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Professional Standards Manual

Trading Services

4. General Information

(a) Contract Clauses - View Entire Section

(XVII) Financing Information - View Subsection
(6) Sale Price Insufficient To Cover Financial Encumbrances

Licensees should be aware that, in some instances, sellers may find themselves unable to clear title as their financial obligations are greater than they expected and exceed the proceeds of the sale. Examples of this might occur when penalties are applied for the early pay-out of a mortgage, interest has accumulated if mortgage payments have fallen into arrears, or if a lien against the property is unsatisfied. The amounts of these sorts of financial obligations can be very substantial and, when combined with commissions payable, may create a circumstance where the seller has no practical remedy and the transaction collapses, leaving the buyer, the seller and the licensees involved all in regrettable positions with potential legal implications.

At the time of listing a property, it is a prudent practice for licensees to discuss with a seller their obligation to clear title and the nature of the expenses they will face at closing. Licensees should advise their seller-clients to review the terms of their mortgage, as well as to seek written confirmation from their lending institution of the amount of any outstanding mortgage balances, accrued interest, or penalties. A seller who is planning on acquiring another property, based on the sale of an existing property, may also want to familiarize himself or herself as to the portability of his or her existing mortgage and any terms, conditions and time limitations that may apply.

Licensees who advise and assist their clients in obtaining clear and certain information as to their financial obligations at the time of listing a property, place their clients in a position of being able to make informed decisions when considering any offers. This ultimately sets the stage for a smooth completion without surprises.

In the event there is any question whether the sale price is sufficient to cover financial encumbrances and real estate commission, licensees should protect the seller (and themselves) by use of the following clause in the contract:

Financial Obligations Exceed Sale Price Clause

Subject to the Seller’s confirmation and satisfaction with the arrangement of financial affairs, on or before (date), which enable the Seller to proceed with this sale.

This condition is for the sole benefit of the Seller.

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.