Real Estate Closing Process Ontario: A Step-by-Step Guide

Understanding the Real Estate Closing Process

After a real estate deal is signed, it's passed to the real estate lawyers to "close" the deal. But what exactly does that mean?

The real estate closing process can be overwhelming - it requires the buyer, sellers, realtors, mortgage broker, and lawyers to work together to ensure the property changes hands on the closing day.

Here is the Ontario residential closing, from the accepted offer to the registration. The people on the file still have to line up. The steps do not change because the signing is remote.

Most Ontario files now close remotely. Virtual signing does not change the steps.

The Purchase Closing Process

Opening the File

The real estate lawyer opens the client's file, gathering necessary personal information and verifying identification as per the Law Society of Ontario's requirements. This step includes a conflict of interest check and executing a retainer agreement or engagement letter.

Reviewing the Agreement of Purchase and Sale

The lawyer then reviews the Agreement of Purchase and Sale, focusing on property details, purchase price, deposit amount, completion date, and additional clauses to understand the transaction's nuances.

The deposit named in the agreement is already in trust by then, or it should be. What happens to it if the file blows up is in real estate deposits.

If the seller is a non-resident, closing funds also include a section 116 holdback until CRA issues the certificate of compliance. That slice is not the deposit.

That review includes the representations in Schedule A: what the seller actually promised about the property, not just dates and price. Seller disclosure sits behind those clauses.

Title Search and Status Certificate Review

In all purchases, a title search is conducted to check for liens, easements, and other encumbrances on the property. The title search is one of the most crucial steps in the process.

For condominiums, the lawyer reviews the Status Certificate, assessing the financial and legal status of the condo. This is usually included as a condition in the Agreement of Purchase and Sale.

Before the file is firm, those reviews sit behind offer conditions. After waiver or fulfillment, the closing sequence above takes over.

A pre-construction condo is a different file. Interim occupancy comes before title. That closing is in pre-construction condo closings, not this resale sequence.

Requisitions

The buyer's lawyer then submits requisitions to the seller's lawyer, inquiring about the property's status, title issues, taxes, and compliance matters, ensuring the transaction can proceed on track.

On a Toronto closing, the tax certificate will not always flag a year nobody declared. Vacant Home Tax arrears attach like realty tax if the City later deems the house vacant.

Title Insurance and Mortgage Preparation

The lawyer discusses title insurance with the client, offering protection against potential title issues, and prepares mortgage documents in accordance with the lender's terms.

Finalizing Closing Documents and Funds

As closing approaches, the lawyer prepares and reviews necessary legal documents, including the Statement of Adjustments and the Transfer and Charge to be registered. They also coordinate the collection and management of closing funds from both the buyer and mortgage lender.

Closing and Post-Closing

On closing day, the lawyer oversees the exchange of documents and funds, registers the transfer, and ensures the mortgage is properly recorded. Post-closing, they report back to the lender, provide a final report to the client, and ensure all the necessary legal documents, and financial aspects are properly concluded.

The Sale Closing Process

Initial Review and Preparations

The real estate lawyer begins by meticulously reviewing the Agreement of Purchase and Sale with the seller, focusing on crucial deadlines. They also obtain and review the parcel register and property tax information, ensuring all initial documentation is accurately prepared.

Responding to Requisitions

Addressing the buyer requisitions promptly and effectively is the key to making sure the closing arrangements are set, the sellers rights are protected, and ultimately both lawyers are in agreement on key issues.

Mortgage Discharge

If there's an existing mortgage, the lawyer requests a payout statement, managing the legal and financial aspects of all the documents so the mortgage comes off title.

Document Preparation and Review

The lawyer prepares and provides essential documents, such as the Statement of Adjustments, to the buyer's lawyer. This step is crucial for outlining the financial transactions and adjustments required at closing.

Finalizing Document Execution

Organizing a meeting with the seller to review and sign the final closing documents is a pivotal step. This also includes collecting the keys to the property, symbolizing the transfer of ownership.

Walkthrough fights are often chattels and fixtures, not title. The dining-room light and the rental tank should already be on the agreement.

Completing the Transaction

The lawyer is responsible for delivering the closing package, including final documents and keys to the buyer’s lawyer and for receiving the closing funds. They ensure the transaction is finalized correctly, overseeing the release of the transfer deed.

Closing and Post-Closing

Discharging any existing mortgages or liens and ensuring appropriate payments are made, including real estate commissions, fall under the lawyer's purview. They also report to their client and confirm that all seller undertakings with the buyer’s lawyer have been fulfilled.

Closing Costs

The closing costs incurred during the real estate closing process are different for purchase and sale. Typically, it is more expensive to purchase property, than to sell. But this also depends on the applicability of land transfer taxes and real estate commissions.

Closing Costs for Purchasing Real Estate

Legal Fees: Buyers need to account for legal fees, which cover the cost of a real estate lawyer reviewing documents, conducting searches, and facilitating the transaction. Legal fees on the purchasing end, are typically more expensive compared to legal fees on the selling end. This is due to additional steps and requirements.

Title Insurance: While not required by law, title insurance is commonly required by the mortgage lender - in other words if you are borrowing money for the purchase, consider it a requirement. Title insurance is a one-time fee and provides insurance coverage against issues like fraud, title defects, and survey inaccuracies.

Mortgage-Related Costs: Buyers with a mortgage may face additional fees, such as mortgage application fees, appraisal fees, and mortgage default insurance if the down payment is less than 20%. These fees tend to increase with Private Mortgages.

Land Transfer Tax: In Ontario, buyers are required to pay a Land Transfer Tax (LTT), calculated as a percentage of the property's purchase price. To calculate LTT click here. For properties in the City of Toronto, a second municipal land transfer tax applies on top. It is not simply double the provincial tax, especially above $3 million. Current rates are on the land transfer tax page.

First-time buyers may also get the provincial refund and, in Toronto, the municipal rebate. Eligibility is narrower than people think. See first-time land transfer tax rebates.

Adjustments: These are costs prepaid by the seller that the buyer must reimburse, including property taxes, utility bills, and condo maintenance fees, prorated to the closing date.

Closing Costs for Selling Real Estate

Legal Fees: Sellers also incur legal fees for services like preparing and reviewing the sale documents and facilitating the transaction. Again, typically (but not always) less than on the purchase side due to the tasks and process involved.

Real Estate Commission: This is typically the largest cost for sellers, involving a percentage of the sale price paid to the listing real estate agent - and repaid to the cooperating real estate agent. The rate would have been negotiated in your Listing Agreement and is subject to HST.

Mortgage Penalties: If the seller is breaking their mortgage agreement early, there might be penalties involved. This cost varies depending on the mortgage terms and is typically equivalent to 3-months of interest payments.

Discharge Fees: Sellers with a mortgage also pay fees to discharge the existing mortgage upon selling the property. This is more commonly seen when discharging a Private Mortgage.

Adjustments: Sellers may receive reimbursements for prepaid costs like property taxes or utility bills, which are pro-rated and credited from the buyer.

In both buying and selling in Ontario, it's important to budget for the various costs in order to avoid any surprises during the closing process. Purchase and sale have different bills. Land transfer tax is the large extra on a purchase.

Common Challenges and Delays in Real Estate Closings

Despite meticulous planning and preparation, challenges and delays can still arise during the closing process. Obstacles include financing issues, title defects, and unmet conditions. Being aware of these potential setbacks and having a plan in place to address them can help minimize their impact on the closing process.

Title Issues: Problems with a property's title, such as liens, easements, or unresolved ownership disputes, can significantly delay a closing. These issues require thorough investigation and resolution before the transaction can actually proceed.

Financing Difficulties: For buyers, obtaining mortgage approval is a critical step. Delays or last-minute issues with mortgage financing can postpone the purchase closing date. This can occur due to changes in the buyer’s financial situation or discrepancies in the property appraisal.

Document Errors or Delays: Inaccuracies in paperwork or delays in receiving necessary documents can stall the process. This includes errors or omissions in the Agreement of Purchase and Sale, mortgage documents, or other legal paperwork.

Compliance and Zoning : Zoning issues, non-compliance with local regulations, or last-minute legal disputes can emerge, requiring additional time to address and resolve - often with the required assistance of slow moving municipalities.

Frequently Asked Questions (FAQ)