Schedule A Schedule A = standard attachment that can contain all types of clauses // information - PowerPoint Presentation

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Schedule ASlide2

Schedule A = standard attachment that can contain all types of clauses // information

The clauses // information contained in Schedule A supersede the Agreement of Purchase and Sale

Schedule ASlide3

Pay Balance

6 Key Elements to the Pay BalanceBy whom?

Amount?

Adjustments?How to be paid?To whom?When to be paid?Example: Buyer agrees to pay additional $100,000 subject to adjustments by certified cheque/bank draft to seller on completion of transaction

Schedule ASlide4

Pay balance = sum of money that buyer must produce on closing day

If any of the six elements or “by bank draft or certified cheque” or “subject to adjustment” are missing, pay balance is not well written

We do not need to include name of the seller or the closing date in the clause

Calculating pay balance Purchase Price (PP) – Seller Take Back (STB) – Assumed Mortgage (if applicable) – deposit(s)STB = PP – Cash (CAN)Cash = total cash deposits + assumed mortgage + new mortgageSchedule ASlide5

Mortgage Clauses

New First MortgageMost lenders provide streamlined approval processes and standardized financing packages for arranging new first mortgages

These are typically written as a condition precedent (no deal until condition is waived)

Prepayment of mortgageNot a right but a privilege under mortgage documentPre-payment lets borrowers make additional payments or pay off mortgage before its term ends without penaltySchedule ASlide6

Assumed Mortgage

When a buyer assumes mortgage, they take over existing mortgage balance owed by the seller

They also become responsible for terms, payments and all monies owed to the mortgagee (lender)

Buyer may save appraisal fees, survey costs and select legal fees if they assume existing mortgageSeller can save any interest differential or payout penalty that may apply (normally so if a Closed mortgage is in place)This kind of clause is normally a true condition precedent (if lender does not approve assumption of mortgage by buyer, there is no deal)Schedule ASlide7

Seller Take Back (STB)

STB offers opportunity for creative packaging to suit the needs of the client

These are positive negotiating tools that serve both the interest of the buyer and the seller

Buyer may be able to avoid certain costs and paperwork that are normally associated with conventional lendersSeller can improve marketability using attractive terms or achieve personal investment objectivesSTBs are most effective with unique/older properties where buyers bring significant down payments to the negotiating table and sellers have enough financial reserves to assist Schedule ASlide8

Postponement Clause

If the second mortgage term is more than the first mortgage term, a postponement clause is a must

For instance, a property has a first mortgage of $150,000 for a term of 4 years and a second mortgage (STB) of $30,000 for a term of 5 years

When the first mortgage expires, the second mortgage will move to its placeThis is important because the first mortgage lender will pay first in case you defaultIf mortgage renewed after four year term, it will stay in its position and not replace the otherLand Registry is based on “first-come-first-served”Schedule ASlide9

Postponement Clause insures that STB/second mortgage will always come after the first one

STB mortgage cannot be assigned without obtaining consent from the lender/seller

STB clauses can be identified because they start with the seller agrees to take back

Schedule ASlide10

Mortgage Condition

“Approximately” is ok“Could say not more than” is still ok

“Not less than” might be problematic

This could represent an Oklahoma situation whereby a property is being over-financedIn this situation, salesperson should insure that the mortgage condition (first mortgage) should include the phrase “not more than” and be written as a True Condition Precedent such that it cannot be waivedThis protects sellers who offer STB, but the salesperson should also insert a clause to protect the seller from over financing that results from an Oklahoma situationSchedule ASlide11

How should the assuming mortgage clause be worded?

Bad example: “The buyer agrees to assume the first existing mortgage held by XYZ Bank for not less than”

This is wrong because it should say “not more than” for an Oklahoma situation

Assumed mortgage condition cannot be waived but near the end it says this condition can be waived by the buyerIt cannot be waived because it is up to the bank to approve – it must be fulfilled and the buyer cannot waive itIf Oklahoma:Not less than = wrongCondition may be waived = wrongSchedule ASlide12

Assuming mortgage condition in Schedule A

Buyer must send seller the following document

Waiver = wrong

Termination = wrongFulfillment = rightConditional upon mortgagee approvalThe following sentence must always be there: “This offer is conditional upon the buyer obtaining approval of the charge/mortgage”Sale of Buyer’s Property (SBP)This must be accompanied by an escape clauseIt protects both the buyer and the sellerSchedule ASlide13

Offer is conditional upon sale of buyer’s property, of which if he gives notice by a prescribed date, is fulfilled (failure to do so renders the offer null and void) – this benefits the buyer because he can waive the offer with due notice

The seller may continue to offer property for sale and receive offers from other buyers. In the event that he receives another satisfactory offer, he may notify buyer to waive condition in prescribed time

If a seller gets a better offer, he must give notice of it in no more than 48 hours

Schedule ASlide14

UFFI (Foam Insulation)

If you have UFFI installed, you should insert a clause that states that the buyer acknowledges that the property contains urea formaldehyde foam insulation

PHD = physical stigma of property that affects it

If UFFI is removed, this negative aspect goes away tooUFFI = health hazard which must be disclosed to the other party in writingWritten disclosure means you should put UFFI 1 Clause in Schedule AYou should delete pre-printed UFFI clause and add it to Schedule A if you have UFFISchedule ASlide15

Insurance Clause

Normally written as a condition precedent (waived)For example, a clause may say that it is the responsibility of the buyer to find insurance for the property and they must give notice to give fulfilment of this condition before a certain date, or else the offer shall be null and void. It will further state that the condition is for the benefit of the buyer and may be waived at the buyer’s sole option by giving notice to the seller

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Identification

This is a FINTRAC requirementBuyers and sellers must be verified in all transactions

This can be done by checking driver’s license and filling in Form 630 which is the FINTRAC Individual Identification Record

If the party is out of the country, the real estate MUST arrange to have the party meet with a contracted agent in the country they are in to verify their IDCopies of Agreement of Purchase and SaleRegistrar must make best effort to ensure that all parties to agreement receive a copy of it as soon as possible and that deposits and other related documents be deliveredSchedule ASlide17

The registrant is required to disclose any competing offers to all persons making competing offers, but cannot disclose any details related to the substance of the offers

Substance of the offers includes deposit amount, conditions, price and closing date

Competing OffersSlide18

Amendments made through the parole evidence rule

If you ever want to make a change to a firm offer (contained in an Agreement of Purchase and Sale), you must draft An Amendment to the

Agreement of Purchase and

SaleAn Amendment can only alter purchase price, completion/closing date, Deposits, Names – only for firm offer that requires changesBuyer and seller both must agree and sign the Amendment document to make changes to the AgreementAmendment Slide19

Example:

Jake is a salesperson from X Realty and is representing a client buyer. The client is interested in purchasing development land in Toronto. Jake finds a suitable property meeting the client buyer’s requirements. This property is listed by broker Jen of Y Realty Inc. with total commission of 3.5%. The Broker/Owner Tim insists that Jake obtain a Confirmation of Co-Operation and Representation (OREA Form 320) from Y Realty Inc. MLS Listing Information says the Co-Operating Brokerage will get 1.5% commission.

Commission PaidSlide20

What happens if salesperson Jen does not sign the form and payment to X Realty is not made?

In case of an unsigned form, it might be difficult for X Realty to collect commission from Y Realty Inc. if they refuse to forward appropriate funds

If the sale was an MLS transaction, regulations and by-laws of the local real estate trust board (TREB as we saw in Phase 1 also arbitrates) provide for immediate payment by the listing brokerage to the co-operating brokerage

But these only apply if the brokerages are operating within the same jurisdictionCommission PaidSlide21

It can become problematic if the listing brokerage is uncooperative and is in a different jurisdiction

OREA Form 320 (The Confirmation of Co-operation and Representation) is used between boards

This is also used for exclusively listed properties

Commission PaidSlide22

Tarion warranties are not administered by the Ontario government, but by Tarion Warranty Corporation

It is a new home warranty (not seasonal)1 year coverage = everything

2 year coverage = Foundation Walls etc.

7 year coverage = major structural defectsSeptic tank coverage = up to $25,000New home coverage = up to $300,000Amenities coverage = up to $50,000 per unit with a maximum of $2.5 million per buildingTarion WarrantySlide23

Coverage of Resale Homes

Warranty remains with a home even if ownership changes due to a resale, except if:

Temporary/seasonal – cottage not sufficiently insulated to allow year-round living, or not built on a permanent foundation

Homes built on existing foundations or footings, or otherwise converted, including:Industrial buildings converted to residential condosResidential apartment buildings converted to condosProperties held by limited partnerships for purposes of investment, in which investors purchase the unitHomes where contractor only erects shell and owner completes interior work himselfTarion Warranty