“Money, that’s What I Want” – A Guide to Your Cash and Closing A Real Estate Deal – Pt.1

Money can cause stress for purchasers and vendors alike when buying property.  Purchaser want to know that there will be no delays in getting possession, but want to minimize interest costs and charges.  Vendors want to know that the deal is done, that their mortgage is paid off, and that they have their equity in their pocket. 

These transactions take time, and in this era of instantaneous service delivery, expectations sometimes do not meet the reality of current methods of closing. This two part post explains first what buyers need to know about the timing and receipt of money related to their transaction.  In the second installment, we review the same information for the vendor’s side.

Why are lawyers important in a real estate deal?  One of the big reasons is trust conditions.

The trust conditions and undertakings imposed or provided on or by your lawyer are one of the main drivers that will determine when your lawyer will need the money related to the deal. At the risk of oversimplification, these trust conditions are in place to ensure that the buyer and its lender have the title that they were promised while ensuring that the vendor gets paid as soon as is reasonable. Failure to abide by these conditions has significant professional implications for the lawyers involved.

The trust conditions that a buyer’s lawyer gets from a vendor’s lawyer require him to have the extra money, other than mortgage funds, prior to using the transfer documents to close the transaction.  Some specific excerpts from the trust letter:

In short, once I accept these conditions, I MUST pay the “cash to close” to the other lawyer (usually on the same day as possession). 

So what does this mean? It means I need the remaining money in my office with no conditions attached to it before I can move the deal along.  I can’t ‘expect’ or ‘believe’ that money is coming.  I can’t have the money, but be instructed by you that I cannot use it until some event occurs.  I need to have it, free and clear.  Because if something happened unexpectedly and the money did not show up, it would not just be your deal on the line — it would be my professional reputation. 

It means I can’t close the deal on the basis that I should be getting money from the sale of your existing property.  There is a risk in every sale, until it is closed completely, that you will not get paid. Your sale needs to close in its entirety before I use that money. That includes the deposit that we may be holding, or the cash received as the transaction is in the middle of closing.  If you need to use this money (like a same day sale and purchase) then you NEED to get bridge financing. Otherwise, we may have a problem closing the deal. Even purchases that close a few days after the sale of an old property can cause problems without bridge financing.

Until I accept the trust conditions, I cannot use the transfer documents.  If I cannot use the transfer documents, I cannot transfer the property and register the mortgage.  If I cannot register the mortgage in time, I may be unable to request mortgage money for your possession date.  If that happens, interest will normally be charged from the possession date to the date of payment.

Sometimes, individuals are upset when we need to pay interest on the funds that were not paid on the possession date.  These charges are often quite small, especially in the context of the transaction, but individuals hate paying for these extra costs.  To attempt to avoid these costs, you should ensure that your lawyer has the mortgage documents with sufficient time to get them prepared, and you should ensure that the lawyer has all of the information and money that he or she requires to meet mortgage conditions and all trust conditions.  Land titles takes, on average 2-3 business days to complete a transfer.  AT A MINIMUM, the funds should be in their office three or four days prior to possession if trying to avoid these charges.  I’d prefer a week in advance. Specific deals or specific lenders may require money in earlier than that time frame. 

At times, there are ways to speed up payment if money is received closer to the possession date but there are also risks involved with those methods.  We can use title insurance or the Western Law Society’s Conveyancing Protocol to request money sooner.  You should discuss these options with your lawyer to see if they are right for you.    

This article reflects some general practices for me.  Other lawyers may be different, or even special cases with me might be different. Also, please note that your lender may have other timing requirements regarding your down payment, and you should discuss with your mortgage professional what those requirements will be.