Monday, 20 August 2012

Bridge Financing-The Basics

In this week's blog, we discuss the issue of bridge financing. Recently, a client of mine purchased a new property and sold their existing home on the same day. Suffice it to say, it was an extremely long day, which could have easily been avoided had they purchased their new home on a date prior to the sale of their existing home. As they found out the hard way, the costs of bridging the gap between the sale and the purchase were relatively minor in comparison to the additional moving costs, stress and anxiety of closing two deals on the same day!

Gianina Kumar of CIBC, a mobile mortgage specialist, has contributed this piece and we thank her for her assistance.Gianina can be reached as follows:

Gianina Kumar
CIBC Mortgage Advisor
TEL:     1-888-414-4874
MOBILE: 416-854-4709
FAX:     1-877-404-3117 

"Bridge Financing 

Bridge financing is used when the SALE date on your existing property occurs after the PURCHASE date of your new home. To qualify for bridge financing, there must be an unconditional sale agreement on the home being sold.

The bridge covers the difference between the total down payment and the deposit paid upfront. The bank is essentially lending you the equity from the sale of your property for down payment on the new purchase.

An example illustrates this:

Jack and Jill are selling their current home on Sept 15-2012.  They are selling for $400,000 and after they pay off their $180,000 mortgage and closing costs (realtor fees), will have $200,000 in sale proceeds.

Jack and Jill have agreed to purchase a new home for $500,000 on Sept 1-2012, and paid a deposit of $50,000. They intend to put a total downpayment of $200,000 and will mortgage $300,000.

Here is the dilemma:  To purchase their new home on Sept 1-2012, Jack and Jill will need $150,000 (i.e. total down payment minus deposit) from their sale proceeds.  If and ONLY IF Jack and Jill have an unconditional sale agreement on their current home, the solution is bridge financing.

Since the bank knows 100% that Jack and Jill will be selling their home, they will LEND them the money they would have made from the sale.  So, the bank will give Jack and Jill a temporary loan (i.e. Bridge loan) for the $150,000 needed to close their new home on Sept 1-2012.  Here’s how it would look:

They would get a mortgage for $300,000 on Sept 1-2012 for the new property and also a bridge loan from the bank for $150,000. This ensures they have $500,000 to buy the house.  On Sept 1-2012 when their property sells, the sale lawyer will take the $150,000 equity left from the sale and pay out the bridge loan to the bank. Voila!!!

The biggest misconception about bridge financing is that people are not aware that you have to have a firm sale agreement on your home before the bank will agree to give you a bridge loan. Why? Because if you haven’t sold the property as yet, then you are still carrying the existing mortgage AND the new mortgage on the purchase.

In this example, the bridge would be needed for 15 days. Rates on bridge loans are typically 7% (prime + 4%). The total interest cost to bridge $150,000 at 7% over 15 days would be approximately $432. "

Thursday, 2 August 2012

Do You Need a Real Estate Professional?

In this weeks' blog, we tackle the issue of hiring a real estate professional. Many people don't know of a realtor or mortgage professional and you always need one when purchasing or selling real estate. Rather than do the  research yourself, why not get a referral from a trusted source who has worked with professionals before and tell you about them and the quality of their work! I work with many realtors and mortgage professionals and can put you in touch with one which suits your needs at no cost! If you ever need a referral, contact me. You won't be sorry!

Wednesday, 11 July 2012

Tips for Buying a New Condominium

In this weeks' blog, I cover the topic of buying a new construction condominium property. For anyone who has purchased a property from a builder, the process can be time consuming and stressful. Here are a few suggestions, which list is not exhaustive, when contemplating purchasing a condominium property from a builder:
  1. Ask for a copy of their standard agreement of purchase and sale and read it through carefully before making your offer. Often times, the standard agreement is replete with hidden charges and closing costs which you may not be aware of which can add thousands of dollars to the final closing costs;
  2. After reading through the agreement, make a plan for yourself as to what you are going to ask for in the sales office since the purchase price often does not include all the closing costs and fees;
  3. Ask to have all the closing costs capped at a maximum amount so you have some certainty as to what you will need to pay on closing. Pay close attention to those specific paragraphs in the agreement which allow the builder to pass on costs to you and make sure that the agreement you sign specifically references those parts of the agreement and have the costs "cap" apply to those provisions in the agreement; and
  4. Insist that the agreement be made conditional on your solicitors' approval.
What follows are some issues that I often see in builders' contracts:
  1. The size of the unit is approximate and may vary from the sketches or brochures in the sales office;
  2. None of the representations or information presented to you by the sales representatives is binding on the builder if it conflicts with the terms of the agreement of purchase and sale;
  3. The builder has the right to do a credit check on you and if they find your credit unsatisfactory, they have the right to terminate the transaction;
  4. Finishes and materials you select in the decor centre may not be available at the time of construction and the builder has the right to substitute those materials, provided the substitute material are of equal or better quality from the ones you chose in the decor centre;
  5. There are usually restrictions on the use of your patio or balcony including, a prohibition of the use of barbeques;
  6. There are also strict rules about pets, including a general provision that the board of directors of the condominium corporation has the right to require that you cease having a pet that the board finds is a nuisance to other unit owners.
The foregoing is just a small sample of issues and concerns when buying a condominium property from a builder. To make sure you are fully informed, retain the services of a lawyer before finalizing the transaction. 

Tuesday, 26 June 2012

New Mortgage Rules-What does it mean to you?

This week, we have a piece contributed by Gianina Kumar, a mortgage advisor with CIBC which I hope you will find helpful and informative. Happy reading!

Submitted by Gianina Kumar, CIBC Mortgage Advisor

"Have you heard the buzz about  mortgages recently? What does it mean for you?

The mortgage changes announced June 21st that are to take effect July 9th may appear on first sight to be sudden, but they certainly are not.

Almost 3 months ago, Finance Minister Jim Flaherty advised banks to tighten lending guidelines on their own. Now, it has been formally announced that he will be doing it for them.

First, let’s look at what these changes are:

  1. The max amortization is now 25 years (previously 30)
  2. The maximum mortgage amount on a currently owned property can only be refinanced to 80% of the value
  3. Any properties over $1 million require a minimum 20% down payment (ie. not CMHC insured)

Clients that I assist with mortgage financing are impacted in various ways depending on their role as a homebuyer/owner.

For those clients that are in the midst of purchasing a home, the reduced amortization is equivalent to paying almost 1% more on the mortgage rate. As an example, for a household earning $75,000/year and no debt, this reduces the maximum mortgage by $49,000 (ref: Canadian Mortgage Trends).  Its important to note that anyone currently holding a pre-approval can still get a 30 year amortization as long as an offer on a property is accepted before July 8, 2012. 

In the case of existing homeowners that are looking to consolidate high interest debts or renovation costs into their mortgage, the total mortgage cannot exceed 80% of the value of the home.  Currently, homeowners would be able to increase their mortgage to 85% of the value of their property if they agreed to pay a small CMHC premium.  Effective July 9th, however, no mortgage can be increased to over 80% of the value. Another way of putting this is that all existing mortgages cannot be increased to the point where they would require to be insured through CMHC (ie. > 80% loan to value).  This will create a larger subset of people that may turn to alternative banks (ie. B-lenders) that offer higher interest rates for the benefit of a larger mortgage.  Some industry experts speculate that refinancing with CASHBACK will become more popular as people look to stay with their A-lender bank (ie. major 5 banks like CIBC, BMO, TD etc..) for a favourable rate but with more equity take out options.

Lastly for the minority of the Canadian population (the majority of which resides in Toronto and Vancouver) that purchase for over $1 Million will now require at least 20% downpayment.  It may sound grand, but realistically a million dollar mortgage doesn’t buy very much in large urban centres like Toronto and Vancouver.  

Amidst all the industry buzz over these changes are whispers of more changes to come. What is expected is stricter lending guidelines for self employed individuals, and potentially having to re-qualify for mortgages at term maturity.  

Stay tuned…"

Gianina Kumar is a mortgage advisor with CIBC and can be reached as follows:

TEL:     1-888-414-4874
FAX:     1-877-404-3117

Monday, 4 June 2012

Sellers Providing Home Inspection Reports-A Tale of Caution

Part of the reason I started this blog was to inform others of mistakes past clients have made and educate my readers. In this week's blog, we deal with another potential issue in purchasing a resale property. As a result of high demand and low supply for resale residential real estate, the GTA housing market has come to understand multiple offer situations as commonplace. Often in a multiple offer situation, the Sellers encourage a potential buyer to submit an offer without conditions, what is otherwise known as a "clean offer". For the buyer, this means that all the normal steps that would be taken to investigate the property itself are dispensed with and no inspection of the property ever takes place. Of course, this is risky and dangerous as the buyer has no idea what problems await her after closing.

Sometimes, a shrewd listing agent will have an inspection report prepared and made available for a potential buyer to review prior to submitting an offer. Sounds pretty good, right? What if the inspector doesn't report all the problems in the report?

Using an inspection report prepared by the Seller's inspector is not a safe substitute for obtaining your own inspection report. For starters, you don't know if the inspector retained by the Seller is actually well qualified to prepare the report itself. More importantly, often these inspection reports have a disclaimer that it can not be relied upon by anyone other than the person who paid for it. If there are mistakes or errors in the report, it will be difficult to successfully sue the inspector since you never retained them.

If you do rely on an inspection report prepared for the Seller, you do so at your own risk. 

Wednesday, 23 May 2012

Are You a Small Business Owner? Have You Secured Your Shareholder Loans to Your Company?

[This week's entry discusses the laws of the Province of Ontario. For readers in other jurisdictions, please consult with a local lawyer]

This week we touch on an entirely different area for small business owners. Many of my clients are small business owners, either as a part time or full time endeavor. We have all heard about bank loans and collateral for the loans. If a bank takes collateral for a loan, what this means is that in the event that you do not pay your loan obligations as they become due, the bank has the right to seize and sell that collateral to pay itself back for the unpaid portion of the loan.

When small business owners first start their business and they incorporate a company to carry on that business, frequently they put their own personal funds into the company to allow it to operate. This can happen at any time. If you are a shareholder in your own company and the advance is documented properly, these advances then become loans owed by your company to you as a shareholder or shareholder loans.

Unfortunately, if a business starts to fail, often the owner of the business or shareholder, wants to take out money to repay themselves for past shareholder advances. If this occurs at a time when the business has creditors which aren't being paid, legislation in Ontario may apply and give rise to an action by a creditor to have those moneys repaid back to the company by you.

When you put money into your company you should do so on the basis that the advances are loans and you should make those loans secured loans, meaning, there is collateral for the loan to ensure that the loan is paid back to you. At the inception of your business or as soon as possible, you should enter into an agreement with your company to give you a lien against the assets of the company. This lien must be registered against the company. In Ontario, the legislation governing the granting of security in personal property is called the Personal Property Security Act. Ideally, this arrangement should be in place before you ever advance money to your company.

If completed properly, securing your personal loans to your company is a legitimate and legal method to secure your investment which will rank your investment ahead of the company’s unsecured creditors if the business gets into difficulty.

For more information on how to secure your shareholder advances to your company, please feel free to contact me.

Tuesday, 15 May 2012

Most Canadians do not have a Will-Do You?

A recent article in the National Post discussed a recent poll that found a majority of Canadians do not have a will. In my practice, the number of clients without a will is far higher, close to 95%. Why is this so? Perhaps people feel like preparing a will is too expensive. Perhaps it is because most people do not want to turn their minds to the possibility of dying and leaving loved ones behind. There are always reasons but the need for having a Will prepared is obvious. Our office normally charges approximately $250 plus HST for a simple Will.

It is also important that in addition to a Will, you should have a continuing power of attorney for property and a continuing power of attorney for health care prepared as well. I generally charge $75 plus HST for each type of continuing power of attorney.

What is a continuing power of attorney for property? It is a document to appoint a person of your choice to make decisions about your property and manage your finances on your behalf. This may include doing things such as signing documents for you, paying your bills, or even selling your home. This power of attorney will allow the person you appoint to manage your financial affairs even if you become mentally incapable. The person you appoint is called your “attorney for property.”

What is a continuing power of attorney for health care?  It is a document to appoint a person of your choice  to make decisions about your personal care for you if you become mentally incapable of doing so. Decisions about your personal care involve things such as where you live, what you eat and the kind of medical treatment you receive. The person you appoint is called your “attorney for personal care”.

While many people understand the obvious need for a Will, the need for each of the power of attorney documents is less obvious. A recent example is instructive. A gentlemen contacted me about the health care power of attorney. Let's call him Joe. He and his same sex spouse were legally married recently and after an accident, the spouse was in hospital and was not able to give instructions to his treating physician about his health care. When Joe tried to give instructions to his spouse's treating physician, the doctor asked Joe if he had a power of attorney for health care. When he told the doctor that his spouse did not have one in place, the doctor refused to take instructions from Joe about his spouse's health care and instead took instructions from Joe's father in law instead. This completely unnerved Joe and once his spouse was out of hospital (and fully recovered) they immediately had Wills and powers of attorney prepared. 

While this story may be a rare exception, it points to the importance of having your affairs in order before you need it. The process for preparing a Will and powers of attorney is relatively easy and relatively inexpensive for the peace of mind it will bring you and your loved ones. 

If you have any questions about Wills or powers of attorney, please feel free to contact me or check out my profile on Linkedin

Monday, 30 April 2012

Buying and Selling on the same day-Beware

In this week's blog, we are going to discuss an issue facing many homeowners when purchasing a residential property.

As is usually the case (for people who are not first-time home buyers) you have to sell your existing home in order to have the funds needed to purchase the new property. Time and time again, I see clients arranging for the closing of both their existing home and their new home on the same day. 

The difficulty with closing both transactions on the same day is one of timing. Both deals must be completed by 5 PM on the closing date and there is no specific time set for the closing of either deal. If the sale of your home takes place late in the day, this makes the possibility of completing the purchase of the new property by 5 pm unlikely. This is due to the logistics involved in closing a real estate transaction. Let me shed some light on the subject for you.

Once the sale proceeds arrive in my office and we complete the sale transaction, the funds need to be deposited into the trust account, cheques need to be certified and delivered to the seller's lawyer. If that office is quite a distance away from mine then it is unclear precisely when the funds will arrive at the other law firm, even if I send it on a rush basis. Sometimes, the seller’s lawyers will allow the funds to be deposited directly into their bank account (to save the time of a courier) but what if their bank closes before the deal is ready to close? Many banks still close at 4 pm.

If the purchase transaction doesn’t close in time, what is the client to do? For the moment, they are homeless. Sometimes, I am able to negotiate that my client be given possession of the new property (notwithstanding that the deal hasn't formally closed) but this is a rarity. The client is then left to find themselves accommodations for the night. This frequently involves staying in a hotel, meals in restaurants and additional storage charges by the moving company as the client's personal effects and furniture need to be stored overnight. They may even have to buy a change of clothes and toiletries because all of their belongings are packed away in the moving truck!

To avoid this situation, if possible, arrange for the closing date for the purchase transaction to take place a day or two before the closing of the sale transaction and obtain bridge financing for the down payment, land transfer tax and closing costs. In my experience, clients who use this strategy are usually able to complete the purchase of the new home relatively early in the day. This also reduces their moving costs as the movers are not sitting around all day waiting for the deal to close, accumulating hourly moving charges. Depending on your lender, the bridge financing costs can be minor in comparison to the stress and aggravation of waiting all day to take possession of your new home.

So heed a piece of simple device: When you are arranging for closing dates, do not fall into the trap of buying your new home and selling your existing home on the same day. It will likely save you hundreds of dollars in moving charges and save you a lot of aggravation and stress.

Monday, 23 April 2012

Buying a House with Appliances? Beware

An issue in house closings that has come up with increasing frequency is the issue of the purchase of appliances that are included in the purchase price.

Usually, a resale property will typically include existing appliances and most buyers never give much thought to the issue. Sometimes, following the closing, the buyer arrives at their newly purchased property to find that the appliances they believed would be included in the purchase price have been substituted with different appliances, usually older models. What do they do now? Usually, the first call they make is to their lawyer. The agreement will typically state that the existing appliances are included in the purchase price. The difficulty is that frequently, there is no documentary evidence as to what exact appliances were included in the price of the home. I recommend to my clients to take photographs of the appliances and obtain the serial numbers for each appliance and list those appliances in the agreement of purchase and sale. Without this evidence, any litigation which may ensue after closing boils down to which story the judge believes at a trial of the matter, the buyer's or the seller's.

As a result, I recommend that buyers ensure that when they have the agreement of purchase and sale prepared, to make sure that they take digital photographs of the appliances that were present when the offer was signed and to make sure that the photos are time stamped (details of the date and time of the photo) and readily available in order to prove without a shadow of a doubt as to what appliances were present when the offer was signed.

This small step can save you thousands of dollars and aggravation if the appliances you thought you were buying mysteriously disappear on the closing. As part of my service, I ensure that a separate schedule including the list of appliances and the serial numbers would form part of the agreement of purchase and sale.

Tune in to my blog next week when we discuss the trials and tribulations of  buying and selling a home on the same closing day.

Steven Klein

Monday, 27 February 2012


Greetings everyone!

I am so excited to be starting SSP's first blog. Every week, we will be publishing news, information and practical tips related to legal issues you can use in your business and personal lives. I look forward to all your feedback and feel free to send us questions about topics you want to read more about. Enjoy!

Steven  Klein