October 12th - 2012

Legal Beat: No deal and no commission without clear title

In a typical real estate transaction, the sellers must provide clear title on closing. The OREA agreement of purchase and sale (APS) says:

In a typical real estate transaction, the sellers must provide clear title on closing. The OREA agreement of purchase and sale (APS) says:

“Provided that the title to the property is good and free from all registered restrictions, charges, liens, and encumbrances except as otherwise specifically provided in this agreement ...”

A subsequent clause contains this exception:

“If a discharge of any Charge/Mortgage held by a corporation incorporated pursuant to the Trust And Loan Companies Act Canada), Chartered Bank, Trust Company, Credit Union, Caisse Populaire or Insurance Company and which is not to be assumed by buyer on completion, is not available in registrable form on completion, buyer agrees to accept seller’s lawyer’s personal undertaking to obtain, out of the closing funds, a discharge in registrable form and to register same, or cause same to be registered, on title within a reasonable period of time after completion, provided that on or before completion seller shall provide to buyer a mortgage statement prepared by the mortgagee setting out the balance required to obtain the discharge, and, where a real-time electronic cleared funds transfer system is not being used, a direction executed by seller directing payment to the mortgagee of the amount required to obtain the discharge out of the balance due on completion."

In this case, the buyers and sellers signed a standard form APS for a purchase price of

$634,000 and a deposit of $20,000. The buyer’s lawyer searched the title and learned that Paradigm Quest Inc., a non-institutional lender, was the owner of a mortgage that was registered against the property title. Under the APS, this mortgage was to be discharged from the title of the property.

At the time of closing, the mortgage was not discharged. The seller’s lawyer offered his undertaking to discharge the mortgage after closing, which was not acceptable to the buyer, who instead offered to extend the closing date, which was not accepted by the seller.

The transaction did not close, and the buyer requested the return of his $20,000 deposit. The request was refused. The judge simply said, “Under the agreement of purchase and sale, [the buyers] were entitled to a title free and clear of the Paradigm Quest Inc. mortgage, and they were within their rights to refuse to accept an undertaking from the vendor’s lawyer to discharge the non-institutional mortgage after closing.”

Malekmohammadi v Pirvali 2009 CanLII 50758

MERV'S COMMENTS
The exception is for the stated institutional mortgages. Sellers and REALTORS® acting for them should consider amending this clause to deal with “private” mortgages. Otherwise, the seller would have to pay off that mortgage before closing. The possible alternative, as in this case, is no deal -- and no commission.

The problems might have been resolved with prior knowledge of this mortgage. Why didn't the listing brokerage conduct a more thorough search in this case and then include appropriate content in the APS to deal with the other liens and mortgages?

Teranet offers a sample Parcel Register. Their usual charge to know more about a property from that search is $27. It’s worth the time and money for REALTORS® to do things right the first time.

Share this item

New service for OREA members Podcasts on leadership available to members

For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
Facebook LinkedIn YouTube Instagram

The trademarks REALTOR®, REALTORS®, and the REALTOR® logo are controlled by The Canadian Real Estate Association (CREA) and identify real estate professionals who are members of CREA. The trademarks MLS®, Multiple Listing Service® and the associated logos are owned by The Canadian Real Estate Association (CREA) and identify the quality of services provided by real estate professionals who are members of CREA. Used under license.

OREA AI Assistant