Whether you are buying or selling residential property in Alberta, the services of a real estate lawyer are essential to the completion of your transaction. It is very common, even for seasoned property buyers, to be somewhat unclear as to what exactly their real estate lawyer does for them.
Let us walk you through the Real Estate Lawyer’s role in the purchase and sale of a property and provide some insight into common issues lawyers face in property transactions and how clients can help avoid these issues.
There is a significant amount of work that goes on behind the scenes in the lawyer’s office. Every residential real estate transaction follows a similar step by step process:
- 1) Receipt and review by the lawyer of the purchase and sale contract, property title and the loan instructions from the buyer’s lender (if applicable);
- 2) Contact the client, Realtor, mortgage agent, and lenders to retrieve information to complete the transaction documents;
- 3) Draft and finalize the transaction and loan documents;
- 4) Meet with the client to review the transaction and sign documents;
- 5) Provision of documents to the client’s lender and the lawyer for the buyer or seller for review and approval; and
- 6) Transfer of funds and title on the possession/closing date.
Ensuring the buyer of a property receives clear title is one of the fundamental roles of a real estate lawyer. “Clear title” means that, following the completion of the transaction, the buyer receives ownership of the property evidenced by their name on the title certificate, with no liens, debts or other registrations that the buyer does not wish to assume.
In order to achieve clear title, lawyers put each other under certain trust conditions. Most commonly, this includes using the purchase funds to pay off the seller’s mortgage, and any other debts of the seller associated with the property. Within a reasonable amount of time after possession, the seller’s lawyer must show the debts have been paid and provide a new title certificate to the buyer.
When a lawyer receives a client’s purchase contract, they first identify any registrations on title that may pose an issue or risk to the client. They also review other registrations that will remain on title and explain their impact. These may include development restrictions on building materials, fence heights, siding and paint colours and encroachment agreements or utility rights of ways running across or under the property. The lawyer will review the title again just before paying the purchase price on the possession date to ensure nothing has been registered just prior to closing.
If you are purchasing a property with a mortgage, the lawyer on your transaction will be tasked by your lender with preparing the loan documents on their behalf. There may also be numerous conditions attached to a mortgage for the lawyer to complete, including payment of a buyer’s debts, identifying potential debts on other properties owned by the buyer, and completion of interim or “bridge” financing documents. The lawyer is also responsible for ensuring the lender’s mortgage is properly registered to title, handling the funds on the lender’s behalf to complete the purchase, and providing a detailed report to the lender once the purchase is complete.
Timing is very important as the lender can require several days to receive and process the mortgage documents before they will provide the funds to the lawyer for the purchase. Sometimes a lender will change their requirements partway through a transaction, which can require paperwork to be re-done or last minute items to be provided by the client. Juggling the various needs and requirements of the lender and the client to complete everything in a timely fashion can be tricky, and generally it is the responsibility of the real estate lawyer to coordinate everyone involved so the transaction can proceed smoothly.
Nearly every residential real estate transaction requires adjustments to the final purchase price. This is to ensure any costs above and beyond the purchase price are adjusted on a pro-rated basis split fairly between the buyer and the seller. The most common adjustments include the following:
- 1) Property Taxes;
- 2) Condominium Fees;
- 3) Homeowner Association Fees; and
- 4) Tenant Rents and Damage Deposits
It is the duty of both buyer’s and seller’s lawyers to ensure that these items are fully paid, and multiple searches are conducted and reviewed by the lawyers on every transaction.
On the possession/closing date, the real estate lawyers are responsible for ensuring all conditions of the contract are satisfied, and that funds are transferred as per the purchase contract. Many last minute issues can arise on the closing date, including:
- 1) Discovering a debt or registration on the title to the property being sold;
- 2) Issues with damage that may have occurred to the property following the property inspection but prior to possession, such as broken windows, flood damage, wall or floor damage after furniture has been moved, broken appliances, and items or garbage left on the property by the seller;
- 3) Delays in funding the mortgage, last-minute requirements or document errors from the buyer’s lender;
- 4) Delays in moving out of the property by the seller; or
- 5) Issues with the Real Property Report or survey.
If one or more of these issues arise, the lawyers for both the buyer and the seller must work together to find a solution that protects the rights of both parties and ensures the transaction can proceed.
Ever wonder, what exactly does a lawyer in a real estate transaction do? To help answer that question, we have prepared a second instalment of our series with Dan Hawkwood, an Associate Lawyer at Beaumont Church LLP in Calgary. This time Dan explains a real estate lawyer’s role from unconditional offers to closing. Dan comes from a long line of farmers and ranchers in the Calgary area and brings the experience of his rural upbringing to his practice.