Dear Purchaser,
What to know in order to achieve a Good Buy: Because you may need to say “No and Good Bye”.
I have come across many land matters during my time in the legal industry, and surprisingly in 2018, I’m still seeing common errors being made by Purchasers (new and not so new). Here are some tips, which will be useful to you on your upcoming purchase:
1. If you are not familiar with the land/property, please HIRE an Attorney who will investigate the title to the property for you. The attorney should be able to assist/advise you as follows:
2a. Taking the necessary steps to ensure that the value of the property is actually in line with the sale price. This is critical knowledge to obtain whether you are purchasing subject to a mortgage, or if it is a straight cash sale. This can be achieved by commissioning a Valuation Report or just asking general questions at the Titles Office to ascertain an approximate value.
i. How it affects a mortgage purchase: Let’s say you are purchasing a property for $20M, but the reality is that, it is actually worth $10M. Your mortgage institution will only be financing your purchase on the VALUE ($10M) and not the SALE PRICE ($20M). This means, therefore, that you will have to come up out of pocket for the difference. It could prove problematic as there are some Vendors who may want to forfeit your deposit (usually 10%), which you would have paid upon signing the agreement. There are some transactions which the law will not allow forfeiture of the deposit, once the sale is subject to a mortgage. However, each case is different, and at the end of the day the struggle, and fight to get back your deposit is an inconvenience which can be avoided with proper due diligence.
ii. How it affects a straight cash purchase: If you purchase a $10M property for $20M and then decide to sell it thereafter, it is highly unlikely that you will be able to sell it for $20M or more (which should be the case because land appreciates over time). Ergo, if you come across a new purchaser who has done their due diligence (which you should have done at first instance) it will be difficult for you to negotiate with them, a sale price which is over and above the current market value of the property.
b. Taking the necessary steps to ensure that there is no boundary/distance/use of property breaches in relation to the property.
i. How it affects a mortgage purchase: If any of the above breaches exist, this may cause your mortgage application to be denied. There are, however, certain breaches which can be modified through the court. I have come across some breaches before which were so severe, that the local planning authority and the National Environment & Planning Agency (NEPA) refused to acquiesce to the modification. Sometimes in order to modify the breach, one may have to bulldoze a wall, or building(s), and this by extension will reduce the property value. You should also ensure that if you are purchasing the property to conduct a particular activity…like, operate a business…that the covenants on the title do not restrict the operating of such business.
ii. How it affects a straight cash purchase: Like in 1(a)(ii) above, if you plan to sell in the future to someone purchasing subject to mortgage (who will need a Surveyor ID Report, and this report WILL reflect the breach(es), or to someone who has done their due diligence, you will be left ‘holding’ the bag” to cover the cost of the modification, which fee usually STARTS between $250k-$400k.
3. Last and BY NO MEANS LEAST, taking the necessary steps to ensure that whom you are purchasing the property from, is, in FACT, the legal title holder, BEFORE you pay over any monies.
My subsequent letter to you will be on ‘What’s next’ what to do after you sign the Agreement for Sale.
Keisha-Ann Savage
Attorney-at-Law
E-mail: [email protected]
1 (876) 343-5883 or 1 (876) 543-4715
Disclaimer: This information does not constitute legal advice and should not be depended upon for that purpose.
Photo Source: 123RF
