The Flathead has become a mecca for Canadians who desire a place to spend holidays, enjoy family time, shop and embrace life. This area has seen a dramatic increase in real estate ownership from our northern neighbors. With the expansive growth, it has become evident that there are some differences in how real estate business is transacted in our two countries.
These variances are very important for all interested parties to fully understand. Both buyers and sellers expect certain protections, which are offered in much different ways from one country to another.
Who Handles Closings
In Montana, the typical real estate transaction is handled through a closing agent, most likely a title company and not an attorney. These title companies issue title commitments and insurance policies on the deed after completing research to uncover liens, easements, covenants and other clouds on the title of any given property. This gives the buyer reasonable assurances that they will not have any issues with having a marketable title when they resell their property. There are no guarantees that all outstanding claims against a Montana property’s title have been discovered and disclosed.
This differs from how Canadian purchases typically take place, as their closing process involves lawyers representing each party. The lawyers research titles, liens, discharge mortgages and do complete research on each deed. Although this may sound like the same thing, it is not, as the title companies work as impartial third party facilitators in the U.S. and Canadian attorneys actually work as advocates for their clients; buyers or sellers. Very seldom is an attorney employed as a closing agent in the state of Montana.
Guarantee of Marketable Title
Another difference is how our title process affects a purchaser’s guarantee of marketable title. In the U.S., there is not a guarantee that the title will be completely clear of all liens and claims in the future, thus the need for title insurance to protect a purchaser’s interest in the title of their newly acquired property. There may be outlying contracts, or other documents which are legally binding to the property, yet not recorded against the deed. This system can appear quite archaic when compared to the Torrens system that is utilized in Canada, which is based on the principle of “indefeasibility.”
This principle provides that all items charged against a particular property are reflected in its title, so there is no chance that any lingering item will surface in the future. The need for title insurance doesn’t always make sense to our Canadian counterparts as they are used to an ironclad system.
U.S. real estate contract contingency releases differ vastly from those in Canadian contracts. Simply put, they are released in completely opposite manners. When contingencies are written in the U.S., they are written as “conditions subsequent.” This means that the contingencies are automatically released upon the stated date in the purchase contract, unless the buyer provides their non-release of that contingency to the seller in writing prior to the contingency release date. If they fail to do so, the buyer forfeits their right to dispute that contingency, renegotiate the terms of the contract, or terminate their contract because of those unsatisfactory conditions. In Canada, contingencies are written as “conditions precedent”. In this case, the contingency condition must be unilaterally waived by whomever the condition is in favor of.
This means that the buyer in a Canadian purchase contract must release the contingency in writing, and there is no automatic waiver of that contingency. If the condition is not satisfied and the seller is not presented a buyer’s release waiver by the agents, then the deal is terminated immediately. This door swings both ways, so if there are contingencies a buyer must meet in the contract, the seller must deliver his waiver of the condition to the buyer. Tom Burk of Sotheby’s International Realty Canada put it simply, “What can happen to a Canuck is that they think they protect themselves with a contingency and they do not waive it for whatever reason. In Canada they have just killed a deal. In the U.S. they have just bought a house. Big difference.” It is easy to see that clarification of contingency releases is of the utmost importance when dealing with a Canadian client.
Contingencies also remain active longer in the U.S. than with Canadian transactions. In Alberta, most residential deals will carry conditions for a week or two, then they are released. Upon this release of contingencies, earnest monies become non-refundable, forfeitable to the seller, and the deal is firm. Canadians are often surprised and shocked when contingencies in the U.S. remain until closing. This is a foreign concept to most Canadians, as their conditions typically last only a few days. Once Canadian lenders confirm financing and conditions are waived in a week or so, the deal is considered bullet proof.
Lastly, locals must be cautious of their use of the terminology regarding condominiums. In Alberta and surrounding areas, condominium refers strictly to a method of ownership, and has no relation to the type of structure being purchased. A condo can be built as apartments, townhomes, single family homes, office or industrial suites, as well as acreages. In the U.S., the term is used somewhat loosely, with agents switching buyers from units under condominium ownership to units with fee simple ownership, and the details of each ownership are vastly different. Clarity must exist when the buyer is searching for a specific type of ownership, not a building type.
These are a few of the basic items that all parties involved in a transaction should be aware of, and educate themselves in. Knowledge is key, and it’s easily recognized that this professionalism will facilitate smooth transactions which will not have any hitches in successful closings. Foreign transactions need not be complicated, and a little due diligence from all parties will make for happy buyers, sellers, and agents.
Carmen Hobson is a Broker with Glacier Sotheby’s International Realty.
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