Arrears Owing to the Municipal Authority

Unpaid property taxes are an additional expense you may encounter as part of the overall cost of selling your home. If you have an outstanding property tax bill, your lawyer will be able to find out exactly what the pay out figure will be, taking into account any interest and administrative penalties.

Quite often, the taxing authority will add unpaid and outstanding water and sewer charges onto your tax account so that these charges get reconciled when you sell your property. The same is true for any unpaid and outstanding tax reassessment levies placed on the property or fines assessed against you for refusing to comply with such by-law enforcement orders as cleaning up an unsightly yard.

These are all examples of a charge or “tax” against your property. Your lawyer will pay any of these outstanding amounts to the appropriate authority from the proceeds of your sale.

If you have a disagreement with the municipality over what it claims it is owed, there are a number of appeal measures available to you. To avoid complicating matters, you should complete any administrative avenues of recourse before you begin thinking of selling your home.

Property Taxes

Your lawyer will determine how the property taxes for your home are dealt with depending on when they are due and how you have structured your tax payments.

In larger cities, all property taxes for the entire year are normally due at the end of June but you may also pay property taxes on a monthly basis directly from your bank account. Regardless of how you pay your taxes, your lawyer will ensure you only pay that amount in property tax for which you are responsible.

Whenever a house is sold, the seller is responsible for paying property taxes up until the possession date. Obviously, this period covers the days in the year the seller actually owned the house. Conversely, the buyer is responsible for property taxes from the possession date until December 31st.

With these dates in mind, your lawyer will “adjust” the property taxes unless the seller is on TIPPS. It is a two-step process with two possible scenarios:

– If the possession date is prior to June 30th – The buyer pays the property taxes for the entire year, as they owned the house when taxes are due on June 30th. The seller then “pays the buyer back” the amount the seller is actually responsible for by giving a corresponding credit off the purchase price of the house.

– If the possession date is after June 30th – The seller pays the property taxes for the entire year as the seller owns the house when taxes are due on June 30th. The buyer then “pays the seller back” for the amount the buyer is responsible by adding a corresponding amount onto the purchase price of the house.

Principal, Interest and Tax Payments through Seller’s Financial Institution

If the seller is making tax payments through blended P.I.T. (principal, interest and tax) payments, property taxes are collected as scheduled under the mortgage over the course of twelve months. The mortgage company then forwards this amount to the municipal authority when they are due.

The amount of property taxes collected by your mortgage company by June 30th depends on two things:

                – the number of mortgage payments you made prior to June 30th

                – the amount of your tax portion under each mortgage payment.

Depending on the possession date, the seller will have paid the taxes for the entire year or will still owe. If the possession date is prior to the date taxes are due, any money collected through P.I.T. payments for property taxes since the date the taxes are due the previous year to the possession date will simply be credited to the seller by his or her financial institution.

When the seller’s lawyer requests a pay out figure on the mortgage as of the possession date, the seller’s financial institution will calculate the amount owing on your mortgage, after all adjustments are taken into account. One such adjustment is the tax account refund the seller is entitled to.

The seller’s financial institution will give this refund by applying the amount in your tax account at the financial institution directly against the mortgage principal, thereby reducing what the seller owes as of the possession date.

The seller is refunded the amount in their financial institution’s tax account, the municipality is paid its property taxes by the purchaser for the year instead, and in return, the seller credits the purchaser the seller’s share of taxes by reducing the purchase price. The seller’s lawyer makes sure this is done properly.

Items Included in the Offer to Purchase – Table of Contents

A section of the Offer to Purchase details what items are normally included as standard in the sale price of the house, such as blinds and draperies. If you want to include additional items as part of the deal, you must list them in writing in this section. Any deletions can be listed as part of a Counter-Offer.

The seller should avoid making verbal arrangements regarding what items are included in the sale price. In the event of a dispute, there will obviously be no record of what the “real” deal was. Verbal arrangements complicate things and make your deal rather difficult to enforce.

Items that buyers may request be included in the sale price of the house are:

  – an up-to-date Real Property Report or Surveyor’s Certificate, if one is available

  – appliances like a garborator, dishwasher, washer, dryer and refrigerator

  – a garage door opener with all remotes

  – the attachments to a power vacuum system

  – a garden or utility shed

  – certain unique “as is” features of a house like a chandelier or custom landscaping.

Making sure these kinds of items are agreed to in writing will help prevent hard feelings after the deal is done.

Representations – Defining the Property

A real estate listing includes a number of statements that expressly describe the main features of a house. When the listing is made public, it becomes a representation the seller has made about the house in order to attract a buyer.

A representation can be made either in writing or while having a conversation with potential buyers. They can be rather general or quite specific in nature. Representations are generally made to induce a potential buyer to enter into a binding contract. The seller must describe the features of the property as accurately as possible to the best of their ability.

Do not make careless or dishonest representations. If you engage in this kind of activity, you could be sued later by the purchaser.

Warranties – Be Cautious

When a home that is not new is sold, warranties are seldom, if ever, given to a purchaser by the seller. You are essentially moving on and leaving this property behind.

Sellers will not typically warrant that certain items are and will be free from defect for a certain time after they move out of the house. Doing so would obligate the sellers to return and repair the item personally or arrange to have it replaced with a similar item of equal value. This kind of guarantee is simply not contemplated as part of a normal sale transaction on a used home.

We strongly recommend that a seller not give a purchaser warranties about any item or condition of the property being sold unless you are fully prepared to stand behind them. Warranties are different than representations – if you give a warranty on some item or condition, the purchaser can rely on it completely.