Buying a Home in Ontario—Some Frequently Asked Questions
By Jan Jaluvka
Do I need a lawyer when buying a home?
Yes. Absolutely. There are many legal issues connected with buying a home and many legal pitfalls which can endanger the unwary purchaser. Whether you are buying a new or resale home, you need to know that all these legal issues and potential problems will be properly handled on your behalf. You want to rest assured that when your purchase is completed and you take possession of your home, you have full legal ownership and that you got all that you bargained for. A lawyer can help guide you through the entire process of buying a home and ensure that your legal rights are protected.
When should I get a lawyer involved?
The simple and best answer is: As soon as possible. When buying a home, the sooner you bring your lawyer into the picture, the sooner he/she can start working to protect your interests. It is advisable that you see a lawyer before you as the home buyer sign the purchase contract. That way your lawyer can ensure the purchase contract contains the necessary legal language to protect you should things not turn out as originally expected. Your lawyer can insert certain conditions or escape clauses which would allow you to get out of the deal if, for example, you could not obtain the necessary mortgage financing or it turned out that there were serious problems with the physical condition of the dwelling which were not evident when you entered into the contract.
When it comes to buying a home, the old saying “An ounce of prevention is worth a pound of cure” applies in spades. Once you sign the purchase contract you are legally bound by the language it contains. If the contract language fails to protect you on a certain issue then it may be difficult or impossible to remedy the problem. In other words, you could be legally obliged to go through with the purchase and be stuck with the problem. On the other hand, if you had involved a lawyer who built the necessary safeguards to protect you into the contract language, you would be in a much stronger position, both from legal and negotiating perspective, should a problem arise prior to closing.
How do I choose a lawyer to represent me in my home purchase?
The important thing when buying a home is that you select a lawyer who is knowledgeable and experienced in real estate law. Typically, this is someone who does a lot of real estate work and has been around long enough to have developed the expertise required to protect your interests. A lawyer who devotes the major or a large portion of their law practice to real estate matters is usually a good choice. Friends or family may be able to refer you to such a lawyer based on their past experience. Don’t be afraid to speak with a lawyer to get an idea of whether he/she is the person you’re looking for both as a lawyer and as an individual you can trust and depend on.
Unfortunately, when buying a home, some people base their choice of lawyer solely upon the question of who will charge them the lowest legal fees. A choice of lawyer made in this fashion often works to the home buyer’s detriment. If the lawyer’s fees are too low, chances are you and your purchase file will not receive the necessary time and attention. There are many matters which a home buyer’s lawyer must deal with including various title and other searches and proper completion of the required closing paperwork. Doing a proper job requires knowledge, care and attention to detail, meeting critical deadlines and no corner cutting.
Buying a home is usually the biggest purchase a person will ever make. Does it really make sense to entrust such a major investment to a lawyer, based solely on whether you might save fifty or a hundred dollars in legal fees? On reflection, I think you'll agree that the answer is clearly “No”.
Which conditions or escape clauses should be included in my contract for buying a home?
The definitive answer to this question will depend upon a number of factors involving the particular home you are looking to purchase and your own unique circumstances. In other words, the answer will vary with each situation. For example, if you are going to need to borrow part of the money you will need for buying a home, then the purchase contract should include a condition (commonly called a “financing condition”) which would enable you to cancel the deal if you are unsuccessful in arranging mortgage financing on terms suitable to your particular needs and budget.
The inclusion of such a financing condition would be required even in the situation where you have been “pre-approved” by your bank or other mortgage lender for a mortgage up to a certain amount. Why? Because although the mortgage lender has approved you as a creditworthy borrower, it must also approve the particular home you are buying, in order to ensure the property meets its appraisal and other lending requirements. Without a financing condition in the purchase contract, lacking the necessary mortgage financing, you would be rendered incapable of completing the purchase transaction and would expose yourself to a possible lawsuit by the vendor for damages for breach of contract arising out of your inability to close the deal.
Of course if you are in the happy position of having enough cash available to complete the purchase without the need of mortgage financing, then you would probably not include such a financing condition in the purchase contract.
When you are considering the purchase of a “used” or resale home it is usually advisable to insert a condition which permits you to have the home inspected by a qualified home inspector in order to ensure the actual physical condition of the home measures up to your expectations and meets building and other code requirements. If the inspection reveals defects which are unacceptable to you, then such a condition (commonly called a “building inspection condition”) would allow you to get out of the transaction. On the other hand, if you are planning to purchase a new home from a builder, such a condition would be unnecessary since, you would normally be afforded the protection of the Ontario Home Warranty Program in this regard.
If you must first sell an existing home in order to have sufficient funds to complete the purchase of another home, you should include a condition in the purchase contract for the home you plan to buy allowing you sufficient time to sell your existing home (commonly called a “resale condition”). If your existing home doesn’t sell in time, you would be permitted to back out of the purchase transaction. Without such a condition, you would be rendered incapable of completing the purchase transaction and would expose yourself to legal consequences similar as those outlined above.
Depending upon the requirements of your specific situation, your real estate lawyer can help ensure that the language of the purchase contract works to protect your legal rights and financial interests.
What do I do when I have the opportunity to purchase a home “privately”?
This scenario usually occurs when the seller is selling a home without using the services of a real estate agent. All the information set out above would also apply to this situation. You would obtain from the seller the information which your lawyer will need to prepare an offer to purchase (purchase contract). Your lawyer will advise you as to the information required in this regard and once received, he/she will then be able to prepare a purchase contract with the necessary built-in legal safeguards to protect you as the buyer. The purchase contract would then be finalized by the buyer’s and seller’s lawyers and the transaction would proceed to completion in the normal course.
I’m planning to purchase a home in a different city from the place where I now reside. Should I choose a lawyer located here or there to complete my purchase?
If you're moving between cities in Ontario and your lawyer has the technological and other capabilities required to handle out-of-town transactions, then you could opt to employ a lawyer in the place where you currently reside to handle your purchase transaction. On the other hand, if you are moving from outside Ontario you will need to employ an Ontario lawyer in any event to complete the transaction for you and choosing a lawyer in your destination city would be logical decision. Even if you are relocating within Ontario, you may still find it more advantageous to deal with a lawyer in the city or town where you plan to relocate, especially if you wish to establish an ongoing relationship with a lawyer in that place.
I’m planning to sell my existing home in one Ontario city and purchase a home in another Ontario city. Can I have both transactions close on the same day?
If you require funds from the sale of your existing home to complete the purchase of the new one, it is not normally advisable to have the sale and purchase transactions close on the same day. Consider the following: The buyer of your existing home is legally obliged to complete your sale transaction sometime on the day of closing which, in practical terms, due to the hours of operation of the electronic land registration system, means sometime before 5:00 p.m. on that day. Even with the best of intentions and even when your buyer has no home sale which he/she must complete prior to completing the purchase of your home, things beyond your buyer’s control can occur to delay the closing until later in the day—things like mortgage funds arriving later than expected, unanticipated traffic jams etc. Stuff happens and it tends to happen all too frequently in such situations. If your buyer closes your sale at 4:55 p.m. (as is his/her legal right under the purchase contract) there will be insufficient time left for your lawyer to complete your purchase transaction. If the transaction doesn’t close before 5:00 p.m. then you may not get possession of your new home on that day and, worse still, you would be exposing yourself to the legal consequences of failure to complete as outlined above.
How do you avoid such a nightmare scenario? If you absolutely must have both the sale and purchase transactions close on the same day, then arrange a temporary loan from your bank (commonly called ”bridge loan”) to give you all the money you need to close your purchase on time on closing day. A bridge loan will normally cost you two or thee hundred dollars in interest and setup charges but it is money well spent, when you consider that it will buy you some peace of mind and can help avoid some big legal headaches. The other way of avoiding the nightmare is to schedule your sale to close on one day and your purchase to close one or two days later. This may or may not be feasible for you depending on time constraints and/or moving arrangements.
This article has dealt with some of the important legal issues involved in buying a home in Ontario. If you are considering buying a home you should obtain proper legal advice from a knowledgeable, experienced real estate lawyer.
For other legal articles dealing with real estate please see the following: Selling Your Home in Ontario, The Land Transfer Tax Rebate for First Time Home Buyers in Ontario – Do You Get It? and Why Use Title Insurance When Buying a Home?
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