Cash Sales - Note the position with guarantee requirements
Category Advice
When a purchaser intends to pay cash for a property purchased, one may think that the purchaser is only required to deposit the cash on the date of transfer. It is, however, not so simple.
In a typical property transaction, the seller will have a bond over the property which must be cancelled simultaneously with the transfer of the property to the purchaser. But before the sellers's bondholder will consent to the cancellation of its bond over the property, it will require a guarantee that the balance owing under the bond will be paid to it on the registration of transfer.
Where a purchaser pays the purchase price by way of a mortgage loan, the purchaser's bank will issue a guarantee to this effect on the strength of the bond amount that will be released by the purchaser's bank on registration of transfer.
However, where the purchaser pays cash, the transferring attorney requires the cash to be deposited in its trust account before it can issue the required guarantee to the seller's bank. The guarantee is required early on in the transaction since the bank's consent to cancel the existing bond is dependent on receipt of this document.
Cash buyers must therefore be aware of the fact that they will be required to pay the purchase price in cash to the transferring attorney, well in advance of transfer, in the event that the seller has a bond over the property.
article sourced in Real Estate magazine nov 2013
Author: Smith Tabata Buchanan Boyes
