Ontario form required and RTO sale process

johnkord

Inspired Forum Member
Registered
May 6, 2008
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Macdonell Avenue, Toronto, Ontario
#1
I wanted to resurrect this topic for the purpose of selling an RTO property to my RTO tennant in Ontario - Toronto to be more precise.
Can anyone help with what forms and process to use?
The RTO tenant wishes to buy, but is looking to me to define the process and guide him.

Also, I have some additional questions:
1. Should I use a lawyer for the transaction to do the closing on my side, i.e. the seller side?
2. Sould the RTO tenant have his own lawyer?
3. The monthly Option deposits collected over the 3 years: What is the typical and accepted method of giving these back to the tenant.
I assume I pay nothing to the tenant out of pocket, but instead credit the accumulated credits toward his down-payment, I.e issue a cheque payable in trust to his lawyer. Is there anything I should be careful about in this transaction?
If the tennant's mortgage institution asks where the downpayment is coming from, I assume he can tell them it's coming from me, and they ought to accept that.

It's my first RTO sale so I have growing pains. I will appreciate any and all help.
 
Likes: valeeo

GaryMcGowan

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Mar 12, 2008
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Newmarket, ON
#2
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[*]Should I use a lawyer for the transaction to do the closing on my side, i.e. the seller side?


Yes, All real estate transactions require two Lawyers. One for each side.






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[*]Should the RTO tenant have his own lawyer?


Yes,





The monthly Option deposits collected over the 3 years: What is the typical and accepted method of giving these back to the tenant. I assume I pay nothing to the tenant out of pocket, but instead credit the accumulated credits toward his down-payment, I.e issue a cheque payable in trust to his lawyer. Is there anything I should be careful about in this transaction?
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In most cases you will provide a credit to the buyer. Funds will not have to move to the buyer. Working with a good Lawyer that understands RTO is key.









If the tenant`s mortgage institution asks where the down payment is coming from, I assume he can tell them it's coming from me, and they ought to accept that.
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Having the Buyer work with a mortgage broker that understands RTOs is mandatory. The last RTO we sold. The Buyer used MCAP for their financing and it went very well.
 

johnkord

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Registered
May 6, 2008
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Macdonell Avenue, Toronto, Ontario
#4
Thank you both, Gary and Sherilynn..

Your answers are very much in line with what I was thinking.
Now, here are a few follow up questions - to you and other REIN members

1. Can anyone recommend a good RTO-familiar lawyer in the Toronto area?
2. I noted a difference in how Gary and Sherilynn pay the deposit and credits back to the buyer. Gary said the buyer is credited, and no funds are exchanged. this is appealing to me, but I wonder how that is done. Let me use my figures as example.

The sale price is $430,000.
The total amount of credits, including initial deposit, is about $35,000 - toward his downpayment.
Assume the buyer arranges a mortgage at a local bank, like BMO, and puts down 10%, or $43,000.
He provides $8,000 (his own money) and I credit him $35,000 for the rest of the down payment.
The bank lends him 90% of $430,000, or $387,000, provide he can "prove" a 10% downpayment.

Here is where it gets tricky from my point of view:
My lawyer must then receive from the buyer's lawyer $430,000 - $35,000 = $395,000, crediting the buyer $35,000.
This allows my lawyer to pay off my bank mortgage ($270,000) and forward to me the difference of $395,000 - $270,000 = $125,000, minus my lawyer's closing costs.
So, in essence, what Gary is saying, I shouldn't NEED to send my lawyer ANY cheque, because if I did, it would be a wash anyway against what I would otherwise be entitled to ($160,000).

On the other hand, Sherilynn states that she DOES issue the credit cheque to HER lawyer.
If so, is that cheque actually cashed by the other party? And if so, when? Is it "exchanged" at the same as my lawyer receives the full cheque for $430,000 from the buyer? Since the buyer does NOT have enough funds to cover the full $430,000, he must rely on my cheque for $35,000, or his cheque will bounce. Wouldn't that put the buyer in an uncomfortable situation time-wise?

Like Gary, I don't see the need for me to issue a cheque. I simply accept a lower "payment in full" from the other party, am noted as having contributed (credited $35,000) to the buyer's downpayment, while the documented sale price stays at $430,000.

Please help me see through this, since I want to do it correctly.
 

neill

Airdrie, AB
REIN Member
Oct 22, 2007
471
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Airdrie, AB
#5
Congrats on completion of an RTO sale!



We do the same as what Gary has posted, and merely credit the buyer at closing towards their down-payment.



Note that the Option consideration + monthly option credits are shown as "other value" versus Deposits. Deposits imply refundability if there is a "Subject to financing" clause that the buyer cannot satisfy. We are ready to provide copies of monthly option credit cheques received, or our ledger balances as required. In most cases, the tenant buyer has had to provide up to six months of bank statements to show proof of the option deposit physically coming out of their account (versus fraudulently "manufactured" out of thin air).



We would write up your sample deal as follows using the AB Area Contract (tweak as required for ON):



$______ Initial Deposit

$______ Additional Deposit

$______ Assumption of Mortgage

$______

$387,000 New Financing

$______ Seller Financing

$_35,000 Other Value

$ 8,000 Balance Owing (subject to adjustments)

$430,000 Purchase Price





We will sometimes even write as follows, and let the mortgage brokers advise if they want the figures revised to reflect actual New Finance amounts



$______ Initial Deposit

$______ Additional Deposit

$______ Assumption of Mortgage

$______

$______ New Financing

$______ Seller Financing

$_35,000 Other Value

$395,000 Balance Owing (subject to adjustments)

$430,000 Purchase Price



We have not had to put the option credit monies into our lawyer's account for subsequent return on any of our RTO cash-outs to date. Essentially, your lawyer's job from a money standpoint is to ensure that the buyer's lawyer sends him a total of $395,000.
 

johnkord

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Macdonell Avenue, Toronto, Ontario
#6
Thanks kindly Neill for your detailed and clear reply. I tend to see things more clearly when actual numbers are used.
This is GREAT!
The buyers have paid me monthly regularly over the 3 years with post-dated cheques for the entire monthly amount, which included the credit portion each payment. They can show their lending institution the record of these payments I am sure, but not HOW MUCH was the credit portion. They can certainly show their lender the original contract, which DID show what the credit component was. In addition I can write them qa letter, stating the credit amounts paid to me already, as well as their initial deposit. Since I am the seller, their lender ought to accept this as proof of "a portion of the new downpayment being covered already.". Question: Should I send my letter stating the credits received facts to MY lawyer, and have my lawyer send a copy to the buyer's lawyer? Stepping back a bit, I just wanted to say this is the kind of information exchange that over time makes experts of us all here in the REIN community. You can never know everything, especially whe it comes to details. I have learned so much here. A hearty MUCH APPRECIATED to all. John.
 

neill

Airdrie, AB
REIN Member
Oct 22, 2007
471
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Airdrie, AB
#7
I would recommend that if you have any other active RTO deals on the go to convert them asap to two cheques, one for the rent portion and one for the option. From an accounting perspective it also means that you are only taking in the rent as income monthly. The option gets recorded as a deposit (a liability to us on our financial statement), and only comes in as income if the tenant does not exercise their option.



That said, my. 02 would be to wait and see what the mortgage broker and your lawyer actually require.



The major reason for two cheques is to eliminate/minimize any perception or interpretation that the seller has "manufactured" the down payment out of what was only rent, which essentially amounts to fraud in the bank's eyes. Lynda and I have had literally all of our trainers on RTO advise this.



Let us know how it works out.
 

Sherilynn

Senior Forum Member
REIN Member
Oct 22, 2007
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Edmonton
www.qdhomequest.com
#8
[quote user=johnkord]Sherilynn states that she DOES issue the credit cheque to HER lawyer.


This is at the buyer's bank's request. Because it is standard that purchase deposits are held in trust by either a realtor or a lawyer, some banks require that the deposit be so held. The seller acknowledging prior receipt of the purchase deposit does not fit in the bank's box, so the bank may ask that the deposit be sent to a lawyer.



The lawyer cashes the bank draft, and it sits in a trust account until closing. Then it is released back to me as part of the proceeds. So yes, it is a "wash," but I do what the bank tells me to do in order to make the transaction as painless as possible.