Category Archives: Buyers

Distressed Sales: Options for Sellers of Distressed Property

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Unfortunately, and often due to a series of unfortunate events, some owners find themselves unable to afford their home and in some cases being forced to sell at a loss. There are a number of different ways for this to occur:

A. Short Sale with Seller Bringing in Cash to Complete

This type of transaction occurs when the proceeds of sale are insufficient to pay the mortgage, commission and fees associated with the property and the Seller is able to access other financial resources to complete the transaction by depositing the shortfall in trust with their lawyer to complete the transaction.

Of all the options for a distressed sale, this options makes the best of a bad situation, there is no foreclosure proceeding and no judgements registered against title or the seller.

B. Short Sale with the Bank Accepting Shortfall of Net Proceeds

Where the Seller is unable to make up the difference on Closing between the net sale proceeds and the mortgage payout and the Seller is in default of their obligations to the Lender, most Lenders will grant of discharge of the mortgage registered on title in exchange for net sale proceeds (less agreed adjustments) in exchange for a consent to personal judgement against the Seller and a reasonable payment plan for the balance.

The option avoids a formal foreclosure proceeding (and it is the Seller that accepts a Buyers offer “subject to being able to clear title”), but Seller agrees to a debt judgement against them and they will continue to have to pay the balance remaining after the sale to the Lender. Often when a mortgage default has proceed to this stage, there is a certificate of pending litigation on title.

C. Court Ordered Sale

As the Bank has proceeded with the foreclosure, at this stage the ability to sell the property  is now subject to Court Approval.  A Buyer’s offer will be subject to Court Approval and other buyers may appear in Court to bid on the property. The Seller is not involved in this transaction and registration in the Land Title Office takes place by filing of a certified copy of the court order granting the property to the Buyer (on payment of the purchase price) [Important: ensure Buyers names are correct on the Court Order!].

D. Lender Owned Property

If the property has proceeded through the entire foreclosure without an offer, the Lender may seek an “Order Absolute” and the Lender will assume ownership of the Property. In this case the Lender is the Seller (as they are the Seller on title) and the transaction proceeds very similarly to a normal real estate transaction (except that Lenders are often very reluctant to provide Property Disclosure Statements).

Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Pihl Law Corporation.

First Time Home Buyers: New Property Transfer Tax Declarations

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When the province announced the new First Time New Home Buyers Rebate associated with the HST rebates, they tightened the definition of “First Time Home Buyer” (see my post here for more information on the rebates). This tighter definition indicates that the government is looking more closely at (ie; auditing) who is a “first time” home buyer. This higher degree of oversight is also supported by recent changes to the Property Transfer Tax Form which required a Buyer to DECLARE the following:

  1. Have you owned an interest in a principal residence (where you lived) anywhere in the world?
  2. Have you ever recieved a British Columbia (BC) first time home buyer’s exemption or refund?
  3. On the date of registration, are you a Canadian citizen or a permanent resident as defined in the Immigration and Refugeee Protection Act (Canada)?
  4. Have you continuously resided in BC for at least one year immediately prior to the date of registration or filed income tax returns as a BC resident during the six year before the date of registration?
See the new form here:

If the Buyer makes a FALSE DECLARATION, the Minister of Finance may charge a penalty equal to DOUBLE THE TAX.

Also, the Buyer MUST qualify as a first time home buyer (above) and the they must purchase a “Qualifying Property”:

  1. Fair Market Value is less than $425,000 (for full exemption)
  2. Land is less than 0.5 hectares in size
  3. Property used as Principal Residence
And, the Buyer MUST actually occupy the home:
  1. Must move into the home within 92 days of the date of registration (unless vacant land, then must move in within 1 year)
  2. Must continually occupy as principal residence for one year from the date of registration.
The form changes and the recent legislative attention to this issue likely will result in greater audit attention to this area. First Time Home Buyers should ensure they meet all the criteria: as a Buyer, with a Qualifying Property, and they plan to Occupy the home for the first year.

Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Pihl Law Corporation.

Agricultural and Farm Property: Special Considerations

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Agricultural and Farm property occupy an interesting segment of the real estate market, as they are often a mix of commercial and residential uses. This means that many of the rules that apply purely to a residential home purchase have limited applicability to agricultural lands.

A. THE 0.5 HECTARE RULE:

There are a number of tax exemptions which do not apply (or have limited applicability) where a property exceeds 0.5 hectares (1.24 acres) in size:

  1. Principal Residence Exemption - this Income Tax Act exception allows exempts capital gains of a primary residence from income, however the total area of a “principal residence” must not exceed 0.5 hectares (1.24 acres) hectares.
  2. Property Transfer Tax (Related Individual) – a transfer of a principal residence from a parent to child, or to a spouse is an exempt transfer for property transfer tax, however (similar to above) the total area of a “principal residence” must not exceed 0.5 hectares (1.24 acres) hectares.
  3. Property Transfer Tax (First Time Home Buyer)  - a transfer of a principal residence to a first time home buyer is an exempt transfer for property transfer tax, however (similar to above) the total area of a “principal residence” must not exceed 0.5 hectares (1.24 acres) hectares.

B. Rural Area Tax Incentives

  1. Agricultural Land Reserve (“ALR”) Tax Exemption - 50% of the assessed value of ALR land is exempt from school tax if the land is classified as a farm or is in the ALR and is vacant, used as a farm or for residential purposes.
  2. Rural B.C. Home Owner Grant - B.C. has a property tax assistance program which reduces the amount of taxes paid on a home. You can claim the additional rural grant of $200 (for a total regular home owner grant of $770) on your principal residence if you live in rural areas of British Columbia and you file your income tax in British Columbia.(Kelowna is considered a rural area)

 C. GST/ HST on Agricultural and Farmlands

The applicability of HST on farmland is complicated by the “mixed” use of most farmland as both residential and commercial use. Generally sales of farm property attract GST/ HST unless there is a specific exemption.

  1. If selling the farm as a business as a going concern to a unrelated third party – GST/HST applies, but GST Election 44 can be applied to have no GST/ HST applied on sale
  2. If selling a hobby farm not used as a business – GST/HST would not apply as you are selling your home and there is no reasonable expectation of a profit from the hobby farming activities.
  3. If selling a personal residence with farm property- that portion of the property that is necessary for the use and enjoyment of the house is exempt from HST.
For Purchasers of farm property, it is important to ensure that:
  • the Purchaser receives tax advice prior to subject removal; and
  • the Purchaser is registered for GST/HST prior to closing

D. Agricultural Land Reserve

The Agricultural Land Reserve in British Columbia limits the non-farm uses of designated property. These restrictions may include what kind of buildings can be erected and whether the lot can be subdivided (including the addition of home site). If you are purchasing a property that has been designated in the ALR, please ensure that your future use of the property is within the uses permitted by the Agricultural Land Commission Act.

Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Pihl Law Corporation.

First Time Home Buyers: Special Programs

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I must admit, I love watching the HGTV show “Property Virgins“, and seeing the excitement of first time home buyers fulfil their dreams of home ownership is one of the best things about my job.

In British Columbia, real estate prices (compared with much of Canada) are high relative to average income, which increases barriers to first time home owners. In the Okanagan, local professionals like to call this the “sunshine tax” (although “four season paradise tax” would be more appropriate). Thankfully there are some very helpful programs that First Time Home Buyers can use to assist them with their first home purchase.

A. Property Transfer Tax Exemption for First Time Home Buyers

This program exempts First Time Home Buyers from paying BC Property Transfer Tax.

To Qualify for the PTT Exemption a First Time Home Buyer must:

  1. Be a Canadian Citizen or Permanent Resident
  2. Have lived in BC for 12 consecutive months OR filed income tax returns for at least 2 of the last 6 years in BC
  3. Never have owed an interest in a principal residence anywhere in the world; and
  4. Never have previously received a First Time Home Buyers Exemption
If you qualify, on homes valued up to $425,000, a First Time Home Buyer will be exempt from paying Property Transfer Tax (a savings of $6,500 in PTT). The tax exemption diminishes on higher priced homes and is not available on any homes priced over $450,000.
You apply for the exemption at the time of conveyance, and often your lawyer will complete the PTT Return and Exemption application as part of the closing documentation.  There are severe penalties for a false declaration.

B. RRSP First Time Home Buyers Plan

This program allows First Time Home Buyers to “loan themselves” previously claimed RRSP contributions tax free to assist in the purchase of a home.

To Qualify for the RRSP First Time Home Buyers Plan:

  1. You must have entered into a binding agreement to build or buy a home
  2. You intend to occupy your home as a principal residence and be a resident of Canada
  3. You are a first time home buyer
  4. You must not have a “repayable Home Buyers Plan” balance on your tax return
This program will allow you to withdraw up to $25,000 from your RRSP to assist in your home purchase. This is withdrawn at your financial institution immediately prior to closing and you complete form T1036.

C. First Time Buyers New Home Bonus

This is a time limited rebate (introduced with the enhanced HST rebates) for First Time Home Buyers buying new homes (until March 31, 2013 only), to qualify:

  1. You must be eligible for an HST rebate on a new home purchased after April 1, 2012 and Completion must occur before Mar 31, 2013 (ie; transition tax does not apply)
  2. You (and the if a couple, both persons) must be a First Time Home Buyers and BC Residents
  3. The home must be the Buyers Primary Residence
  4. Your Family Income must be less than $150,000 for full rebate (note : the rebate phases out to $0 for income over $200,000)

After closing you will apply to the BC Government which will grant a rebate of 5% of the purchase price of the home (if under 200k) or $10,000 (whichever is greater). The rebate will be a cheque mailed directly out to claimants after the application has been approved.

The best place for First Time Home Buyers to start their new home search is by getting a clear idea of the process, check out my BUYERS PAGE.

Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Pihl Law Corporation.

Joint Tenancy vs Tenants in Common

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When buying a house, you must decide whose name will go on title. Will you be the sole owner? Should you be on title at all? Will you and your spouse go on title together? If so, will you be joint tenants or tenants in common? What about your children?
What is the difference between Joint Tenancy and Tenancy in Common?
Joint Tenancy means that two or more people own property in equal undivided portions, with an equal right to use the whole property. When one joint tenant dies, the property is transferred to the surviving joint tenant immediately before the moment of death. This means the property does not become a part of the estate of the person who died and the property will not be subject to probate fees, will not be taxed as a part of the estate and will not be distributed among the beneficiaries of the estate.
Joint tenancy is generally preferred for most spouses.
If two or more people own property as a Tenancy in Common, it does not have to be divided equally. Tenants in Common can own different proportions of the property, for example ¼ and ¾, and they can sell or mortgage their portion as they please. If one tenant in common dies, that person’s share of the property becomes a part of the deceased’s estate. It is subject to probate fees and it will be distributed to the beneficiaries of the deceased’s estate. As you can imagine, property can be a difficult thing to “distribute”.
Tenants is generally preferred for blended families and other unique arrangements (like a shared vacation cottage).
Can I hold title in only one name, excluding my spouse or common law partner?
Having title in your name does not always mean you are the only one with an interest in the property. If you are in a relationship and have been living together for at least two years, your partner may have a claim to part of the property even though they are not on title.
If you are a self-employed professional, you want to protect your assets from any business creditors. Some people attempt to protect their assets by placing title in their spouse’s name or have title held by a holding company.  This protection is not absolute and most bank will require a spouse to, at the very least be a Guarantor or Covenanter on the Mortgage.
What about going on title with my Adult Child ?
If you are thinking of holding a property in joint tenancy with an Adult Child for estate planning purposes, you should consult a lawyer. There can be many unintended consequences and pitfalls for such an arrangement. For example:
-loss of control: you cannot sell or mortgage without the consent of the child
-taxes: there may be capitals gains consequences for the parent or the child
-property transfer tax: depending on whether the property is a principal residence, you may have to pay property transfer tax
-creditors: the property will be at risk to claims by the child’s creditors
-uncertainty: it is possible that you may not be successful in creating a joint tenancy if the child does not live in the house. The joint tenancy may be unintentionally severed by a number of events.

Saving Your Client Money in a Real Estate Transaction

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This weeks blog post is definitely not legal advice, however growing up in the Real Estate industry for the past 34 years, there are definitely a few ways I have discovered that both Realtors and Lawyers can add value to their clients transaction:

Negotiate from a position of strength – in short, ensure that your client has done everything they can do to help a deal move forward. This includes obvious things like obtaining a pre-approval and limiting subject conditions only to “bare essential items” (like title review, strata docs, home inspection, financing). However, taking this to the next level means having this discussion with your client:

    1. What is the BEST outcome if the deal does NOT go through? And
    2. What is the WORST outcome if the deal does NOT go through?
These two questions very quickly get to the heart of your client’s motivation.

Setting good dates – everyone wants to close at the end of the month, this means that you client is just one of many people needing services from lawyers, movers, strata companies. The best advice here is to remove subject conditions at least 30 days prior to closing, and have closing occur on the “off-weeks” during a month (ie; those weeks that do not contain the 15th or 30th).

    Knowing the Local Area – there are many areas in the Central Okanagan where housing costs will be dramatically different for a number of reasons that are not immediately apparent from the listing, for example:

      1. Are you too far from a fire hydrant/ protection area to obtain cost effective fire insurance (Some parts of the Upper Mission)?
      2. Does the area you are in have such poor water quality which will necessitate you bringing in outside sources (ie; Glenmore – Ellison Irrigation District)?
      3. Does the smaller municipality mean that you property taxes are going to be markedly higher (ie; Lake Country, Peachland)

    Search out Hidden Costs

      1. Get a good home inspection, but then get a follow-up expert inspection if anything substantive arises (ie; roof, foundation, building envelope/ water, electrical, plumbing).
      2. Get to know your strata council – everyone reads strata docs, this is standard. However don’t be afraid to take the extra step of calling the Strata Council President, you’d be surprised what doesn’t make it into the minutes.

    Who Should be on Title?

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    When buying a house, you must decide whose name will go on title. Will you be the sole owner? Should you be on title at all? Will you and your spouse go on title together? If so, will you be joint tenants or tenants in common? What about your children?
    What is the difference between Joint Tenancy and Tenancy in Common?
    Joint Tenancy means that two or more people own property in equal undivided portions, with an equal right to use the whole property. When one joint tenant dies, the property is transferred to the surviving joint tenant immediately before the moment of death. This means the property does not become a part of the estate of the person who died and the property will not be subject to probate fees, will not be taxed as a part of the estate and will not be distributed among the beneficiaries of the estate.
    Joint tenancy is generally preferred for most spouses.
    If two or more people own property as a Tenancy in Common, it does not have to be divided equally. Tenants in Common can own different proportions of the property, for example ¼ and ¾, and they can sell or mortgage their portion as they please. If one tenant in common dies, that person’s share of the property becomes a part of the deceased’s estate. It is subject to probate fees and it will be distributed to the beneficiaries of the deceased’s estate. As you can imagine, property can be a difficult thing to “distribute”.
    Tenants is generally preferred for blended families and other unique arrangements (like a shared vacation cottage).
    Can I hold title in only one name, excluding my spouse or common law partner?
    Having title in your name does not always mean you are the only one with an interest in the property. If you are in a relationship and have been living together for at least two years, your partner may have a claim to part of the property even though they are not on title.
    If you are a self-employed professional, you want to protect your assets from any business creditors. Some people attempt to protect their assets by placing title in their spouse’s name or have title held by a holding company.  This protection is not absolute and most bank will require a spouse to, at the very least be a Guarantor or Covenanter on the Mortgage.
    What about going on title with my Adult Child ?
    If you are thinking of holding a property in joint tenancy with an Adult Child for estate planning purposes, you should consult a lawyer. There can be many unintended consequences and pitfalls for such an arrangement. For example:
    -loss of control: you cannot sell or mortgage without the consent of the child
    -taxes: there may be capitals gains consequences for the parent or the child
    -property transfer tax: depending on whether the property is a principal residence, you may have to pay property transfer tax
    -creditors: the property will be at risk to claims by the child’s creditors
    -uncertainty: it is possible that you may not be successful in creating a joint tenancy if the child does not live in the house. The joint tenancy may be unintentionally severed by a number of events.

    Sales of Waterfront Property

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    Who Owns the Water?
    All water in BC is owned by the Crown and strictly regulated. As property lines extend to, but do not include the foreshore, the upland owner has no rights to use or “possess” the water, only a right to access. A license from the Provincial Crown is require to use/ possess.

    Waterfront Boundaries Can Change
    The Crown owns all property which exists below the high water mark therefore if the high water mark changes, the property boundaries will change. A new survey is required to re-define the property after erosion (loss) or accretion (gain), especially for:
    1. Property tax issues
    2. Building on property (building envelope)
    3. Building on water (dock location)

    General Public has a Right of Access to Foreshore.
    In Minor v. Van Ewyk, 2008 BCSC 558 the Court said that “the foreshore is open to public use…. The only rights the [land owner] may assert are her common law riparian right to unrestricted access to and from the water frontage, and the right conferred under a “License of Occupation””.

    Dock Licenses
    As Docks occupy Crown Land, a License is required for a legal dock. A License is a Personal Right and is not transferred with a transfer of the upland. There are Three Types of Dock Licneses commonly found on Okanagan Lake
    A. License of Occupation (pre-2008)
    B. Specific Permission (non-exclusive)
    C. Water Lot Lease (exclusive occupation)

    Importantly, unlike other some other lakes in BC, there is no General Permission on Okanagan Lake to build a dock!

    The License will often have Limitations, for example:
    A. Not to interfere with other rights or navigation (Fixed Impediments)
    B. Environmental Covenants
    C. Limitations on Use (# of slips/ commercial v. residential)
    D. Cannot interfere with Public Access
    E. No “non-moorage” purposes, incl.: patios, sundecks, hot tubs, roofs/ gazebos.

    Assignment (Sales) of Dock Licenses
    As a License is NOT conveyed with land, must be assigned

    Suggested Contract Language:
    The Seller assigns and the Buyer assumes all right, title and interest to the License of Occupation [or Permission] #19978722 with the Province of British Columbia, a true copy of which is attached to this Contract, for, inter alia, the Dock adjoining the property.
    The Seller represents and warrants that the License of Occupation [or Permission] #19978722 is in good standing.”

    Important Note: Consent of Province to the assignment often will be required and may be denied

    Home Buyer FAQs

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    Common Home Buyer Questions
    By: Peter Borszcz

    1. Will this contract force me to buy this home?
    A contract is a legally enforceable promise. Therefore, you are obliged to carry out its terms if the contract is firm and binding. However, a contract can be “subject to” the performance of other terms (for example, obtaining a mortgage). Most Realtors draft “subject to” conditions to allow Buyers time to find out more about the home they are buying and to ensure they are able to obtain financing to purchase it.

    2. What happens if I can’t get financing or I am not happy with my home inspection?
    Usually a Realtor has written in these items as “subject conditions”, if so, you will instruct your Realtor that you are “unable to waive or fulfill” you contract. If you are unable to waive or fulfill a subject condition, your obligation to purchase the home will cease.

    3. Why do I have to give a deposit to the Realtor? Will I get it back if I back out of the deal?
    A deposit is “earnest money” meaning that it signifies to the Seller how serious you are to proceed with the transaction. Your Deposit is not a “down payment”, as your cash in the deal (in addition to your mortgage) will be paid on the Closing Date. Whether a Deposit is returned depends on the factual situation which caused a deal to collapse (see below), however your Realtor cannot simply return your deposit without first complying with the provisions of the Real Estate Act.

    4. If I can’t complete on the Completion Date will that be a problem?
    The contract provides that “time is of the essence” this means that the strict timelines in the contract are enforceable by the Court. In the event that you fail to complete “on time” you may be liable for damages (money damages) or specific performance (where the court orders you the complete the deal). If you find out that the original dates will simply not work for you, please let your Realtor and Lawyer know so that they can attempt to obtain an extension for you.

    5. If I back out the deal after removing my subject conditions, will I just lose my deposit?
    Assuming that the Seller has not misrepresented and is able to complete, generally a Buyer cannot simply “walk away” from their deposit. Should a Buyer fail to complete a firm and binding contract, the Buyer may be liable to the Seller for all of the Seller’s damages including: a) loss of profit, b) interest costs, c) marketing costs, and d) legal fees. In many cases, the amount of the Seller’s damages may exceed the deposit. If you are considering this, please call your lawyer immediately.

    6. I really like the bedroom light, how do I know this is included with the house?
    Generally, all fixtures are included with the sale of the house. Fixtures are those items that are affixed (ie; attached to) the structure and foundation (eg; chandeliers). Sometime, exactly what “is” and “is not” a fixture has to do with the “degree of attachment” and this can be confusing for both buyers and sellers. Given this confusion, sometimes Sellers remove items (ie; wall shelving) when they move out, so if there is something of importance which you want included with the purchase of you home please let your Realtor know.

    7. The property has an “in-law suite”, can I rent it out to other people?
    A secondary suite can only be rented in the City of Kelowna or the District of West Kelowna where the property has been zoned “S”. If you require that the suite to be rented to afford to live in the property, we strongly recommend that you inquire with the applicable municipality.

    8. If I own the property can I do whatever I want with it?
    Although an owner can do many things with a property that a tenant cannot do, your ownership may be subject to restrictions that are found in local statutory building schemes, homeowner’s associations, strata councils, and municipal bylaws. If your purchase of the property is dependant on a change in structure (ie; major renovation) or use (ie; home based business) please discuss this with your Realtor.

    9. If my spouse goes on title alone and we separate, will I have no claim to my house?
    The Family Relations Act creates an interest in land upon the breakup of a marriage, even if there is no interest noted on the land title (subject to a prenuptial agreement or the Act). The Act allows for filing of an interest in land, upon marriage breakup, in the land title office.

    10. A clause on my contract (i.e.; title search or tax advice) is “subject to review by the Buyer’s lawyer [or accountant]” what should I do?
    Prior to subject removal, you should take the contract to your lawyer or accountant and discuss your proposed purchase with them. Your Realtor has placed this clause into your contract to ensure that you obtain personalized professional advice in a specialized area (such as tax or a title search).

    11. What are my closing costs?
    Closing cost vary with each transaction. These include Property Transfer Tax, Municipal Property Tax, Strata Documentation and Adjustment Fees (if applicable), Land Title Office Filing Fees, and Legal Fees. We provide all clients with a quote on Legal Fees and an estimate of the other costs you can expect after we receive your contract, to ensure there are no surprises on closing.

    Have another question? We’re happy to help:

    Allowing the Buyer to Move In – Terminating an Existing Tenancy

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    Where there is an existing tenancy and your client wishes to move into the property, the existing tenancy will have to be terminated in accordance with the provisions of the Residential Tenancy Act.

    For the new Buyer to move into the property the Seller must file a “Two Month Notice to End Tenancy”, Form RTB-32. The sequence of events is:
    1. All Subjects must be removed first.
    2. Buyer must request the Seller to serve notice in writing.
    3. Seller then serves 60 day notice and must immediately pay 1 month rent as compensation.
    4. Tenant may then give a 10 notice to move out without penalty.
    5. Tenant may dispute note.

    Time lines are important here and often get Realtors into trouble. Take into account all the notice period time lines when drafting dates. The 60 days applies only after after the “effective date of notice” [which means the day before rent is payable],

    For Example
    Notice on Oct 5th
    Rent Payable on 1st
    Effective Date Oct 31st
    Move out Date Dec 31st!

    Realtors should add the following language to the standard contract  of purchase and sale when terminating a rental agreement:

    A. Upon Subject Removal, the Buyer hereby irrevocably instructs the Seller to terminate the tenancy on the Property.

    B. Upon Subject Removal, the Seller shall serve the RTB-32 Form upon the Tenant and pay the Tenant compensation according the Residential Tenancy Act and regulations.

    C. Within 48 hours of service of the RTB-32 Form, the Seller shall provide the Buyer with a copy.