A Guide to Statements of Adjustments and Statements of Funds in a Residential Real Estate Transaction

Real Estate Section 6 A Guide to Statements of Adjustments and Statements of Funds in a Residential Real Estate Transaction Contents INTRODUCTION...RE-6-1 A GUIDE TO RESIDENTIAL STATEMENTS...RE-6-1 Statement of Adjustments...RE-6-2 Deposit...RE-6-3 Calculation of the Statement of Adjustments...RE-6-4 Other Adjustments...RE-6-5 Property Tax Adjustments...RE-6-6 Property Taxes Paid by the Seller...RE-6-6 Unpaid Property Taxes:...RE-6-7 TIPPS Program...RE-6-8 Other Potential Adjustments...RE-6-9 Mortgage Assumptions...RE-6-9 Condominium Fees...RE-6-10 Rent Adjustments and Damage Deposits...RE-6-11 Seller s Statement of Receipts and Disbursements...RE-6-11 Mortgage Payouts...RE-6-12 Commissions...RE-6-12 Fees and Disbursements...RE-6-12 Examples and Illustrations...RE-6-12 Example 1 (property taxes paid)...re-6-13 Example 2 (property taxes unpaid)...re-6-13 Example 3 (Seller registered through TIPPS)...RE-6-14 No part of this material may be reproduced, in whole or in part (in any manner), without the specific written permission of The Law Society of Saskatchewan (2009 The Law Society of Saskatchewan). RE 6 i

A Guide to Residential Statements 2009 The Law Society of Saskatchewan Buyer s Statement of Funds Required...RE-6-15 Mortgage Proceeds...RE-6-16 Interest Adjustments...RE-6-16 Balance to Mortgage...RE-6-17 Fees and Disbursements...RE-6-17 Interest payable to seller...re-6-18 Appendix: Seller's Statement of Adjustments RE-A-6-2 RE 6 ii

2009 The Law Society of Saskatchewan A Guide to Residential Statements Introduction This section provides an explanation of what is typically contained in the statements and a guide to their preparation. Although you may find different firms follow slightly different formats, the fundamental calculations will remain the same. A Guide to Residential Statements In residential real estate transactions, statements are prepared on both the seller s and buyer s behalf that reflect their respective financial obligations throughout the transaction. Initially, a Statement of Adjustments is prepared and exchanged between lawyers in order to allocate the financial obligations for the transaction between the buyer and the seller. A further statement is prepared for the seller and the buyer which outlines any further financial obligations which each will incur in order for the transaction to close. For the seller, the statement indicates the amount of money that will be available for release to the seller once payment of all financial responsibilities associated with the sale are satisfied (the net sale proceeds). For the buyer, this includes any further amount of money required to purchase the property. These statements will be referred to in this section as the Seller s Statement of Estimated Sale Proceeds 1 and the Buyer s Statement of Funds Required. 1 This is referred to as the Seller s Statement of Receipts and Disbursements in the Seller s Precedents which is located in the Saskatchewan Resource Materials. RE 6 1

A Guide to Residential Statements 2009 The Law Society of Saskatchewan Statement of Adjustments The purpose of Statement of Adjustments is to allocate between the seller and the buyer the responsibility for financial obligations relating to the property being conveyed. From the seller s perspective the Statement of Adjustments records the following: the amounts which the seller has already received or will receive from the buyer on account of the purchase price financial obligations such as property taxes, mortgage assumptions (if applicable) and any other financial matters which must be addressed on the Possession/Adjustment Date of the transaction. From the buyer s perspective the Statement of Adjustments records the following: the amount owed by the buyer to the seller to acquire the property the amount which the buyer has already paid to the seller or the seller s real estate agent the financial obligations which the buyer incurs or assumes in order to own the property from the Possession/Adjustment Date. The Statement of Adjustments exchanged between the seller and buyer generally does not reflect in any way the need for the seller to discharge an existing mortgage nor the buyer s source of new funding. The Statement of Adjustments generally reflects the amount which the buyer s lawyer is to pay the seller s lawyer (cash to close). The Statement of Adjustments is a reflection of the financial arrangements between the seller and the buyer only. Third party financing does not typically form part of the Statement of Adjustments. The Statement of Adjustments is prepared by the seller s lawyer to be provided to the buyer s lawyer. Typically referred to as the Seller s Statement of Adjustments, it is forwarded together with the Transfer documentation and represents the balance required to close the transaction. Although it is standard practice for the buyer s lawyer to prepare a Statement of Adjustments on behalf of the buyer, this is not normally forwarded to the seller s lawyer. 2 It is essential for the buyer s lawyer to ensure that both 2 The Statement of Adjustments will only be forwarded to the seller s lawyer in the event of a situation that requires reverse trust conditions. For example, if a seller is unable to provide transfer RE 6 2

2009 The Law Society of Saskatchewan A Guide to Residential Statements the Seller s Statement of Adjustments and the one prepared on behalf of the buyer concur. The Statement of Adjustments takes into consideration all adjustments including deposits, property tax adjustments, condominium fees, rental adjustments and damage deposits (if applicable). Deposit Upon accepting an Offer to Purchase, the seller retains a deposit in order to complete the transaction. If a realtor is involved in the transaction, the realtor s office will retain the deposit in their trust account. If the transaction is a private deal, it is in the best interest of the clients to have the seller s lawyer retain the deposit in their trust account. The deposit is credited to the buyer s account in the Statement of Adjustments as the seller will receive this sum to be applied to the commissions. The Statement of Adjustments is prepared as follows: STATEMENT OF ADJUSTMENTS Property Description: 123 4 th Avenue Possession Date: Adjustment Date: Source of Funds Credit Buyer Credit Seller Purchase Price: Deposit: Mortgage Assumption as at Possession Date: Tax Prepayment (TIPPS): Tax Adjustment: Condominium Fees: Damage Deposit: Rent Adjustments: Cash Balance Due on Closing documentation on or before possession date, the buyer s lawyer will forward the balance to mortgage on the trust condition that the transfer documentation be provided to the buyer s lawyer. RE 6 3

A Guide to Residential Statements 2009 The Law Society of Saskatchewan In the above Statement of Adjustments, there are adjustments included which are not normally involved in standard transactions in order to illustrate any potential adjustments. For a standard format to use in an exchange between the seller s and buyer s lawyer, see the Seller s Statement of Adjustments in the Appendix. For example, consider the following: The only time an adjustment is made for a Mortgage Assumption is when the mortgage is actually being assumed by the buyer. That is, the existing mortgage remains on title with the buyer taking over the seller s payments. In the vast majority of situations, a buyer will receive a new mortgage from their financial institution. The Tax Prepayment for TIPPS will only be adjusted if the seller is registered on the TIPPS Program. The Condominium Fee adjustment applies if a condominium is being sold. The Damage Deposits and Rent Adjustments are only applicable if the property was being rented prior to the buyer taking possession and the tenancy continuing after the buyer takes possession. Calculation of the Statement of Adjustments The purchase or sale price is always a credit to the seller. Any deposit already paid by the buyer is a credit to the buyer. If the seller has paid property taxes and the buyer is responsible for part of the property tax levy (which depends on the timing of the Possession/Adjustment Date) then the amount for which the buyer is responsible is recorded as credit to the seller. Conversely, if the property tax levy is unpaid, then the seller will grant a credit in favour of the buyer for that portion of the tax year during which the seller occupied the property and the buyer will be responsible for the entire tax levy. If the mortgage is being assumed, if a tenant s rental payment or security deposit is involved or if there is some other unique aspect of the transaction, then the situation must be examined on an individual basis. RE 6 4

2009 The Law Society of Saskatchewan A Guide to Residential Statements The net difference between the two credit columns is commonly called the Cash Balance Due on Closing and is always recorded under the Credit Buyer column, so that both columns, when added up, will be equal. To determine the Cash Balance Due on Closing, you must first total all the credits to the seller then deduct the credits to the buyer. The difference represents the amount due by the buyer to the seller on closing and is always recorded as a credit to the buyer and is described as the Cash Balance Due on Closing. Other Adjustments The seller and buyer are each financially responsible for certain expenses incidental to their ownership and occupation of the property prior to and after the Possession/Adjustment Date as specified in the Real Estate Purchase Contract. Each party should be responsible for the taxes attributable to their respective period of occupation. Utilities are not usually adjusted between the parties. Each party is responsible for the connection and disconnection of their own utility accounts. The seller is responsible for arranging final readings and a new account should be set up by the buyer. However, it is possible that if utilities with the municipality (electrical, water and sewer) are in substantial arrears, same may be attached to the Property Tax Notice. In this situation, these amounts will normally form part of the tax adjustment. If not, they may be dealt with by placing trust conditions on the seller s lawyer to pay them in full from the sale proceeds. The Adjustment Date, which almost always coincides with the Possession Date, is arbitrarily chosen by the parties to the transaction for the purpose of calculating all adjustments. It is the date on which financial responsibility for ownership and occupation of the property switches from seller to buyer. It is common practice that the buyer carries the cost of the actual Possession/Adjustment Date. To avoid confusion, Possession Date will be the term used for the remaining of the section, however, it is important to recognize that if the Adjustment and Possession Dates are different, the date on which responsibility for financial obligations changes from seller to buyer is the Adjustment Date. The most common expenses needing adjustments are property taxes and condominium fees. The process for calculating the adjustment of various expenses is essentially the same. RE 6 5

A Guide to Residential Statements 2009 The Law Society of Saskatchewan Property Tax Adjustments In most urban centres in Saskatchewan, property taxes are due on June 30th of the year. In some towns and villages in Saskatchewan, property taxes are due December 31st of the year. This must be determined when a tax search is being conducted. If possession date on a property is after the date property taxes are due, then the seller must ensure that the outstanding property taxes for the year together with all interest and penalties are paid. Generally, there are three basic scenarios when adjusting for Property Taxes: 1. the seller has registered for the TIPPS program 2. property taxes have been paid in full 3. property taxes are unpaid. When undertaking the property tax search, you will determine which of the three scenarios apply. The following examples illustrate preparing a Seller s Statement of Adjustments using each of the different situations. In the scenario, the relevant facts are as follows: Purchase price: $100,000.00 Deposit: $ 10,000.00 Property taxes: $ 1,205.10 Property Tax Example 1 Property Taxes Paid by the Seller If the seller has paid taxes beyond the Possession Date then the buyer has an obligation to pay the taxes for the period of occupancy or the period after the Possession Date. To calculate this obligation, you calculate the number of days in the buyer s occupancy after the Possession Date to the end of the calendar year. This means you count the number of days from the possession date to the end of the calendar year. By way of example, let us assume that the possession date is September 1st and the property taxes of $1,205.10 were paid by the seller on June 30th. In this scenario the buyer is entitled to occupy the property on September 1st and, although the time may vary, normally possession occurs at 12:00 noon. In our example, the total number of days from September 1st to December 31st is 122. Divide 122 days by 365 days (being the total days in the year, except for the case of a leap year divide 122 days by 366 days) and multiply this fraction by the total property taxes to RE 6 6

2009 The Law Society of Saskatchewan A Guide to Residential Statements determine what portion of the property taxes is attributable to the buyer. The property tax adjustment in this example is as follows: 122/365 x $1,205.10 = $402.80 Therefore, $402.80 is the financial obligation of the buyer for the property taxes, and since the taxes have already been paid by the seller, this amount must be credited to the seller, which increases the amount payable by the buyers. The Seller s Statement of Adjustments is as follows: Source of Funds Credit Buyer Credit Seller Purchase Price $ 100,000.00 Deposit $ 10,000.00 Tax Adjustment (122/365 x $1,205.10) $ 402.80 Cash Balance Due on Closing $ 90,402.80 Totals $ 100,402.80 $ 100,402.80 Property Tax Example 2 Unpaid Property Taxes: For purposes of this discussion, assume the Possession Date in the example is now February 15th and the property taxes of $1,205.10 will be paid on June 30th. If the Possession Date is prior to the property tax due date and the seller has not yet paid the taxes, then the seller has an obligation to credit the buyer for the period of occupancy or the period up to (but not including) possession date and the buyer is responsible for paying all the property taxes when due. To calculate the credit to the buyer in this scenario, you add the number of days in the seller s occupancy up to but not including possession date. This means counting the number of days from January 1st to February 14th which is 45. Divide 45 days by 365 days (being the total days in the year, except for the case of a leap year divide 45 days by 366 days) and multiply this fraction by the total property taxes to determine what portion of the property taxes should be credited to the buyer. In this scenario the property tax adjustment is as follows: 45/365 x $1,205.10 = $148.57 Therefore, $148.57 is the financial obligation of the seller for the property taxes. Since the taxes have not been paid by the seller, this amount must be credited to the buyer, who is then responsible for paying all the taxes when they come due on June 30th. RE 6 7

A Guide to Residential Statements 2009 The Law Society of Saskatchewan The Seller s Statement of Adjustments is as follows: Source of Funds Credit Buyer Credit Seller Purchase Price $ 100,000.00 Deposit $ 10,000.00 Tax Adjustment (45/365 x $1,205.10) $ 148.57 Cash Balance Due on Closing $ 89,851.43 Totals $ 100,000.00 $ 100,000.00 Property Tax Example 3 TIPPS Program (Tax Installment Payment Plan) When a party applies for the TIPPS Program (Tax Installment Payment Plan) the property taxes are paid on a monthly basis. These payments are withdrawn directly from the seller s bank account on the 1st day of each month from January to December. To prepare the Statement of Adjustments you must credit the seller with the sums already paid to the City for the TIPPS Program and then adjust the buyer with the actual tax adjustment. For example, if possession date is February 15th, and property taxes are $1,205.10 ($100.43 is the monthly payment), you must credit the seller with two months worth of payments, being $200.86. As this sum has already been withdrawn from the seller s bank account, you must then credit the buyer with the exact number of days that the seller is responsible for taxes. This sum is adjusted as follows: 45/365 x $1,205.10 = $148.57 This sum results in the buyer being responsible for the difference of payments already credited to the tax account at the City. As possession date is on the 15th day of the month, then the buyer is responsible for the difference of February taxes which are adjusted accordingly. If the buyer is responsible for paying their own taxes (sometimes the financial institution requires that taxes by collected and remitted as part of the new mortgage) the buyer has the option of either registering for the TIPPS program and continuing to pay the taxes on a monthly basis or paying the balance remaining when they come due in June. RE 6 8

2009 The Law Society of Saskatchewan A Guide to Residential Statements Based on February 15th as possession date, the Statement of Adjustments is set up as follows, Source of Funds Credit Buyer Credit Seller Purchase Price $ 100,000.00 Deposit $ 10,000.00 Tax Prepayment $ 200.86 (TIPPS January and February) Monthly TIPPS Payment $100.43 Tax Adjustment ($1,205.10 x 45/365) $ 148.57 Cash Balance Due on Closing $ 90,052.29 Totals $ 100,200.86 $ 100,200.86 Other Potential Adjustments There are several other potential adjustments as indicated earlier on in this section. The most common are mortgage assumptions, condominium fees, rent adjustments and damage deposits. Mortgage Assumptions When property is assumed by a buyer, the Statement of Adjustments must reflect the mortgage assumption figure provided by the financial institute as of the Possession Date. These sums will continue to be owed directly to the financial institute that the mortgage is registered with, therefore the buyer will not have to provide new mortgage proceeds to the seller and closing costs will only consist of the standard adjustments. RE 6 9

A Guide to Residential Statements 2009 The Law Society of Saskatchewan The Statement of Adjustments adjusting for a mortgage assumption is as follows: Source of Funds Credit Buyer Credit Seller Purchase Price $ 100,000.00 Deposit $ 10,000.00 Mortgage Assumption as at $ 75,252.36 Possession Date February 15 th Tax Prepayment $ 200.86 (TIPPS January and February) Monthly TIPPS Payment $100.43 Tax Adjustment ($1,205.10 x 45/365) $ 148.57 Balance Due on Closing $ 14,799.93 Totals $ 100,200.86 $ 100,200.86 Condominium Fees With respect to condominium fees, the only time there is an adjustment is when a condominium is being sold or purchased. If Possession Date is on the 1st day of the month there is no adjustment as condominium fees are due on the 1st day of each month. If Possession Date is any other date of the month then adjustments must be made based upon the number of days the buyer has possession and a credit given to the seller. The Statement of Adjustments is set up as follows, based upon February 15th Possession Date: Source of Funds Credit Buyer Credit Seller Purchase Price $ 100,000.00 Deposit: $ 10,000.00 Tax Adjustment ($1,205.10 x 45/365) $ 148.57 Condominium Fees ($100.00 x 14/28) $ 50.00 Balance Due on Closing $ 89,901.43 Totals $ 100,050.00 $ 100,050.00 RE 6 10

2009 The Law Society of Saskatchewan A Guide to Residential Statements Rent Adjustments and Damage Deposits With respect to Rent Adjustments and Damage Deposits, an adjustment is made only if a tenant was renting the property and is continuing to rent the property after the buyer has taken possession. If Possession Date is on the 1st day of the month then no adjustments are made with respect to rent (it is up to the parties to notify the tenants of the change in ownership). If Possession Date is any other date of the month then adjustments must be made based upon the number of days the buyer will have possession and a credit given to the buyer as the seller would have collected rent on the 1st day of the month. With respect to Damage Deposits, the seller is responsible to credit the buyer with the Damage Deposit together with interest payable at a rate determined by the Office of the Rentalsman. The Statement of Adjustments is set up as follows, based upon February 15th Possession Date: Source of Funds Credit Buyer Credit Seller Purchase Price $ 100,000.00 Deposit: $ 10,000.00 Tax Adjustment ($1,205.10 x 45/365) Rent Adjustment ($500.00 x 14/28) $ 148.57 $ 250.00 Damage Deposit Plus Interest $ 503.16 Balance Due on Closing $ 89,098.27 Totals $ 100,000.00 $ 100,000.00 Seller s Statement of Receipts and Disbursements A Seller s Statement of Estimated Sale Proceeds is prepared for the seller and represents an approximate balance of sale proceeds available to the seller upon completion of the sale transaction. This statement shows all payments taken from the sale proceeds which include paying out any existing mortgages (or other encumbrances) registered against title, any outstanding property taxes or tax adjustments, commissions, condominium fees, rental adjustments, damage deposits (if applicable) and legal fees and disbursements. RE 6 11

A Guide to Residential Statements 2009 The Law Society of Saskatchewan Upon completion of the transaction, final adjustments will be made and the final Statement of Net Sale Proceeds must be prepared. At this time the lawyer will document any changes to the estimated statement (i.e., any increase or decrease in disbursements or changes to the mortgage payout) in order to provide a final accounting to the seller. Mortgage Payouts When a seller sells property that has a mortgage registered on title, the mortgage must be paid out of the sale proceeds in order to provide a clear title for the buyer. The lawyer must request a payout statement from the financial institute which will provide particulars such as the mortgage payout as of Possession Date. The payout statement will provide details such as the remaining mortgage amount, interest, prepayment penalties, discharge fees and outstanding tax accounts, along with a per diem rate of interest in the event that the mortgage is not paid out exactly on Possession Date. This sum will be forwarded to the financial institute out of the seller s proceeds in exchange for a discharge of mortgage to be subsequently submitted to the Land Registry. Commissions If a realtor is involved in the transaction, the realtor will forward instructions to the lawyer evidencing the deposit retained in their trust account. The seller s lawyer will be required to forward the sum of Commissions, G.S.T. and P.S.T less the deposit held in their account in order to complete this transaction. Fees and Disbursements The lawyer will charge the seller legal fees, together with disbursements, G.S.T. and P.S.T. These sums will be deducted directly from the sale proceeds. Examples and Illustrations The following three examples of a Seller Statement of Estimated Sale Proceeds are included using the same three Property Tax examples included earlier. Note that the values included in all examples are fictional and used for illustration only. RE 6 12

2009 The Law Society of Saskatchewan A Guide to Residential Statements Example 1 (property taxes paid) SELLER S STATEMENT OF ESTIMATED SALE PROCEEDS Re: Brown to Jones 111 Young Street, Saskatoon Possession Date: February 15, 200 SALE PRICE $ 100,000.00 PLUS: Purchaser s Share of yearly Property Taxes paid by Seller ($1,205.10 x 122/365) 402.80 TOTAL $ 100,402.80 LESS: Mortgage payout as at February 15th $ 87,125.00 Commission: ($7,000 plus G.S.T. ($490) and P.S.T. ($490) 7,980.00 Legal Fees Transfer $ 300.00 Disbursements: Tax Search $ 5.00* Title Search 10.00* Postage 2.50 Photocopying/Fax 25.00 Courier Service 15.00 $358.50 G.S.T. Fees 21.00 Disbursements 2.98 P.S.T. Fees 21.00 Total Disbursements 403.48 TOTAL DEDUCTIONS: $ 95,508.48 BALANCE OF PROCEEDS DUE TO SELLER (approximate) $ 4,894.32 *Denotes tax exempt disbursement E. & O. E. Example 2 (property taxes unpaid) SELLER S STATEMENT OF ESTIMATED SALE PROCEEDS Re: Brown to Jones 111 Young Street, Saskatoon Possession Date: February 15, 200 SALE PRICE $ 100,000.00 LESS: RE 6 13

A Guide to Residential Statements 2009 The Law Society of Saskatchewan Seller s Share of 2005 Property Taxes to be paid by Buyer ($1,205.10 x 45/365) 148.57 Mo rtgage payout as at February 15th $ 87,125.00 Commission: ($7,000 p lus G.S.T. ($490) and P.S.T. ($490) 7,980.00 Legal Fees Transfer $ 300.00 Disbursements: Tax Search $ 5.00* Title Search 10.00* Postage 2.50 Photocopying/Fax 25.00 Courier Service 15.00 $358.50 G.S.T. Fees 21.00 Disbursements 2.98 P.S.T. Fees 21.00 Total Disbursements 403.48 TOTAL DEDUCTIONS: $ 95,657.05 BALANCE OF PROCEEDS DUE TO SELLER (approximate) $ 4,342.95 *Denotes tax exempt disbursement E. & O. E. Example 3 (Seller registered through TIPPS) Re: SELLER S STATEMENT OF ESTIMATED SALE P ROCEEDS Brown to Jones 111 Young Street, Saskatoon Possession Date: February 15, 200 SALE PRICE $ 100,000.00 PLUS: Tax Prepayment (TIPPS) 200.86 TOTAL $100,200.86 LESS: Seller s Share of 2005 Property Taxes to be paid by Buyer ($1,205.10 x 45/365) 148.57 Mo rtgage payout as at February 15th $ 87,125.00 Commission: ($7,000 p lus G.S.T. ($490) and P.S.T. ($490) 7,980.00 RE 6 14

2009 The Law Society of Saskatchewan A Guide to Residential Statements Legal Fees Transfer $ 300.00 Disbursements: Tax Search $ 5.00* Title Search 10.00* Postage 2.50 Photocopying/Fax 25.00 Courier Service 15.00 $358.50 G.S.T. Fees 21.00 Disbursements 2.98 P.S.T. Fees 21.00 Total Disbursements 403.48 TOTAL DEDUCTIONS: $ 95,657.05 BALANCE OF PROCEEDS DUE TO SELLER (approximate) $ 4,543.81 *Denotes tax exempt disbursement E. & O. E. Buyer s Statement of Funds Required A Buyer s Statement of Funds Required is prepared for the buyer and represents an approximate balance of proceeds due in order to complete the purchase of the subject property. This statement shows the purchase price, together with estimated interest payable to the seller, property tax adjustments, monthly condominium fees, rental adjustments, damage deposits (if applicable) and legal fees and disbursements. The Buyer s Statement of Funds Required also takes into consideration monies which are available to the buyer such as deposits and mortgage proceeds. Once all adjustments are considered, this is the final balance of funds required by the lawyer to complete the purchase transaction. Upon registration of all documentation and receipt of mortgage proceeds, the final adjustments will be made and the final Statement of Funds Required must be prepared. At this time the lawyer will determine if there are any funds owed back to the buyer or any funds outstanding to the lawyer as the initial Statement of Funds Required was an estimate. RE 6 15

A Guide to Residential Statements 2009 The Law Society of Saskatchewan In addition to the Adjustments made between the buyer and seller in the Statement of Adjustments, the following is an explanation of what is typically contained in a Buyer s Statement of Funds Required. Mortgage Proceeds For most real estate transactions, a buyer will fund part of the purchase price by new mortgage. If a buyer requires a high-ratio mortgage (the amount of the mortgage is more than 75% of the value of the property) then the lender will require the mortgage to be insured by Canada Mortgage and Housing Corporation ( CMHC ). The fee for borrowing these sums will be deducted directly from the mortgage proceeds. Lenders may also have additional holdbacks from the mortgage proceeds. There may be an application fee, tax holdbacks, appraisal fees, interest, and wire fees. An example is as follows: Mortgage Proceeds Less: CMHC Fees $ 95, 000.00 4,275.00 Less: Application Fee 165.00 Less: Interest Adjustment June 15th July 1st 255.08 Less: Wire Fee 30.00 Total Balance of Mortgage Proceeds available to Buyer $ 90,274.92 Interest Adjustments Interest Adjustments may occur if the mortgage is funded prior to the Interest Adjustment Date as set by the buyer s financial institution. For example, if a buyer receives a new mortgage with the Interest Adjustment Date set for the 1st day of each month but Possession Date is prior to the 1st day of the month (i.e., June 15th), the lawyer would still request the mortgage proceeds from the financial institute on Possession Date. The financial institution normally deducts interest from the mortgage proceeds for that period of time the mortgage is funded to the interest adjustment date (from June 15th to July 1st as shown in the above example). RE 6 16

2009 The Law Society of Saskatchewan A Guide to Residential Statements Balance to Mortgage The balance to mortgage is the amount of funds that the buyer requires to purchase the property in addition to the mortgage proceeds. The buyer s lawyer must retain this sum in their trust account prior to closing date. The funds are deposited into a trust account either by certified cheque, money order or bank draft. The calculation of the balance to mortgage includes the following: interest payable to the seller interest deducted from the mortgage proceeds CMHC Fees deducted from the mortgage proceeds Application Fees deducted from the mortgage proceeds Appraisal Costs deducted from the mortgage proceeds Tax Holdbacks deducted from the mortgage proceeds all other holdbacks deducted from the mortgage proceeds. Fees and Disbursements The lawyer will charge the buyer legal fees, together with disbursements, G.S.T. and P.S.T. These sums are collected in advance from the buyer and held in trust until the transaction is billed and form part of the Total Funds Required to Close. Once the transaction has been completed the lawyer will deduct these sums from trust to pay the statement of account. The disbursement costs also include any registration costs at Information Services Corporation. These costs are calculated as follows: To register a Transfer Transaction, the registration cost is calculated on the purchase price of the property. For example, if the purchase price is $100,000.00 then the registration cost is $300.00. The registration cost is.3% of the value of the property. If a buyer is obtaining a mortgage then the buyer will also have to register the mortgage. The registration of a mortgage is a flat fee of $150.00 for up to three titles. It is an additional $50.00 for each additional title that a mortgage must be registered against. For the ISC Fee Schedule, please refer to the Information Services Corporation website: www.isc.ca. RE 6 17

A Guide to Residential Statements 2009 The Law Society of Saskatchewan Interest payable to seller Interest is payable by the buyer on all sums not paid to the seller on Possession Date. This rate of interest is determined in the Saskatchewan Real Estate Board Residential Offer to Purchase. The rate of interest is stated to be at the Bank of Canada Overnight Rate Target at the completion day plus 4% per annum. The Bank of Canada Overnight Rate Target is posted on the Bank of Canada website and must be confirmed on this website at the time interest is payable as the rate fluctuates. The rate of interest may vary if an Offer to Purchase is prepared without a real estate agent and the buyer and seller agree on a different rate of interest. The interest payable is on all sums not received by the seller s lawyer on Possession Date as set out in the Statement of Adjustments forwarded to the buyer s lawyer. This amount is usually comprised of the mortgage proceeds. For example, if documentation does not register at Information Services Corporation and mortgage proceeds are not available until 10 days after Possession Date, interest is payable on that sum as follows: Balance Due to Close (from the Statement of Adjustments) $ 89,851.43 Less: Balance to Mortgage 30,976.43 Total Mortgage proceeds $ 58,875.00 Plus: Interest ($58,875.00 x 10/365 x 7%) 112.91 Total Balance Due to Seller $ 58,987.91 The interest amount is collected in advance from the buyer and held in trust in the event late interest is payable and form part of the Total Funds Req uired to Close. It is recommended that at least 10 days interest be collected in advance. Any excess funds are returned to the buyer. The following example illustrates the Statement of Funds required for the buyer, assuming that the property taxes are not paid. This example corresponds with Example 2 in the Seller s Statement of Adjustments. In the scenario, the relevant facts are as follows: Purchase price: $100,000.00 Deposit: $ 10,000.00 Property taxes: $ 1,205.10 Buyer s new Mortgage $ 58,875.00 RE 6 18

2009 The Law Society of Saskatchewan A Guide to Residential Statements Seller s Statement of Adjustments Source of Funds Credit Buyer Credit Seller Purchase Price $ 100,000.00 Deposit $ 10,000.00 Tax Adjustment (122/365 x $1,205.10) $ 148.57 Cash Balance Due on Closing $ 89,851.43 Totals $ 100,000.00 $ 100,000.00 On the next page is the Buyer s Statement of Adjustments. Re: Possession Date: BUYER S STATEMENT OF FUNDS REQUIRED Jones to Brown 111 Young Street, Saskatoon February 15th PURCHASE PRICE $ 100,000.00 LESS: Deposit $ 10,000.00 Seller s share of property taxes to be paid by Buyer ($1,205.10 x 45/365) 148.57 BALANCE TO CLOSE $ 89,851.43 (from Statement of Adjustments) LESS: Mortgage Proceeds $ 58,875.00 BALANCE TO MORTGAGE $ 30,976.43 PLUS: FEES AND DISBURSEMENTS: FEES: Purchase $325.00 Mortgage 325.00 Subtotal $650.00 ESTIMATED DISBURSEMENTS: Search and Tax Search $ 15.00 * Tax Certificate 15.00 * Register Transfer 300.00 * Register Mortgage 150.00 * Submission Fee 20.00 * Output Fee 5.00 * Copy of Title (prior to mtg discharge) 10.00 * Copy of Title (after mtg discharge) 10.00 * Long Distance 5.00 Postage 2.50 RE 6 19

A Guide to Residential Statements 2009 The Law Society of Saskatchewan Photocopying and Faxes 35.00 Courier 15.00 TOTAL DISBURSEMENTS $582.50 P.S.T (on fees only): $45.50 G.S.T (on fees & disbursements): $49.53 Total estimated fees, disbursements, taxes $1,327.53 Estimated interest payable to vendor (10/365 x $58,875.00 x 7%) $ 112.91 TOTAL FUNDS REQUIRED TO CLOSE $32,416.87 * Denotes a G.S.T. Exempt Disbursement E. & O.E. RE 6 20

2009 The Law Society of Saskatchewan A Guide to Residential Statements Appendix Seller: Buyer: Municipal Address: Adjustment date: Number of days: Our file #: Seller s Statement of Adjustments PURCHASE PRICE: DEPOSIT: Credit Buyer Credit Seller TAX ADJUSTMENT BALANCE DUE ON CLOSING: $ $ $ $ This Statement was prepared based upon information provided to us and believed to be correct. However, its accuracy is not guaranteed. Any adjustments not contained in this statement are to be made directly between the Seller and the Buyer. When the Buyer receives a tax credit the Buyer will then be responsible for payment of the full amount of the taxes for the current year and is advised to check with the municipal taxing authority to ensure that a tax notice or copy is received. Unless otherwise expressly provided in writing, the parties to the transaction shall adjust utilities, accounts and similar services themselves. The parties shall arrange for their own insurance or assignment of existing policy. E. & O.E. RE A-6 1