Advice needed in regards to a potential new home purchase

[Matthew2145]

This is a private sale, the homeowner has just completed renovations on the home and put in a legal suite that she has gotten approval from the City of Edmonton and the Cornerstone grant, during our conversation the seller informed us that she would be able to transfer the rights to the Cornerstone Grant to us because she hasn’t actually used the grant she merely has received approval. When I called the Secondary Suites department of the City today to confirm that it could be transferred they informed me that it CANNOT be transferred.


From my standpoint it seems like the seller was merely presenting the “carrot” of the Cornerstone Grant transfer as a selling feature, knowing that it is non-transferable.


My question would be what is the best course of action?


Should we cancel the purchase based on one of our conditions? Should we speak to the seller and say that the Grant cannot be transferred and perhaps negotiate new terms?

Just wanted to know if there was any legal issues we should be aware of when presenting this information to the seller?

 

[Thomas Beyer]

Consider an agreement for sale.

You will take title later, but can move in (or rent out). The seller may (or may not) collect the grant. The price should reflect the value of the home not how the renovations were financed. As such, buy it for a price you deem reasonable regardless of the seller possibly receiving a grant. Let them worry about the grant collection.

An agreement for sale allows you to take beneficial, but not legal ownership. It is also sometimes referred to as a wrap mortgage. You wrap your interest around the existing mortgage. You then get a new mortgage in the future, when you take title, say a year from now.

Ensure you are not overpaying in a falling Edmonton market. Many private sales are overpriced. Also ensure you understand the implications of a grant as there may be stipulations attached to it as to what rent you are allowed to charge ( usually below market ).

 

[Sherilynn]

I'm confused. Is the seller trying to get a higher price based on the premise you will be able to collect grant money from the City? I agree this is not possible.

It is of no benefit to you to for her to receive the grant. The house is worth the same amount regardless of how the renovations were funded. However, if she takes the grant, you would have very strict rules to follow to adhere to the program. If she collects the grant, she should reduce her price accordingly (since you would now be responsible for living up to the terms of the grant contract).

Also, if she applied for the grant as an owner-occupier, you should double-check the implications of you buying the property as an investor not living at the premises.

 

[Matt Crowley]

This is a private sale, the homeowner has just completed renovations on the home and put in a legal suite that she has gotten approval from the City of Edmonton and the Cornerstone grant, during our conversation the seller informed us that she would be able to transfer the rights to the Cornerstone Grant to us because she hasn’t actually used the grant she merely has received approval. When I called the Secondary Suites department of the City today to confirm that it could be transferred they informed me that it CANNOT be transferred.

Hi Matthew, when we spoke about a week ago this is exactly what I expected. An AFS is likely your only option here if you want to collect the grant money and purchase the house. You need to do more digging though... was the home a new construction secondary suite? Then the owner must reside in the property. If it was a pre-existing but updated suite then the owner does not have to live in it but they are still required to be the owner of the property for 5 years. Note that if any of the city's violation occur, then the full amount of the grant is payable to the city. Keep in mind the city can inspect the property at any point in time with a couple day's notice. That notice is going to go to the registered owner... do you want to deal with her for the next 5 years? She may have decided not to collect the grant because she knows she will just have to repay it immediately upon sale.

The Cornerstone Grant is not an option for you at all. It is an option for the owner who was approved for the funding. There is a timeline requirement for suite completion as well. Also, check out Edmonton's SLIM maps to verify the development and building permits were pulled (http://maps.edmonton.ca/map.aspx). Maybe an AFS could work....but keep in mind you are going to need to be careful about who you disclose that to as I can pretty well assure you COE is not going to be interested in something like that. So... expect if they did find out they would file that caveat on the property and you would need to repay it in full with the property sale before receiving your proceeds.

In my mind, the grant is off the table. Sale is private so the price should reflect that (take off Realtor's fees). Take $20k off the price minimum for the lost grant money.

Legal issues: grant is not transferrable. The city does not want these transferred either. They are very clear about this in the Cornerstone documents.

 

[Matthew2145]

THank you Matthew, Thomas and Sherilynn!!

I have cancelled the purchase agreement and will go back to the drawing board with negotiations and see where the dice falls.

I will provide an update if there is success in our negotiations and we come to a win-win situation.

 

[KeithnCalgary]

Be sure and check the property title to see if the grant has been registered on title or not. If the grant is registered on title then the sellers lawyer will have to pay out the grant to get clear title to complete a purchase. The property is worth what the market value says it is worth and if the grant has to be paid out by the seller from that price then that is the seller and sellers lawyer's responsibility to take care of at time of closing. Grants are tricky to work with and only in rare occasions will a grant holder allow the grant to be postponed on title (Usually in a refinance situation by same owner).
We had a lawyer fail to make the postponement request to the grant holder prior to completion of a refinance and title registration and the grant holder refused to postpone afterwards. The lawyer had to pay out the remaining grant balance in full to have it released from title so the mortgage would be in first position. Since this was the lawyers error we ended up with paid in full grant a few years early releasing us from any rental limitations or obligations.