Notaries key in home sales

You and your spouse (the buyers) have spent the last number of months searching for your dream house. You have toured countless properties, been pre-approved for a mortgage (by Bank 1), narrowed your list and decided on the one. Negotiations began and ended in a few days time, and soon the house will be yours. The subjects are off and all parties agree on the terms. Now all you need to do is come up with the down payment, sign the final papers and start moving. The work is done—or so you think.

Once the contract is firm your Realtor will send a copy of it to your notary (or lawyer), who is responsible to act for you to convey the property as per the terms of the contract. Your notary will act for you to ensure all the documentation is in order and all legal matters are taken care of.

And this is where our discussion begins. In British Columbia, a real estate deal is written using a standard form contract known as a contract of purchase and sale, or CPS. The CPS includes the agreed upon, and typically familiar, terms as well as several other clauses, many of which tend to get scanned over by the parties or not looked at all. When signing the CPS, and removed subjects, you agreed to be bound by all the clauses, even the ones you don’t fully understand.

Included in the contract are clauses that relate to mortgage financing and/or mortgage discharging. In the scenario above we mentioned you had been pre-approved for financing by Bank 1. After the offer is accepted, the CPS is forwarded to them to gain final approval. Provided everything is in order and approval is granted, Bank 1 then sends mortgage instructions to your notary. Your notary must ensure Bank 1’s instructions are met before the mortgage funds will be forwarded to them. At the top of Bank 1’s list is a requirement that the mortgage be registered on title is to be secured in first position.

However, a cursory search of the title shows the sellers have a mortgage already registered in first position by their lender (Bank 2). Bank 2’s mortgage will need to be discharged so Bank 1’s mortgage can be registered in first position. Sounds simple enough … but Bank 2 needs the mortgage to be paid in full before it will release its interest in the mortgage and sign the discharge. However, to accomplish that the sellers need the proceeds from the sale of the property.

And there’s the problem: The buyers need to come up with all the funds necessary to complete the deal but cannot access mortgage funds and register until the sellers provide clear title. At the same time, the sellers need the funds from the sale of the property before it can provide clear title.

So who blinks first? The buyers or the sellers?

Would you believe neither party does?

The solution is found with the exchange of promises between the notaries acting for the respective parties. The buyers’ notary and the sellers’ notary agree to certain terms that are acceptable to all parties and that allow the transaction to complete as planned. These promises are known as undertakings. In the legal world, an undertaking is defined as an “irrevocable promise to do something in the future.” Simply put, the buyers’ notary undertakes to pay all money, including proceeds of Bank 1’s mortgage, necessary to complete the transaction. The sellers’ notary undertakes to use those funds to pay out Bank 2’s mortgage. After certain conditions are performed and all undertakings are met only then can the transaction go ahead. Undertakings, like the aforementioned example, are exchanged on every real estate transaction in the province. The integrity of our land titles system depends on it.

As you could probably guess the notary’s job is not done on completion date. Depending on which party they act for—buyers or sellers—it can be months before all tasks can be fulfilled. However, complying with undertakings is not optional. Notaries must comply. Any notary who breaches an undertaking will most certainly be fined and/or suspended and/or expelled. It is serious business and treated as such. Thankfully, even minor breaches are extremely rare in the profession.

Rest assured the next time you are involved in buying or selling real property, you are in good hands with a notary.

If you require notary public services, Kelowna’s Rothwell Notary provides its clients with the power to make informed decisions pertaining to property transactions and personal planning. This may include providing information about your rights, obligations and legal options specific to your situation.

This article is written by or on behalf of the sponsoring client and does not necessarily reflect the views of Castanet.