You’re buying a home!

This article has been written with the intention of providing you with basic information regarding the legal aspects of your home purchase.  The information provided should not be considered as legal advice, but merely a resource to help you understand more about your pending purchase.  If you have specific questions, you should speak to a lawyer.

When is a Lawyer Required?

Your real estate agent will do most of the preliminary work involved in the agreement to purchase your house.  If and when you are ready to place an offer on a property, your real estate agent will sit down with you and draft an “Agreement of Purchase and Sale” that will also act as an offer to purchase. 

Just remember that you will always have the option of asking for assistance from a lawyer during this first stage.  Certain issues may arise or conditions may be added to the Agreement that you may want to run by your lawyer.

That being said, it is usually not until the owner of the property (the “Vendor”) has signed the Agreement and agreed to its terms (or you have accepted their counter-offer) that the Agreement becomes one that is legally binding.

It is at this point that your lawyer will get involved.

What Will Your Lawyer do for You?

Among many other things, your lawyer is responsible for ensuring that the legal title for the property is good and that you get what you contracted for.  As well, your lawyer will also guide you through the terms and conditions of the Agreement of Purchase and Sale, and ensure that title is properly changed from the vendor to yourself (the Purchaser).  If you are getting a mortgage, your lawyer will also prepare the mortgage based on the lender’s instructions.

What is a Mortgage?

Many people tend to take mortgages for granted. From one aspect, a mortgage is merely a contract allowing you to borrow money, while at the same time using your property as collateral.  From a legal standpoint, a mortgage is a document that transfers or “conveys” an interest in your property.  After you have signed the mortgage, the bank actually owns a legal interest in your property.  You will own what is called an “equitable interest”.  This is of course why we say that a property owner has equity in their house.  Under the terms of the mortgage, you reserve a right to have that legal interest given back to you when you have paid off the mortgage, by way of a Mortgage Release.  You should also keep in mind that most lenders allow you to pay back as much as 15 % to 20 % of your mortgage in one lump sum payment without a penalty.

Do I Need a Survey?

It is not usually necessary to obtain a full survey of your property, which can be expensive, in a normal house purchase.  You should, however, confirm that the house, garage and driveway are actually within the boundaries of the lot.   If you are getting a mortgage, your bank will want to see a location certificate or surveyor’s certificate to ensure that the house is indeed within the boundaries of the lot.

A common practice is to examine a location certificate that was done for a previous owner, and comparing that to your observation of the property now.  While this will be at no cost to you, relying on old location certificates can be dangerous.  If anything is wrong with an old location certificate, you do not have any legal recourse against the surveyor, since it was not you who ordered the survey.

If a location certificate does not exist and you need one for your mortgage, you can do one of two things.  Order a new location certificate or get title insurance.

What is Title Insurance?

As it sounds, title insurance exists to insure over any perceivable risk to the title of your property.  Such risks include wandering boundaries, errors in a survey, zoning problems, some conflicts with the municipality over taxes, errors resulting from a title search and more recently, fraud.  Faced with the possible cost of the unknown, the one-time cost of purchasing title insurance may be a good idea.  Every property lawyer has at least one horror story that would have been solved with a title insurance policy.

The Land Registration Act        

Nova Scotia has now implemented a new process for registering property-related documents.  If you are selling or refinancing your property, you may have to transfer or “migrate” your property to the new Land Registration System.  Only a lawyer authorized by the province can do this. 

If you are purchasing a property, you will not have to worry about migrating that property as it will already have been done by the seller.  As well, a title search is no longer required to be done by your lawyer, with the exception of a quick search to ensure that the property has been migrated properly.

What are My Closing Costs?

Closing costs are those expenses or costs that the purchaser is responsible for paying that are over and above the base purchase price of the house.  When deciding how much you want to offer on a property, you should also think about the closing costs that you will have to pay.

Such closing costs include, but are not limited to:

Harmonized Sales Tax (HST):

HST is not usually paid on a used residential home purchase, with some exceptions.  You will usually have to pay HST on the purchase of a building lot or a newly-built house.  If you have any questions about whether HST is involved, consult your agent or lawyer.

Deed Transfer Tax:

This is usually the largest of the closing costs.  Depending on the municipality in which you are purchasing, the deed transfer tax will be calculated by multiplying the purchase price (before HST, if any) by the applicable tax rate.  In Halifax for example, the rate is 1.5%.  If you are purchasing in another county or municipality, your lawyer or your agent can provide you with the applicable tax rate.

Recording of Documents:

The deed transferring title to you must be recorded in the Land Registration system.  If you are getting a mortgage, this will have to be recorded as well.  Currently, the cost of recording a document is $74.50 per document.

Property taxes:

It is generally accepted practice to pay all outstanding property taxes upon closing.  The portion of these which are attributable to the seller up to the date of the closing, are paid by the seller and the purchase price is adjusted (reduced) to account for this.  If the vendor has pre-paid the taxes, they will be given a credit for the number of days that they have owned the property up to and including the closing day.  The purchaser will then be responsible for paying the taxes after the closing day.  Accordingly, the purchase price will be adjusted to reflect this.

Fuel Oil Adjustment:

As is the case with property taxes, the vendor must be credited for the oil that is in their oil tank (if they have an oil-fired furnace).  Generally, this adjustment is determined by multiplying the going market rate for home heating fuel by the volume of an oil tank which is usually 909 litres.  The result of this calculation is added to the purchase price unless agreed otherwise.

Legal Fees & Disbursements:

Give us a call for a quote on your legal fees.

IMPORTANT!!!  Are you Currently Renting? 

If you are renting an apartment and are planning to purchase your first house, make sure that you can get out of your lease before you sign an Agreement of Purchase and Sale.  If you have a year-to-year lease, try to convert the lease to a month-to-month lease, or arrange to have the closing date as close to your rental anniversary date as possible.