The Harper Government Takes Prudent Action to Support the Long-Term Stability of Canada's Housing Market - January 2011

The Honourable Jim Flaherty, Minister of Finance, and the Honourable Christian Paradis, Minister of Natural Resources, today announced prudent adjustments to the rules for government-backed insured mortgages to support the long-term stability of Canada's housing market and support hard-working Canadian families saving through home ownership.

"Canada's well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession," said Minister Flaherty. "The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future."

"The economy continues to be our Government's top priority," continued Minister Paradis. "Our Government will continue to take the necessary actions to ensure stability and economic certainty in Canada's housing market."

The new measures:

• Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
• Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
• Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.

Our Government's ongoing monitoring and sound underlying supervisory regime, along with the traditionally cautious approach taken by Canadian financial institutions to mortgage lending, have allowed Canada to maintain strong and secure housing and mortgage markets.

The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.

Catch up on daily news that's important to real estate by checking the following 2 links:
http://www.sbr.gov.bc.ca
http://www.rebgv.org/news-statistics

Real property refers to land which includes not only the face of the earth but everything of a permanent nature over or under it.

This also includes structures and minerals. For the most part, the provinces have exclusive jurisdiction over the land within their borders not the Federal Government.

Fee Simple

Title (or ownership) to most real estate is held in what is called "fee simple" ownership. This includes most single family homes, town house and apartment condominiums, commercial properties and vacant lots or land.

Strata Title

Condominiums are a special type of "fee simple" ownership called "strata title". This means you have "title" or ownership of both your own town house or apartment unit and, along with the other strata owners, you also own a portion of the "common property" in and around the building.

Strata Corporations and Bylaws

The Condominium Act (Revised Statutes of BC 1996, Chapter 64) and the bylaws of the strata corporation set out the rules and regulations which determine each owner's rights and obligations to other owners.

The strata corporation is created when:

the original developer files a strata plan in the Land Title Office. The members of the strata corporation are the current owners of the strata lots. T

The Condominium Act:

sets out the duties and powers of the corporation and the voting rights of the members. An important duty of the strata corporation is the duty to obtain appropriate insurance.

The Strata Corporation automatically has the bylaws contained in the Act.

The bylaws cannot usually be changed until after the first annual general meeting of the members of the strata corporation. The bylaws can be amended by a majority of not less than three-quarters of the votes of all persons entitled to vote.

Information to Obtain Prior to Purchase.

If you are purchasing a new condominium, obtain a copy of the prospectus. The prospectus provides details of the vendor, the financial history, the details of the common facilities and services, property management contracts, unit entitlement, parking, etc.

If you are purchasing from an existing owner:

obtain a copy of the bylaws, the rules and regulations and the annual budget and financial statements. Also ask for a copy of the strata plan setting out the boundaries of the unit and a copy of the minutes of recent strata council meetings. Find out if owners are permitted to rent their property.

Ask about the amount of your share of the common expenses:

the amount of reserves, the need for major repairs, and the property management agreement. Find out what services are covered by your maintenance fees and what special assessments have been or are likely to be made.

Property Management.

The strata corporation is usually run on a voluntary basis by the owners. Therefore, the corporation usually contracts with a professional property management company to handle its day to day business.

Maintenance Fee.

The strata corporation prepares an annual budget of anticipated expenses and assesses each owner a portion based on the unit entitlement. Payments are usually made monthly.

Cooperative

You may wish to buy an apartment in a "cooperative". The cooperative society owns the land and building in fee simple and you, as a cooperative member or shareholder, have the exclusive right to occupy your particular unit.

Mobile Homes or Trailers

Mobile home or trailers may be on a pad which you rent in a mobile home park. They can also be placed on a lot you own in "fee simple"

Joint Tenancy:

The situation where two or more persons are equally owners of a property. Upon the death of one person the ownership reverts to the surviving joint tenant. Most married couples hold title in joint tenancy because the surviving spouse will become the sole owner in the event of the death of their partner.

Tenants in Common:

Similar to joints tenants. All tenants in common share equal property rights except that, upon the death of a tenant in common, that share does not go to the surviving tenants but is transferred to the estate of the deceased tenant. Most business partners will hold title as tenants in common. In the event of death, the interest of the deceased partner will go to their estate, and not to the other business partner.

The real estate agent acts as the agent of either the seller or the buyer. The seller contracts with the real estate agent in the standard form listing agreement. The real estate agent agrees to try to find a buyer on the terms specified in return for the seller's promise to pay a commission if the agent is successful. A buyer can similarly contract with a real estate agent to find a property on the terms specified in return for a commission.

The real estate agent's duty includes the duty of an agent to act in the best interest of the principal, the seller or buyer (the law of agency). Also, the real estate agent has a duty to act honestly and to exercise reasonable care and skill when providing information and opinions that third parties may rely on to their detriment (the tort of negligent misrepresentation).

An offer to purchase must be in writing and will be made in a contract of purchase and sale. If the seller accepts and signs your offer, it becomes a binding and enforceable contract by either party. In other words, if either party breaks any of their promises (breaches the contract), the other party may sue for damages or sue for specific performance (a court order to carry out the terms of the contract).

The contract of purchase and sale will identify the parties to the contract, identify the property, establish the price and terms of the purchase and sale, amount of the deposit items such as appliances included in the price and specific dates when "condition precedents" are to be removed and the sale is to be completed.

Conditions precedent (commonly called "subject to's") are those things that must be done or arranged before the buyer can buy or, perhaps in some instances, the seller can sell. Typically most buyers need to arrange a mortgage in order to buy a home. Their offer would, therefore, be subject to them being approved for such a mortgage by a certain date.

Also, a prudent buyer will want to have the building inspected by a professional building inspector. In such a case the offer would be subject to them obtaining a satisfactory building inspection, again by a specific date.

In the event that the buyer isn't approved for a mortgage, or the building inspection is not satisfactory, the buyer will, on or before the dates specified, inform the seller that they cannot complete their purchase and ask that their deposit be returned to them.

OTHER IMPORTANT DATES ARE:

Completion: Completion date is when title (ownership) is transferred in the Land Title Office to the buyer and when the seller receives the sale proceeds.

Possession and adjustment dates. Possession and adjustment dates are usually one day later. This is when the buyer gets the keys to the property and becomes responsible for taxes and insurance etc. In all contracts, "time is of the essence". This means that the dates agreed to in a contract must be strictly adhered to. A party who fails to fulfill their promise within the time provided is, therefore, in breach of a fundamental term of the contract and the other party may sue for damages or specific performance.

When buying a home, both the buyer and the seller have responsibilities. The buyer has a responsibility to use "due diligence" to inspect the property in order to discover any "patent" defects. Patent defects are those that are not hidden and may be discovered by a reasonable inspection. There is a rule called "caveat emptor" (or buyer beware) that means that if the buyer does not inspect the property, he cannot later complain of defects which are not inconsistent with the seller's representations about the property.

However, the seller (or their agent) may not conceal or mislead the buyer about defects that would otherwise be evident. Such action could be fraudulent, thereby permitting the buyer to cancel the contract.

Besides patent defects, which are obvious, there can also be "latent" defects. These would not be revealed by a reasonable inspection. Although there is no implied warranty that a property is of any particular quality, if the seller knows, or could be expected to know that the buyer would not purchase the property if they were aware of the latent defect, the seller has a responsibility to disclose such defects to the buyer.

In general, if the seller did not commit fraud, the buyer can not legally complain if he or she finds a defect in quality, for example a leaking roof, after the sale. Therefore, before the sale, you must investigate the property fully. Some buyers make the purchase subject to inspection of the house by an expert, usually a certified home inspector.

Standard-form contracts of purchase and sale provide that there are no representations, warranties, guarantees, promises, or agreements except those contained in the agreement. If the seller makes representations ("promises") about the quality of the property have them written into the agreement. The buyer asks the seller to make written representations about the quality of the property in the property condition disclosure form. The seller responds to a list of questions which becomes part of the contract.

If you are buying a new house, you will similarly need express written warranties as to the quality of the building and agreement that the builder will repair defects found during the term of the warranty. Some builders provide warranties under the New Home Warranty Program.

Buyers usually cannot afford to pay cash for the full price of the property. Buyers pay a down payment to the seller and ask banks or other lending institutions for a loan for the balance. The lender takes back security on the property; the security document is called a mortgage.

In a mortgage the borrower agrees to repay the loan under the specified terms. For example, the rate of interest can be fixed for a certain period. If the mortgage is open, the borrower can repay the principal and interest at any time. If the mortgage is closed, the borrower cannot repay the principal until the term is completed.

Each province has its own system of land titles. We give the example of BC below. We also reference the land titles systems of the other provinces and the Yukon following BC.

The Land Title Act governs the registration of property titles. In BC., for example, titles are registered in one of seven Land Titles Offices in the province. To create a title that binds other people, title documents must be registered. Priority of competing interests in the same land is determined solely on the basis of the time of application for registration not on the time of signing ("execution"). A Certificate of Indefeasible Title issued by the Land Title Office is conclusive evidence of title.

Charges are encumbrances (interests) on the title. Important charges include: easements, statutory rights-of-way, lis pendens, builders' liens and caveats.

An easement is an interest in land whereby the owner of one parcel (the dominant tenement) is granted certain rights over an adjacent parcel (the servient tenement). It can include rights of encroachment, access and passage from one parcel of land to an adjacent parcel. A statutory right-of-way is an easement without a dominant tenement. Only certain parties qualify to own statutory rights-of-way; these include public bodies, utilities, and municipal corporations.

A lis pendens is a certificate issued by the Court and filed in the Land Title Office. The Court can give a lis pendens to a party who starts a court proceeding in which a claim is made for an estate or interest in land, or in which a right of action in respect of land is given by an Act other than the Land Title Act. The effect of the lis pendens is to immediately freeze the title and to prevent any subsequent applications from being registered.

A builders' lienis a charge on the title registered by a builder, contractor, sub-contractor or materials supplier for the amount owing for work done on the property. Under the Builders Lien Act the owner must withhold ten percent of the contract price for 40 days after completion of the contract or must pay the lien holder in order to discharge the lien.

A caveatis a temporary instrument with a life of 60 days. It requests the Registrar to prevent the registration of any instrument dealing with the property as described in the caveat until the caveat is withdrawn or discharged. The caveat must allege an estate or interest in land, and it is discretionary. It will not be granted unless the Registrar is satisfied that an interest has been properly set out.

Foreclosure is defined as that action that a lender will take to repossess and sell a piece of property for defaults in mortgage payments.

The usual procedure is for the mortgage holder to hire a lawyer to commence the foreclosure procedure. A current valuation or an appraisal of the property is made to establish the value.

Depending on the equity in the property or the anticipated shortfall, the lawyer, on behalf of the mortgage holder, will seek from the court an appropriate redemption period. i.e. the period of time the court will establish for which the property will be for sale before the owner will have to vacate and the time which potentially the mortgage holder can take control of the property.

If there is a significant anticipated shortfall the lawyer for the mortgage holder will argue for no redemption period. If there is anticipated equity then the owner of the property will ask the court for a longer redemption period so the property can be sold in an orderly manner and not as a "fire sale", thus allowing the owner to sell for as high a price as possible and therefore not suffer a loss or worse a shortfall. Typically the courts will grant a 6 month redemption period.

Conduct of Sale is also a key issue. The court can grant conduct of sale to the owner or the mortgage holder usually dependent on the length of the redemption period.

When a satisfactory offer has been received for the property the offer will be taken to court by the lawyer for the mortgage holder so the court can approve the sale.

If there is a shortfall the mortgage holder will look to the owner to make up the shortfall.