“Show me the Money” – A Guide to Your Cash and Closing a Real Estate Deal – Pt.2

You sell your house.  You’ve listed it.  You negotiated offers.  You waited on conditions being met and waived.  You’ve packed, and cleaned, and moved.  I mean, you love the place, but the most important issue you are thinking about:

We look at the standard trust conditions that the deal closes under to get the answer.  We discussed trust conditions in part 1 of this post.  In simplified form, they say that the buyer will give any money in excess of the mortgage funds, that he will request the mortgage funds when the transfer registers in land titles, and give it to your lawyer when received.  However, the vendor’s lawyer is confirming that he will return the money if title doesn’t register in the buyers name.  There is a lot more detail in the actual trust letter however.

Provided we have all the information we need to pay out your existing debts, you get your money under two different scenarios:

(1)  When the title transfers to the buyer and the buyer’s lawyer has received the mortgage money and transferred it to your lawyer, or;

(2)  When the buyer’s lawyer closes under alternative means, like gap coverage under title insurance, and the funds are immediately releasable (provided that the trust conditions allow for that – talk to your lawyer for more details).

What you will note is that in either of these cases, I did not say “the possession date”.  There is no guarantee that you will have your money on the possession date under the standard trust conditions.  Your lawyer may get none, some or all of the money owing to you on the possession date.  The money obtained may or may not be able to be released to you.  It depends on how they modify the standard trust conditions to meet their own practice, or their client’s preferences. 

The real estate agent’s standard contract and most fill in the blank forms allow for interest to be charged from the date of possession to the date the funds are paid.  This is intended to be compensation for the late delivery of funds.  Different lawyers will have different approaches on if or how they will accept money that is delivered to them before it can be released to their client.  The lawyer’s practice will be a balance of risk of not holding onto money against the maximization of interest following the possession date. 

Yes, there is, but there are risks on both sides of the transaction. You should discuss with your lawyer the risks, but understand that this is manner in which the vast majority of residential transactions are closed.  The risk for the vendor in the trust conditions is at the funding stage of the transaction.  It is possible that when the vendor’s lawyer has done all that they are required and ask the lender to fund the mortgage, that the lender will not do so.  The vendor will not get paid until other arrangements are made. This could include investigating the problem with the lender and correcting it, or negotiating a transfer back of the property that was sold to the vendor.  The failure to fund is not common, but can occur on a rare occasion.

The major risk for the buyer is that the commitment to deliver all of the money held by their lawyer and obtained from their lender will need to be given before they are provided possession to the property.  In some cases, this means that several months could have elapsed from when they have last seen the property and when they are committing to pay for the property in full.   Between the normal wear and tear of a property and the unusual and unexpected damage that can occur in that time, the house may not be as they recall. 

Here are some helpful hints to assist in the timely delivery of funds:

·      Give your professionals (and the buyer’s professionals) enough time to process the transaction.  If the turnaround from condition removal to possession is really tight, it may impact your receipt of funds.

·       Once the deal is finalized, work with your lawyer to get all documentation signed as the vendor on a timely basis.  Sometimes the delay in receiving the money is because vendors do not provide the transfer documents with sufficient time to close.

·       Your lawyer will get a final payout statement of the debts that need to paid after the sale.  Sometimes lenders can be slow in providing payouts, despite numerous follow ups.  If your mortgage company has not provided a final payout of your mortgage, line of credit, bridge financing or other item that needs to be paid out to your lawyer, sometimes a personal call to your bank representative can help grease the wheels of communication.

·       Make sure that you have provided clear directions on what to do with the money.  Sometimes the delay lies in not knowing what to do with the money.