will have you bring in one certified cheque or bank draft the day before closing to include the lawyer’s fees, disbursements, and the balance due on closing. (Note: Depending on the mortgage holder and law firm, this may already be done for you.) Those funds will be placed in the lawyer’s trust account and the mortgage advance and used to close the transaction.
Insist that your lawyer provide you with an exact figure well before the Closing Date.
WHAT DOES MY LAWYER DO?
You should expect your Realtor to prepare the Agreement to a high professional standard in a way that protects you. Your Realtor should have read and explained all the clauses to you.
In the Purchase and Sale Agreement, your lawyer will look primarily for clarity in the conditions inserted to protect you, the purchaser. Some purchases may be conditional upon a satisfactory property inspection and mortgage financing (even if you have a pre-approved mortgage – the lender may still want to appraise the house).
If a condominium, your lawyer will request and examine the status certificate; see buying a condo for more information.
Every rural purchase should be conditional upon proof of potable water and a legal septic system. Each condition should be clear about the time for fulfillment, whether it may be waived, what notice must be given if the condition is satisfied, not satisfied or waived, and the consequences.
Once the Agreement of Purchase and Sale has been signed in identical form by both the vendor and purchaser. Once the conditions have been met, your lawyer has a limited time to complete the legal work, such as searching for titles and preparing documents.
Be sure you or your Realtor gives your lawyer a copy of the Agreement of Purchase and Sale along with any waivers, fulfillments and amendments as soon as possible.
Your lawyer will arrange Title Insurance. (Great link explaining title insurance from the Financial Services Commission of Ontario) Title Insurance is not a substitute for a title search, which your lawyer must perform in any event. Title Insurance aims to give you insurance protection for title defects that your lawyer might have missed and for any other defect that would not typically be revealed by a title search, such as a survey problem or a technical violation of a zoning by-law.
You pay a one-time premium on closing. In most cases, the Title Insurance premium cost is more than offset by the expense of searches your lawyer will not have to perform because the potential problems are insured.
The most notorious of these disbursements, made unnecessary by Title Insurance, are the fees formerly charged by a municipality to write a letter confirming that it has no record of a zoning violation or a property standards violation on your property.
Your lawyer will prepare the closing documents, including the transfer (deed) and the mortgage. In London, the deed and mortgage are created and registered electronically rather than on paper. That means the “closing” will occur in your lawyer’s office, not the Land Registry Office.
The money and the keys are exchanged between the vendor’s and purchaser’s lawyers by courier under an “escrow” agreement. Your lawyer can give you the keys only after the electronic registrations are complete. The money is in the hands of the vendor’s lawyer – usually by the mid-afternoon closing date.
WHAT IS A SURVEY, AND DO I NEED ONE? WHO PAYS FOR IT?
In a real estate purchase, the only “survey” that counts is one signed and sealed by an Ontario Land Surveyor. That shows the boundaries of your property, along with the location of the buildings, fences, and other physical features. If you have retained the surveyor and paid his professional fee, you have a claim against the surveyor for any inaccuracy. An engineer’s sketch is not a survey nor a copy of the subdivision plan.
Typically, the vendor’s only obligation is to give the purchaser a copy of any document in the vendor’s possession. Your Realtor should try to find out what is available before you sign the Purchase and Sale Agreement. You can then decide whether you want the additional expense of a new survey.
For most new construction, relatively new resale houses, and most properties created by severance of an existing building – there is likely some survey document available that may give you helpful information if not complete legal protection.
Many people will tell you that a survey is unnecessary because of Title Insurance. This is partly true – if you have Title Insurance, your mortgage lender will not insist on a survey. But remember that you have higher personal and legal interest in the property than your lender. Knowing exactly where the foundation and fences are related to the lot lines before buying the house may benefit you, not after trouble arises.
Your best protection is a new survey prepared on your behalf by an Ontario Land Surveyor who reports to you and to whom you pay a professional fee. The lesser and cheaper protection is for the vendor to give you whatever survey they have, “updated” by an affidavit prepared by your lawyer. The vendor declares that the property has not changed since the survey date. You may find this sufficient in conveying helpful information, although you may have no recourse if the information is inaccurate. Or you may decide that since you have Title Insurance, you do not require any survey.
Whether or not you wish to incur the expense of a new survey is your decision.
“Insurance” will arise in many forms on your purchase. First, your lawyer will ask you to arrange Property Insurance, insuring the house against fire and other perils, and to provide such proof before the closing date. Ask your Insurance Broker for a “Binder Letter” to prove that your insurance is in place as of the closing date and that the policy will show the interest of you as owner and your mortgage lender as the first mortgagee. For this, you will need to provide the exact name and address of the mortgage lender.
If you have a high ratio mortgage, Mortgage Insurance (CMHC) will protect your lender against default, for which you will pay a significant premium customarily deducted from the mortgage.
Mortgage Life Insurance has obvious benefits – it may be a great relief to you or your dependents if your mortgage is repaid following your death or the death of a co-mortgagor. However, it would help if you compared premium rates charged by your insurance broker for ordinary term insurance before deciding whether to take the mortgage lender’s group insurance plan.
Adjustments. Your purchase price is “subject to the usual adjustments,” which you should review with your Realtor and lawyer to avoid surprises. Examples are fuel oil and prepaid municipal taxes. It would help if you were alert for additional closing costs, such as a Mortgage Insurance premium.
Agreement of Purchase and Sale. This is the offer to purchase document in your transaction, prepared by your Realtor in the form of a Purchaser’s Offer. It may pass back and forth between the parties as counter-offers; once it has been signed in identical form by the vendor and purchaser is a contract binding upon them both.
Disbursements. These are your transaction expenses over and above legal fees, including the Title Insurance premium, the cost of a title search, government charges to register documents, Land Transfer Tax, HST, courier charges, and the like. These charges are incurred by your lawyer and are usually payable by you on the closing date.
Closing Date. The date stipulated in the Purchase and Sale Agreement for the purchase to be completed: your money is exchanged for the possession (keys), and the documents are registered. Remember that the closing may occur at any time during that day, and it is more likely to be mid-afternoon than first thing in the morning. Discuss this with your lawyer to know when to expect the key.
Title Insurance. Your lawyer arranges title Insurance through the Lawyer’s Professional Indemnity Company. Title Insurance aims to give you insurance protection for title defects that your lawyer might have missed and for any other defect that would not typically be revealed by a title search, such as a survey problem or a technical violation of a zoning by-law. You pay a one-time premium on closing, and your lawyer can explain to you how this represents a cost-saving as a result of other disbursements avoided.
Survey. A building location survey is a sketch prepared, signed and sealed by an Ontario Land Surveyor and a written report. It shows all the essential physical features of your property, including the building foundation and the boundary line.
Note: The above was compiled by a lawyer a few years ago( yes, I have plagiarized this, if I could remember who the lawyer was, I would gladly credit them), which I have edited. I am not a lawyer, so, as a layperson and someone who has been around the block a few times; (an owner and Broker of Record of a Real Estate Brokerage), the above is my responsibility to get legal advice from a lawyer and real estate advice from me!
Over the years, I have worked with over 100+ lawyers in the London area, and when my clients ask me for a referral, I usually give 2-3 names for them to select. As I am prompt, on time, dot the i’s and cross the t’s, I expect the law firm to do so.
Buying or selling a home can be stressful without you worrying about how efficient or thorough your lawyer is. Upon a successfully accepted offer, at no extra charge, we forward and submit the paperwork to your lawyer and follow up to ensure that nothing has fallen through the cracks and that the lawyer and their staff are aware of important dates and conditions.
I have always said that the purchase or sale is the easy part; it’s the follow-up with details that separate a top-notch Realtor and the masses!