Written by Owen Thompson on August 3, 2017
Often when a homeowner is selling their current home, they are purchasing a new one. It may seem ideal to complete both transactions on the same day, so that the homeowner is not a temporary owner of two properties.
While this arrangement is satisfactory for a lot of clients, caution should be taken in this approach. Purchasing and selling homes in the province of Ontario requires all funds to complete a purchase and sale to change hands prior to new ownership being registered. This means that if you are purchasing a home, and using proceeds from the sale of your previous home for that purchase, your real estate lawyer cannot facilitate the purchase of the new house until the sale of the old house “closes” (money has been transferred to the lawyer’s trust account and the new owners are registered with the Land Registry Office). In many, if not most, cases, buying and selling homes on the same day occurs smoothly. But if any issues crop up, with mortgage funds (i.e. if they are not sent in a timely manner to the lawyer on closing day by the mortgage lender), with the buyer’s lawyer (i.e. they receive funds from their clients late or have difficultly communicating with their clients), or with any other aspect of the transaction, closing could be delayed. A real estate lawyer cannot guarantee a closing time where a purchaser will be able to pick up the keys and have access to a purchased property for the same reason.
The Land Registry Office in Ontario only permits registrations until 5:00 pm each weekday. If a seller’s lawyer has not received funds for the sale in their trust account prior to 5:00 pm, they will not be able to release the deed to the lawyer acting for a buyer, and the buyers may not be able to take possession of the house that day. And in conjunction, if the sellers do not receive the funds early enough on a closing day, they may not be able to use those funds to complete their own purchase, occurring on the same day.
What are the options to negate any chance of delays or issues with closing? The best option is not to close both real estate transactions on the same day. Many homeowners choose to close their purchase first, and sell their old home a few days later. This can be done with the assistance of bridge financing. The bridge financing is paid off when the old home is sold, using the equity from that property. A lender does charge a fee for bridge financing, so the costs of doing this should be discussed with your lender and arranged with them accordingly. Many clients find the cost of bridge financing is worth the piece of mind of knowing you have several days to move and that any delays in closing due to unforeseen issues will not risk a chain reaction of potentially failed real estate transactions.
Closing transactions on different days means there is no rush with packing and moving, as you will have a few day to do so, and there is less concern if mortgage funds are provided late in the day, as you are not trying to pack up one home and move to another while waiting for both transactions to be complete.
There is, of course, also the option of selling the old home first and purchasing the new home afterwards. Some people may be forced to do this if the new home is a new build and construction was not completed when expected, but it can also be done purposely, to avoid any closing issues or funding delays. Provided the sellers have a place to store their home’s contents until they purchase the new home, this method also avoids any potential closing delays and the confusion of two transactions occurring at the same time.