We are often asked whether we can act for a client who is selling one home and buying another on the same day.
Is this possible? Is it a good idea?
Firstly, IT IS POSSIBLE. We have acted on a few hundred of these “same day closings” over the last twenty five years and all but few have completed on time.
Secondly, is it a good idea? The answer is a definite “no.”
In the vast majority of instances, selling and buying on the same day involves using the sale proceeds to complete the purchase. The standard purchase and sale contract used in BC requires the lawyer to complete the purchase by 4:00 p.m. and the standard Canadian Bar Association undertakings require the lawyer to have the purchase funds in trust (less mortgage proceeds) before he or she submits the transfer forms for filing. However, the buyer’s lawyer is only required to make available the sale proceeds by the close of business, normally considered to be 5:00 p.m. So it comes down to an issue of timing the exchange of funds. Basically, the lawyer can’t guarantee the purchase will close since he can’t be sure of receiving the sale proceeds prior to 4:00 p.m. on the completion date.
WHO DELIVERS THE SALE PROCEEDS?
It is important to note that it is not the responsibility of the buyer’s lawyer to deliver the funds to the seller’s lawyer on the completion date. The contract of purchase and sale, standard CBA undertakings and local conveyancing practice require that the buyer’s lawyer need only advise the seller’s lawyer that the sale proceeds are ready for pick up by the close of business on the completion date. That means that the seller’s lawyer has to pick up the funds –they are not delivered by the buyer’s lawyer.
Thus, the buyer’s lawyer is well within his or her rights to call the seller’s lawyer at 4:30 p.m. on the closing date to advise that “funds are ready for pick up.” In fact that is the normal practice. The seller’s lawyer could be across the street or twenty miles away in another city, so picking up the sale proceeds is not an instant process. Due to the cumbersome set of regulations imposed by the Law Society, most lawyers DO NOT use electronic transfer of trust funds between law firms.
WHAT ABOUT DIRECT DEPOSIT OF SALE PROCEEDS?
On occasion, the buyer’s lawyer will agree to direct deposit sale proceeds to the seller’s lawyer’s bank to help with a same day closing. This is a courtesy only. The buyer’s lawyer is under no obligation to do so. In addition, the buyer’s lawyer’s staff may be extremely busy that day and may not have the time to walk over to the seller’s lawyer’s bank to make a deposit. Such a trip could take five minutes or if the bank is busy, forty five minutes to an hour. Also, the buyer’s lawyer may be waiting for mortgage proceeds (which may be delayed for any number of reasons), so he or she may not be able to direct deposit funds until very late in the day.
However, as mentioned above, on a same day closing the buyer’s lawyer needs the sale proceeds by 4:00 p.m. This is because standard CBA approved undertakings provided for in the contract require him to have at least the shortfall (difference between the purchase price and his client’s new mortgage proceeds) IN TRUST before he registers the transfer and mortgage on the new purchase. Usually that “shortfall” is coming from the client’s sale.
The buyer’s lawyer can’t meet that requirement if the seller’s lawyer calls him at 4:00 to pick up his client’s sale proceeds since he has to a) send a courier to get the funds, b) get his assistant to deposit the seller’s lawyer’s trust cheque into his trust account, c) e-register the transfer and new mortgage at land titles, d) requisition mortgage funds, e) issue his own trust cheque to his client’s seller’s lawyer and f) call the seller’s lawyer and advise that the sale proceeds on his client’s purchase are ready for pick up – ALL BY THE CLOSE OF BUSINESS THAT SAME DAY! As that would be impossible, the buyer would be unable to close on his purchase, which would put him in default under his purchase contract.
WHAT HAPPENS IF YOU DON’T CLOSE?
If the seller is being a jerk or is simply looking to take advantage of the situation, he could cancel the sale contract and keep the buyer’s deposit. This can definitely happen in a rising market (like the one we have now), where the seller believes that he may have sold for too low of a price. Indeed, the seller may have a higher back-up offer in hand and is looking for a reason to terminate the contract.
The current law in BC is that the seller could keep the deposit in this situation even if he re-sold the property to another buyer for the same or a higher price! (see Tang v. Zhang, 2013 BCCA 52,) Does this ever happen? Yes it does. One of our clients last year could not close due to a Foreign Buyer’s Tax issue and the seller resold the property for $50,000 more than our client was going to pay for it, but still chose to keep 80% of our client’s deposit of $60,000 (their reply was that our client was lucky that they didn’t keep the whole deposit!!)
In a worst case scenario the buyer would lose his deposit and the new home and almost certainly sue his realtor for agreeing to set up a “same day closing” without explaining the risks in advance.
WHAT ARE THE ALTERNATIVES?
If the sale and purchase are staggered by one day, the risk is virtually eliminated because the sale funds will definitely be available by the next morning.
Alternatively, the client would be advised to obtain a “bridge loan” from his bank to make sure that the “shortfall” is available on the closing date, even if the sale proceeds are late. This is in effect a one day loan which covers off this risk.
DO SAME DAY COMPLICATIONS EVER OCCUR?
Just this week we had the same problem as outlined above. The buyer’s sale proceeds arrived at 6:00 p.m. Fortunately, we had already obtained an agreement from the seller’s lawyer on our client’s purchase that we could close after 4:00 p.m. My staff stayed long past the close of business to finalize the purchase. Thanks to e-filing, the Land Titles Office was still “virtually” open for business.
Unlike in 2015, when I first wrote this blog, COVID 19 has drastically changed the landscape. Many lawyers and their staff are working from home. Banks have shorter hours and in some cases less staff. Head offices for banks also have people working remotely. Issues which might take a few hours to resolve, now may take days or weeks. These things all make same day closings even more perilous.
THE MORAL OF THE STORY
Don’t agree to a same day real estate closing.
If you absolutely have to do one, use an experienced real estate lawyer AND set up a bridge loan from your lender to draw on if the sale proceeds are late.
You will likely have to pay a premium fee for this as it involves a lot of extra work (whether due to juggling the deadlines with the other lawyer or notary or doing the extra documentation regarding a bridge loan).
Real estate transactions are big ticket items which carry a fair amount of stress even in straightforward transaction and significant legal consequences if they go sideways. There is no point in adding to that by having a same day closing without taking the proper steps to mitigate the risk.
If you have a question about same day real estate closings or other real estate matters please call us anytime.
© Pazder Law Corporation (2021)
Disclaimer: The foregoing is presented for information purposes only. It is not legal advice. Always consult your own legal counsel when dealing with the matters discussed.