The Municipal Act of 2001 requires that municipalities that want to take ownership of a property for tax arrears is required to offer it for sale to the public first. Section 379 (7)(b) says that most arrears are disposed of in a tax sale including mortgages and other liens, but that title will continue to be subject to both federal and provincial crown interests even after a tax deed has been registered. A municipality may seek to seek title to a property subject to a crown interest that is in tax arrears because it wants to develop the property or simply to get it off the assessment base.
As previously discussed, Crown interests on property may include Business Development Bank of Canada mortgages liens for arrears of income tax or HST remittances among many others. Because your newly purchased tax sale property will remain subject to a Crown interest, the crown could begin the process of selling your property out from under you to satisfy the interest at any point. Because of this it is very unlikely that you will be able to mortgage or sell the property.
It is entirely possible that the municipality selling the property is unaware that a crown interest is encumbering the property as it is only required to conduct a title search when beginning the process of registering a tax arrears certificate and by the time the sale is held new liens may be registered. In addition to the unknown, the municipality is making no representation about the title or the land itself. It is your responsibility as a buyer and an investor to make an informed decision and conduct your own research surrounding the property, including a title search, or hire an expert to assist you.
If you receive the Title Search Report and find that there is a significant Crown interest registered against the property and you have already submitted a tender, you will likely want to withdraw it. To do so, you must make a request in writing which must be received by the municipality treasurer before the date and time of the tax sale. It is possible to submit this request by fax but you should confirm its receipt with a phone call.
If you choose to go ahead and purchase a property that is subject to an interest in favor of the Crown, that interest will continue to follow the property even after you have purchased it in the tax sale and you will be responsible for paying it off or risk seizure by the Crown which would then sell the property once again.
Because the Crown interest follows the property, the amount owed to the Crown should not be included in the amount you tender in the sale. That is to say, that You should pay the Crown directly after you become the owner of the property. This also means that you cannot submit a tender on the condition that part of it be used to pay off the Crown interest. If you do this, your offer will be rejected as a matter of course as tenders cannot be made conditionally and it would be illegal for a municipality to use tax sale proceeds to pay off a Crown interest.
It is usually prudent to avoid such entanglements and thus you should order a Title Report Search to determine whether a Crown interest exists before tendering on a tax sale property. While it is not necessarily an absolute reason not to purchase a property, you must make a calculation about the worth of the investment based on your estimated value of the property and the total Crown interest.
A Crown interest is any interest in favor of Canada, or of Ontario, or other province. The following are some examples, but please note that this is not an exhaustive list: Canada Revenue Agency; Revenue Canada; Income Tax Act; Retail Sales Tax Act; Minister of Finance; Her Majesty The Queen; Business Development Bank; Federal Business Development Bank; Farm Credit Corporation.
You might be asking yourself whether you should ever consider purchasing a property that is subject to a Crown interest. This depends on the value of the property, the amount you are willing to pay and the amount owed under the Crown interest. As an example, if the property (in your opinion) is worth $100,000 and you plan to submit a tender for $50,000 and the Crown interest is for $10,000, you will still have gained a net value of $40,000 and might still be considered a good investment. However, if the property is valued at $100,000 and the Crown interest is $150,000 this is probably a bad investment.
We are commonly asked whether a Treasurer’s Statutory Declaration Regarding Sending of Notice will show any Crown interests on the property. The short answer is that sometimes it will and sometimes it won’t so it isn’t always wise to skip ordering the Title Search Report.
A municipality must register a tax arrears certificate against the property to be sold more than a year before its sale. Within 60 days of this registration, the municipality must also mail a document called a Notice of Registration of a Tax Arrears Certificate (usually called a “first notice”) to everyone who had an interest in the property on the day the certificate was registered, except the federal Crown (Municipal Act, 2001, subjection 374(1)).
Title Search Report provides information about a piece of land. It will include information about the owner, if there are any mortgages, easements or restrictive covenants or any other interests affecting it.
It is possible the building may have been damaged, decayed or even destroyed in the intervening time. It is also quite possible that the photos don’t depict the property from significant angles.
Learn why would a Municipality or Treasurer cancel a tax sale, when is the cut off for tax sale cancellation, and what is the best way to protect yourself by minimizing chances of wasting time and money.
