Mortgage 101 – What You Should Know About Your Mortgage Purchase

Danielle MacLean, Clinton Wilkins, and Todd Veinotte are back to chat more on the financial aspects of real estate transactions, emphasizing the importance of proper disclosures, documentation, and transparency to ensure smooth transactions and avoid potential risks. They cover private sales, transfer taxes, joint ownership, and mortgage transfers, highlighting the need for due diligence and expert advice in navigating complex real estate deals.

Todd Veinotte
You’re listening to Mortgage 101 your guide to homeownership with Clinton Wilkins and myself Todd Veinotte. On today’s episode, we’re joined by real estate lawyer and friend of the show Danielle Mclean from DCL Law.

Clinton Wilkins
So time for another crash course in the basics of real estate law.

Todd Veinotte
Navigating the sometimes tumultuous landscape of private sales.

Clinton Wilkins
Important information to avoid being surprised during your purchase process

Todd Veinotte
And even more. For those just tuning in reintroduce our guests, some people just tuning in, we have

Clinton Wilkins
We have Danielle McLean here, she’s a practicing real estate lawyer in Dartmouth, Nova Scotia, and she’s going to talk to us and we’re gonna do a little bit of a deep dive into some of the nuances around real estate law. We talk all about mortgage lending, we talk about real estate, and we kind of dip our toe in the water talking about some law. Now we have an expert here, obviously, this is not any legal advice, it’s going to be general. Certainly, as she said, if you have specifics, you can reach out to her or talk to your lawyer.

Todd Veinotte
So private sale, the bane of somes existence.

Clinton Wilkins
Not fun for me. Lenders ask a lot of questions. Now tell me Danielle, private sales, what do you think?

Danielle MacLean
So there is a lot of value and having a good realtor behind you. Specially when you’re spending hundreds of thousands of dollars. So, with private sales, you’re right, the lenders are asking a lot more questions or asking a lot more questions of the lawyer as well. You’ve got the lawyer drafting the purchase and sale agreement, but I’m not there. I’m not in that house. A realtor that’s experienced is going to go in, they know what to look for. They’re going to say you should be having this inspected. This looks wrong to me. Here’s a list of professionals that they use, they’re going to make sure that you’re getting proper disclosures. Private deals, there’s usually one party that’s making out a lot better in my mind.

Todd Veinotte
Is it quite evident to you as the lawyer?

Danielle MacLean
I typically would be and I can advise somebody on what they should and shouldn’t pay, although a lot of times the lender on appraisal, things will kind of things will work out.

Clinton Wilkins
And I would say most private sales are appraised because the lender wants to make sure or the insurer wants to make sure that the value is there.

Danielle MacLean
And there’s a big difference between a private sale when you know you’re buying something from your grandmother versus you’re buying something from a stranger because you saw it on Kijiji, and those are the ones that really worry me and those are the ones that seem to really worry the lenders as well.

Clinton Wilkins
They often ask me “what’s the relationship between these?”, “How do they know each other?” It’s like, oh, it was a family friend, oh, it’s a neighbor. If it’s something other than that, they’re asking a lot of questions and I would say there’s even more like due diligence.

Todd Veinotte
That goes into how much trust that a listing on MLS sold by a realtor shows the value of that. So I guess from a risk standpoint, the lender recognizes that that speaks to a lot about the industry.

Danielle MacLean
Definitely. I’ve always been pro realtor, I did even from when you’re listing, typically you’re going to get better value. If you are using, you’re going to sell faster for a higher price. So you’re paying commission, but you’re still coming out ahead and you’re gonna have a lot less pain, and you’re gonna pay your lawyer a lot less because I’m not involved in these negotiations and agreement drafting and calling lenders. My Time costs money, and your time, everybody’s time costs costs money. Private deals I’m seeing a lot more of them than I used to, and I see a lot fall apart, a lot of them do fall apart. If you’ve got a realtor, again, they’re making sure that the people are already pre-approved. Hopefully before they’re bringing the course or to a seller.

Clinton Wilkins
I see so many private sales that we haven’t even pre-approved the client. We’ve never heard from the client before and they come in like we’re asking a lot of questions too, because we want to make sure that we’re doing our due diligence and protecting everyone.

Todd Veinotte
Why do you think there are more now than before?

Clinton Wilkins
I think it’s because the real estate market is more hot than it was before. I think some sellers think they can just, you know sell easily.

Danielle MacLean
I think that’s exactly what it is.

Clinton Wilkins
I can sell for top dollar, why should I pay a realtor I can just like sell this on Kijiji.

Danielle MacLean
That’s interesting, because every seller thinks their house is worth more than it is and every buyer thinks it’s worth it’s worth a lot less so it can be tricky.

Todd Veinotte
I wanted to ask you about the transfer tax, deed transfer tax, and there’s also a pretty hefty tax for people buying out of province that I think people should know about because I’m not sure everybody knows about this. So let everybody know what some of those larger costs are.

Danielle MacLean
Well, in every municipality, you’re gonna have a municipal deed transfer tax so everybody’s gonna pay that one that’s one and a half percent in Halifax of your purchase price.

Clinton Wilkins
It is a big, now in different municipalities. Are their any municipalities now that don’t charge?

Danielle MacLean
There was until about a month ago, so you’re gonna have some level of deed transfer tax, most of them are at one and a half percent, you can go online and you can find the deed transfer tax rates for the area that you’re looking to buy. So last year, the province came out with a provincial deed transfer tax. So you’ve got the municipal one which the municipality collects, the provincial deed transfer tax is going to apply to residential property being purchased by somebody that’s not a Nova Scotia resident for tax purposes, or won’t be within six months. That’s 5% of the bigger purchase price or the assessed value. That’s a big chunk of change. You can have people in some instances paying five plus one and a half percent in transfer taxes.

Clinton Wilkins
That’s prohibitive, that’s probably slowing down some of these buyers.

Todd Veinotte
I think that was the point of it.

Danielle MacLean
I think that was the intention, from what I saw the people that were buying that weren’t from Nova Scotia, were buying to create long term rentals for people. There wasn’t anybody buying and leaving it vacant or buying it for an AirBNB, it just it didn’t make sense.

Todd Veinotte
That’s what it was. It was it was a deterrent for that exact reason.

Danielle MacLean
I and I’m not sure if it really had that effect. Like my clients that weren’t from Nova Scotia that bought were buying long term, they were buying long term rentals, and they stopped buying long term REITs. In most instances, because of that, what I find it’s catching people on now is we’ve got a lot of parents whose children are coming to Halifax to go to university, right? So they can’t get into residence because the residents is full, like can’t find an affordable apartment. So they don’t, let’s let’s buy our child a condo, not thinking that they’re going to have this 5% transfer tax because mom and dad are from, say, Ontario, right? So that seems to be a big shocker sometimes once they get to your shop. So that’s right. In our opening letter, we asked in bold, you know, please tell us right away, if you’re not Canadian, or permanent resident, because there’s bands, there’s regulations around that now as well. And please tell us right away if you are not Nova Scotian, or you don’t tend to become Nova Scotia within six months, because we don’t want people surprised. But you got to be careful, because as you know, sometimes we start off qualifying the child and they think that they’re pre approved, they’re gonna buy this house. But when we get further down, they say, Well, you’re not quite there, we need to add on mom or dad, right? And then what happens? Is there adding on mom or dad from Alberta? Yep, there it is. And nobody’s telling me until I get mortgage instructions. Now, what happens if 5%? Right?

Clinton Wilkins
What happens if the child’s on there though, when they’re going to reside? Is that okay? Or how would that work? So it’s based on percent ownership. Right. So that brings up a really good segue, now that I’m thinking about something, okay. It’s good that you’re finally thinking it would, I mean, I’m always thinking about something. So to have different percentages, tell us about the different types of ways you could possibly take the deed? Sure.

Danielle MacLean
So what you would see frequently would be joint tenancy, so spouses for most common, most common so if you and I Clinton were on title as joint tenants and I passed away, you would get the property it will go over to you automatically automatically doesn’t need a deed, no probate tax, and it doesn’t matter what’s in a will, it’ll just automatically go automatically gonna go to you got it. The other way to do it is tenants in common. So Tenants in Common means like, say, you and I bought something together, where tenants in common If I die, that goes to my estate, right? So my share goes over there. So it’s not an automatic transfer we each own individually or separate.

Clinton Wilkins
Could be 99-1. It could be 50-50.

Danielle MacLean
That’s exactly it, it doesn’t have to be equal. So maybe I as the Alberta parent, own a 1% interest in the property and my child who’s the Nova Scotia resident owns 99%. Now we’re only paying 5% tax on that 1% interest. So, not always gonna work. Lender might not like it, it might not actually be the intent of the parties. We really do need to look at that. It needs to be legal. Everything, has to be by the book, but that could be an option if that was the intention that the child was gonna own 99%.

Clinton Wilkins
And we’ll see that the parents are on there for just financing purposes.

Danielle MacLean
We see that happening a lot. Traditionally, 10-15 years ago, banks were all about you can add somebody on as guarantor. And they seem to have gotten away from that. They want people on the title.

Clinton Wilkins
They want that because they want to be able to serve someone if something goes wrong.

Danielle MacLean
So, that’s caused issues because you’re adding people on the title. Even before this transfer tax, it caused issues, because now you have a parent that’s a title holder. So, it’s not their principal residence. They’re selling it, you have capital gains, you now have to deal with the CRA you know, if if mom or dad passes away, you’ve got estate issues.

People don’t think about this, but these are conversations that we have. Know that when you do use the parent on the deed and you’re adding mom as a 1% interest, well, does mom have a will that says that 1% interest goes to you? Or does it say it goes to all five of your siblings? It can get messy really quick. So, it’s it’s not clear cut when we get into that. But there’s always options. And that’s the kind of stuff that you just need to chat with your lawyer upfront. So we can get ahead.

Clinton Wilkins
I think that you also, just as much as you chat with your lawyer, you need to make sure that the lender is going to be okay with it. Because a lot of mortgages want joint tenants. That’s protecting the bank because the interest is going to the other borrower. They don’t need to worry about estate issues and fighting with people and all this stuff. So I think that’s important to take into consideration as well. So Danielle, tell us about some of these other maybe, ‘gotchas,’ you know, when you get to the lawyer. Tell us about adjustments, and what maybe people would think about other than the transfer tax?

Danielle MacLean
Yeah. So you’ve got your legal fees, obviously. You’ve got your typical disbursements. So there’s wire, there’s courrier, that sort of thing. Title insurance! So in our office, we title insurer, all of our purchase transactions. So it’s something we can chat about a bit later. But that’s going to be based on the value of the property that’s anywhere between $300 and up, depending on the purchase price. And typically, a lot of lenders require title insurance anyway. Most lenders now want title insurance or something else that typically costs more than title insurance. You’ve got, depending on the municipality, the municipality is going to charge a fee for giving something called a tax certificate. So if I’m purchasing property, I want to make sure that the property taxes are paid, I don’t want to buy something with back taxes, of course. So in HRM, for example, they charge $100 to tell me this. So $100 for a piece of paper that I get by fax. So, we’ve got your tax certificate fee, then we’re going to have municipal recording fees. So provincial recording fees. So the province charges $100, to record your deed, they charge $100 to record every mortgage that you have. So on top of that, you’re going to have typical adjustments. So when we get that property tax certificate, that’s going to show us that somebody has pre-paid the property taxes. So when you get your tax bill in April, you’re actually paying up to the end of September. So a lot of people don’t realize that you’re always paying ahead. So if you’re buying this month from somebody, they’ve already paid the taxes ahead. So you gotta remember, you’re crediting that back. So that gets added on to your purchase price.

Clinton Wilkins
And sometimes, you also need to pre pay property taxes to the lender as well. Like sometimes they’ll do a hold back to make sure you have enough.

Danielle MacLean
Some lenders want. We’re getting into the cusp of that. So when we when we get into September, the lenders kind of get a little bit anxious about property taxes, so they might want the whole bill paid, or they might want me to hold back money. The lender will hold back money.

Todd Veinotte
Danielle, it’s been a real treat having you in studio. We appreciate that very much!

Danielle MacLean
Thanks for having me!

Clinton Wilkins
I think lots more things we can talk about. We’ll have you back real soon, because I’m sure our listeners probably want to