Crown interests on property may include Business Development Bank of Canada mortgages liens for arrears of income tax or HST remittances among many others.
Mortgages and Tax Sales
What happens to any existing mortgages after the sale?
There are two types of mortgages as they relate to sale tax properties,those that will continue to affect the property after a sale and those that will not.
Which Mortgages will continue to affect a property after a tax sale?
After a tax sale, all mortgages against a property disappear other than those in favor of the Crown. For example, the Business Development Bank is a Crown corporation and therefore a mortgage in their favor is a Crown mortgage. Remember that if you purchase a tax sale property with a mortgage in favor of the Crown and you fail to pay the Crown what is owed, the Crown could foreclose on the property and sell your new property out from under you. You should also be aware that you cannot include the money to pay off existing mortgages in your tender or bid and the mortgage must be satisfied after the sale.
Which Mortgages will no longer affect the property?
Any mortgage other than those in favor of the Crown will disappear after the sale. The person who holds the mortgage will have had ten months before the sale was advertised to pay the taxes and avoid a tax sale and therefore if they do not, they will no longer have a claim against the property after the tax sale. holds
It is important to be aware of any liens on the property prior to submitting your tender or your bid. For this reason, ordering a current Title Search Report is critical. You should then be sure to review it carefully to determine whether there is a Crown interest against the property because this will be important information for you investment decision making process.
Using financing to purchase a tax sale property
You must be aware of the risks involved in relying on obtaining a mortgage when you submit a tender for a tax sale property. The reason using bank financing for the balance of the sale price is so dangerous, is that municipalities must adhere to a strict timeline for receiving the balance of the payment. If you submit a tender, you must be prepared to pay the balance within fourteen days if you end up with the highest offer, otherwise the municipality is required to keep your deposit and offer the property to the second highest bidder. Think of the potential headache that could arise if you were waiting on your mortgage to come through during that fourteen day period.
If you choose to use a mortgage to purchase a tax sale property, always make sure that you speak to your bank before submitting tender as you must ensure you have the money available within fourteen days of your tender or you risk losing your very significant tender deposit. You should also confirm that a bank will be comfortable releasing the funds prior to a tax deed being registered as a municipality is not permitted to provide a deed until the purchase price has been paid in full along with the Land Transfer Tax, HST and Accumulated Taxes.
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.
Since the tax sale is a public event, others will likely be submitting tenders. The person with the highest tender will be permitted to purchase the property. Your deposit should be at least 20% of the full amount.