Interim Financing - Buying & Selling at the Same Time
If you are buying and selling near the same time you will most often need "interim" or "bridge" financing. This means that your banker will give you a short term loan to cover your down payment on the purchase price of your new home while you are waiting for the money to be releaseable on the sale of your existing home. You would be borrowing the difference between your purchase price less the amount you are borrowing under your mortgage ... your down payment money. Why ... you may ask? That's because the land titles system takes a few days to register the transfer in the name of the buyer and then the buyers' mortgage company must advance their mortgage money before the sale proceeds of your existing home can be released to you. Since the lawyer has legal obligations he or she has to follow, the lawyer cannot release your sale money until they have complied with the trust conditions imposed on behalf of the seller and you have given up possession of the property you are selling. Also, the mortgage part of the buyer's money might not even arrive until a few days after closing. Here are 4 possible scenarios:
Examples Where You Will Need Interim Financing
- If you are moving into your new home on July 1st and selling your existing home on July 5th, you cannot possibly receive your sale proceeds in time to use them for the July 1st possession. You can't have your sale proceeds until you have given up possession and the land titles office has done its work. That's why you need interim financing from your bank.
- If you are moving into your new home on July 1st and selling your existing home the same day you will still likely need interim financing. There are two reasons. One is that the money might not be releaseable to you because the land titles office hasn't completed its work and you need to give at least your down payment amount to move into your new home. The lawyer is not allowed to "dip" into trust funds on your sale before they are releaseable. The second reason is that July 1st is a holiday. All businesses, including law offices and banks will be closed so you'll need to have your money in place at least the last business day before the holiday or weekend. Even if the transfer has registered in the buyers' names on your sale, the lawyer is not allowed to release the money to you early for your purchase because you haven't given up possession yet to the buyers on the sale of your existing home. That will only happen over the weekend or holiday.
- If your possession and sale date are on the same day, your money still won't be available 99% of the time to use on your purchase so you will still need interim financing. Just in case someone tells you that the lawyer should use title insurance to get around this, I'll mention why it's unlikely to help. In theory, your lawyer might be able to convince the buyer's lawyer on your sale to get title insurance so they can release your sale proceeds to you right away. However, it is very difficult to try to get everyone to agree on it and the buyer won't want to pay for title insurance when it does nothing for them. Even if they agreed, by the time their money arrived it might be too late in the day for us to get it to the next lawyer on your purchase. Couriers still need to drive across town to get it there and they are often very busy. There's also a very seldom used and somewhat tedious "Western Law Society Protocol" that more or less does the same thing as title insurance but you have to get the buyer's lawyer and the buyer's bank to agree to it so it's very unlikely to work. Also, remember that you must have given up possession before the money can be released on your sale under this procedure. You cannot use it to have money released before you have given up possession. If your possession date is on a weekend, the lawyer cannot release money on Friday if you aren't giving up possession until Sunday. You'll need interim financing even though it may seem to be an inconvenience.
- If you are selling on June 15th but not moving into your new home until July 1st, then your money should be releaseable to you in time for the purchase because there are about 2 weeks in between and land titles is usually only 3-4 days behind on their work and the buyer's bank will normally take 1 or 2 days after that to advance. Add a couple more days for the weekend. You probably don't need interim financing but you should check with your lawyer and banker. However, you'll need to stay in a hotel or stay with friends or family for two weeks until July 1st so not many people are able to do this.
Of course, if you have cash or a line of credit that you can draw on, you might avoid the need for interim financing. Remember, you will need to give your lawyer all your money for the purchase except for the mortgage amount in order for keys to be released.`
Notice: The information on this website is general in
nature only. It relates to Saskatchewan, Canada and may not be
applicable in your jurisdiction. It does not constitute legal
advice to you and no solicitor client relationship will be established.
You should seek specific legal advice regarding your circumstances
from a lawyer entitled to practise law in your jurisdiction.
www.rickcarlson.com | Wed, 13 Dec 2017 08:37:16 CST1
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