Sellers often assume that the sale price of their home will be
enough to pay out the costs and financial obligations associated
with the sale, but that's not always the case, especially in a
slow real estate market.
A "short sale" occurs when the amount outstanding
under a seller's mortgage, along with other payout obligations
and closing costs, is greater than the sale price of the home.
REALTORS® acting for sellers should be mindful that, if a sale
price is not sufficient to payout all of the associated financial
obligations and closing costs, the entire transaction may be in
Generally, the Contract of Purchase and Sale (CPS), together
with the standard conveyance process for a residential purchase and
sale transaction, obligates the seller to pay the following in full
by the completion date:
outstanding loan amounts secured by mortgages on title to the
pre-payment penalties and discharge fees payable to the
seller's lender connected to the payout of any mortgages,
liens or judgements secured against title to the seller's
the seller's share of property taxes and civic utilities
(sewer and water) for the year that the sale takes place, together
with any arrears, penalties and interest,
the seller's share of strata fees for the month in which
the sale takes place, together with any arrears, and unpaid special
levies and fines, plus any moveout and document fees,
legal fees, disbursements and applicable sales taxes to close
the transaction and attend to the payout and discharge of mortgages
and financial encumbrances, and
commissions and applicable sales tax pursuant to the terms of a
If the total amount of the foregoing costs and financial
obligations exceed the sale price of the home, then the seller will
require other funds to make up the difference, and pay such funds
to the seller's lawyer in trust for payout on the completion
date. If the seller is unable to do so, then they will be unable to
complete the transaction as required under the CPS, and could be
sued by the buyer for damages. Additionally, the seller would also
still be liable to the listing brokerage for the commission and
applicable taxes pursuant to the terms of the listing contract.
The listing REALTOR® can assist the seller in avoiding such
detrimental circumstances by discussing the associated closing
costs and financial obligations with them before listing the
property. This will help avoid a potential short sale by ensuring
the seller is aware of the minimum price for which the property
must be sold.
Additionally, if the REALTOR® is uncertain whether such
minimum price is achievable in the given real estate market, the
REALTOR® should advise the seller accordingly. Then the
REALTOR® and the seller should discuss whether additional funds
are available from other sources, to allow the short sale to
proceed. If not, the financial circumstances of the seller would
not make listing the property viable under the applicable market
If the REALTOR® or seller has any uncertainty about the
payouts required in connection with a particular sale, monthly
statements and/or other records or invoices should be obtained from
the appropriate sources (e.g., lender, property tax office, strata
management company). Of course, the REALTOR® must keep the
seller's financial information in confidence and should inform
While these may be sensitive issues to discuss with the seller,
being mindful of a potential short sale may be invaluable in
determining the merit of listing a property at a particular time,
and for facilitating a smooth and efficient transaction.
Previously published in "British Columbia Real Estate
Association" - August 2013.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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