Today, Jim Flaherty, Minister of Finance announced “further adjustments” to rules regarding NEW government-backed insured mortgages.  These rules will affect people who are currently looking to buy homes, sell homes, or refinance their mortgages.

The new rules are:

1.  Reducing the maximum amortization period from the current 30 year period to 25 years.  This means that buyers who need government-backed insured mortgages will qualify for smaller mortgages.

2.  Lowering the maximum amount Canadians can borrow when refinancing from 85% to 80% of the value of their homes.  This means that current home owners will still be able to do equity takeouts, but to a lesser degree.  An equity takeout is when a home owner refinances their mortgage and gets money back.  Please note that these are for government-backed insured mortgages, which is different from equity lines of credit where maximum loan-to-values will drop from 80% to 65% in accordance with the new OSFI rules coming no later than year end fiscal 2012 (October 31, 2012 for major banks).

3.  Fixing the maximum gross debt service ratio at 39% and the maximum total debt service ratio at 44%.  This means that buyers who need government-backed insured mortgages will qualify for smaller mortgages.

4.  Government-backed insured mortgages will be available only for homes with a purchase price of under $1 million.  This means that home buyers in the $950,000 – $1 million range with over 20% in cash will be able to push out buyers who need government-backed insured mortgages.

These changes in rules come into effect on July 9, 2012.  That means there is about two and a half weeks to take advantage of the current rules before the new rules come into effect.

My personal opinion on the strategic direction to take with respect to these rule changes are as follows:

If you are a home purchaser who needs a government-backed insured mortgage and will be affected by the new mortgage rules, go to the bank and get yourself approved immediately before July 9, 2012. In addition to your mortgage specialist, you should speak to your real estate agent to co-ordinate your home purchase.

If you are a home purchaser who does NOT need a government-backed insured mortgage (you will put 20% down or more) and will NOT be affected by the new mortgage rules, you may want to wait until AFTER July 9, 2012 to avoid competing with the crowd of home purchasers who will try to qualify under the current mortgage rules.

If you are a home seller, you may want to list your property as soon as possible to take advantage of a market that should have a larger cohort of buyers due to changes to the mortgage rules.

Lastly, if you are looking to refinance your mortgage and you will be affected by the change in mortgage rules, act immediately to get your refinancing done prior to July 9, 2012.  At any rate, if you are a responsible borrower, you may even want to get an equity line of credit established before the new OSFI rules come into effect as the banks may implement those changes before the deadline imposed by OSFI.

In the excitement and emotion of a condominium purchase, the condominium’s rules and financials are often overlooked.  After all, who wants to rummage through hundreds of pages of fine print?

As a prospective purchaser or owner, you do.

The condominium’s rules and financials will affect a tenant or owner for as long as that individual is living in the condominium.  The rules govern how the condominium is run and the financials show the health of the condominium and whether the monthly common expenses will need to be increased.

This information can be found in the condominium status certificate. When you purchase a condominium, you should ensure that you have a clause stating that your offer is conditional upon your lawyer reviewing the status certificate to your lawyer’s satisfaction.

The clause should look something like this:

This offer is conditional upon the Buyer’s lawyer reviewing the Status Certificate and Attachments and finding the Status Certificate and Attachments satisfactory in the Buyer’s Lawyer’s sole and absolute discretion. The seller agrees to request at the
seller’s expense, the Status Certificate and Attachments within 5 days after acceptance of this Offer.
Unless the buyer gives notice in writing to the Seller not later than 5:00 p.m. on the _____________ day of _____________________ 2012, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction.
This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller within the time period stated herein.

The seller will then obtain the status certificate and have their real estate agent notify the buyer’s lawyer and drop off the status certificate at the office of the buyer’s lawyer. The buyer’s lawyer will then review the status certificate and then call the buyer to discuss the certificate. Once the buyer is satisfied, the buyer can call their agent to say that they are prepared to waive the status certificate condition.

Each lawyer will have different turnaround times, but I tell my clients that I will review their status certificates and contact them within 48 hours of receipt of the status certificate.

Sometimes I receive questions from prospective buyers who are browsing real estate sites and see a business advertised as a listing.  The questions they often ask is 1) Am I buying the real estate? 2) Am I buying the business? and 3) Am I buying both the real estate and the business?

It can be confusing for a prospective real estate purchaser because they are looking to purchase real estate and not a business.  The key is to contact the agent who is listing the business or property and really look at the listing and see if there is any mention of a lease.

If you are purchasing a business, you will need to find out if the business owns or leases the real estate.  If the business owns the real estate, you will own the real estate as well if you purchase the business.  If the business leases the real estate, then you will likely have to assume the existing lease if you purchase the business.  In this case, your purchase of the business will need to be conditional upon a review of the terms of the existing lease and a consent from the landlord to take over the lease.

Buying a business or commercial real estate is a complex matter.  A buyer should have a lawyer who can immediately review and draft the large number of documents required to complete a commercial transaction.

yours truly,

Carlson Ng, Barrister, Solicitor, & Notary Public

Tel:  1-800-313-8316 or E-Mail: info@carlsonlaw.ca

Recently, I received a call asking how one would find the owner of a particular property.  The short answer is to go to the land registry office, where all of the deeds are stored. The alternative, of course, is to contact your real estate lawyer who can go to the source and search the land registry records for you.  With electronic land titles access, your real estate lawyer will be able, from his office, to conduct a basic title search and tell you who the registered owner of a property is.

There are many reasons why one would want to find the owner of a property.  An owner may want to confirm that he or she is registered as the owner of their own property, or to clarify how title is currently being held.  An aggressive prospective purchaser may want to make an unsolicited offer on a property and appeal directly to the owner.  A simple search by a real estate lawyer allows such a purchaser to confirm ownership of the property, and not mere possession of the property.   This simple search is very important in combating title fraud.

In Ontario, title insurance is a policy of insurance that covers title related risks associated with real estate closings, such as fraud, access issues, encumbrances on title, defects in title, etc. On closing, you have the option of choosing to take title insurance or not.

In my real estate practice, I always recommend title insurance because it provides protection against title fraud, and the cost of title insurance (a one-time fee) is less than the cost of all the searches I would have to complete for you if you proceeded without title insurance. I still have to do searches, but not as many. You should get title insurance when you purchase a home, when you refinance a home, and if you own your home and do not have title insurance right now.

Title insurance is different from mortgage insurance, which is offered by your bank to cover your monthly interest payments if you are unable to, and regular home insurance, which covers you in case of fire. If you are looking for title insurance, you can contact me (info@carlsonlaw.ca or 1-800-313-8316) to discuss your situation and see if purchasing title insurance would be suitable for you.

I was reading a blog entry recently blasting banks for being very slow on providing mortgage pre-approvals and advising purchasers to write in offers to purchase with no financing conditions if they have a mortgage pre-approval because doing so will result in a cleaner offer and will more likely be accepted by a seller.

What was NOT said was that a mortgage pre-approval is no guarantee that a mortgage will be provided.  When a purchaser writes an offer with no conditions and has a mortgage PRE-approval, the purchaser is still assuming the risk of closing without a mortgage. The purchaser is not in the same position as a cash buyer who has their cash sitting in a bank and ready to go.

It is my experience that mortgage brokers and banks provide mortgage pre-approvals very quickly for this very reason. The mortgage approval is provided only after all their due diligence is completed.  As a lawyer, I have closed these very deals where the buyer has an offer written with no conditions and a mortgage pre-approval, only to have the mortgage pre-approval fall through.

The only way the deal closed was for me as the lawyer to refer the client to private lenders that I have worked with in the past or for the mortgage broker to contact private lenders they know. The penalties for delays, threats of lawsuits, high interest costs, and private lender fees can easily add over 10K to a deal.

So there is a reason why the bank or mortgage broker is saying to put the financing condition in.  The bank or broker is not crazy. They are merely doing their job. The purchaser, however, can decide to take the risk to try and get the deal on the advice of their real estate agent.

The real estate field is very competitive. As a lawyer, I provide house call and after hours service to my clients to assist in quick closings. Everyone wants to get the deal done, but all purchasers need to assess whether they are willing to take certain risks because not all purchasers are in the same bargaining position.

Yours truly,

Carlson Law

Carlson Ng

Barrister, Solicitor, & Notary Public

http://www.carlsonlaw.ca