It’s my least favourite call: telling a seller that they don’t have quite enough money to close, and that they will need to bring some in in order to satisfy what must be paid out.
Sometimes, this is because there is a much higher mortgage penalty than the client anticipated. Sometimes, there are other debts that the seller didn’t realize would need to be paid at the time of the sale. Sometimes, there are debts that your bank wants paid out before you can get your new mortgage. All can cause a huge problem on closing.
For the first issue, I always recommend getting an information statement from your bank before you list so that you know what the penalty will be and can set your sale price accordingly. There have been so many times where I have had a client who was certain they would only be paying three months’ interest, only to find that they were paying five times as much in an interest rate differential. It can mean the difference between some money toward your next house, and having to borrow in order to close this one. It is also important to ask your bank their policy on charging a penalty if you are getting a new mortgage with them – sometimes, they charge you the penalty and then refund it after closing, but this can cause cash flow problems at the time of closing.
For the second issue, you need to be aware that debts can be registered in the form of what is called a writ of execution. These are not specifically attached to the house, but are attached to your name. If you owe spousal or child support, lost a lawsuit and haven’t paid the judgement, etc., this debt can be registered as a writ and it will come up when the buyer’s lawyer searches your name. If it is you, the debt must be paid on closing. If there is not enough money to pay it out of the sale, you will have to find the extra somewhere.
For the third issue, you will want to very carefully go over with your bank what debts they want paid out at the time you apply for your mortgage, so that you know exactly how much you will need to come out of your sale for those debts. Your lawyer will be required to pay them out, and so again, you will have to bring in extra money if there isn’t enough.
If you are selling, you would be wise to check about your mortgage penalty, be sure you are current on any debts that could be registered against you, and have a long talk about debt payments with your mortgage broker, to avoid some stress as your closing date approaches.
