Same Day Closings
Here is a very useful article in AREA’s newsletter dealing with coinciding possession days:
In assisting buyers with their home closing needs, we often encounter circumstances where the possession day on a buyer’s new home purchase is the same as the closing date on their existing house sale. In some cases, both transactions are scheduled to close on a weekend or a holiday. Unfortunately, many of these buyers are ill prepared by their representatives for the same-day closings and, as a result, are unaware of the potential need for interim (bridge) financing. If the requirement for bridge financing only comes to the buyer’s attention at the last moment, the costs and stress will usually be higher than had the buyer secured financing at an earlier stage as part of the mortgage approval process.
So When and Why is Bridge Financing Required?
Many REALTORS® and Mortgage Brokers believe that by using Title Insurance and/or the Conveyancing Protocol a home purchase and sale will always close on time, and it will therefore be possible to transfer the client’s equity from the sale towards a purchase on the same day. However, the smooth and timely closing of a real estate transaction requires a number of independent factors – not within the full control of the lawyers involved – to fall into place. While the majority of transactions do close on time, delays can occur for any number of different reasons (some examples of which follow) that neither Title Insurance nor the Conveyancing Protocol can overcome.
- The mortgage instructions are not generated by the lender early enough to permit the timely preparation, execution and funding of the buyer’s mortgage.
- The buyer is out of town and not available to execute documents when required by the buyer’s lawyer to do so.
- An unsatisfied and previously undisclosed condition of funding is discovered on closing day.
- The lender is too busy and doesn’t issue the mortgage advance cheque when requested.
- The seller doesn’t move out of the property on time.
- A Real Property Report cannot be located by the seller and a new one is not available in time for closing.
- A Real Property Report produced shortly before closing discloses building location problems that cannot be remedied in time.
- A Real Property Report produced shorly before closing discloses building location problems that cannot be remedied in time.
- The buyer has remorse and refuses to close at the last minute.
A client who intends to use the sale proceeds to pay for the purchase, and who discovers on the closing day that the sale is not closing for one reason or another, has a big problem. It will be difficult if not impossible for that client to secure bridge financing at the last moment and the delay in the closing of the sale will place the client in a breach of contract position with respect to the client’s purchase. At the very least, the client will not be granted possession of the new home. At worst, the client will forfeit the deposits and potentially be sued for additional damages arising from the non-performance of purchase obligations. The fact that the client may or may not be able to recover some of those damages from the buyer of the client’s existing home is likely a small consolation.
As a result of these risks, it is always best for the client to separate the two transactions by obtaining bridge financing. Once the bridge loan is advanced, it will permit the timely closing of the client’s purchase regardless of any delays or complications occurring on the client’s sale. Even if the sale eventually closes on time, securing the interim financing in advance will eliminate unnecessary stress and worrying about the possibility that it might not.