Chain transactions…allow a time period for the signing of the deed of sale

When it comes to signing the act of sale before the notary, a common concern for the seller is to get his money as quickly as possible or to schedule a quick signing date. Remember that before distributing funds, the notary must always publish acts and perform many checks in the Land register, in addition to obtaining from the creditor a commitment to cancel the existing charges (for example the seller’s mortgage).

Before disposing of the sums he receives, the notary must take into account the clearing times required by the Canadian banking system. It is important that all real estate brokers know these rules to properly advise the parties when it comes to determining the date of signing the act of sale, taking into consideration the clearing times. The determination of this date is even more important when there is a chain of transactions.

Impact of clearing times on chain transactions

Here is an example allowing a better understanding of the issue.

Transaction A – a promise to purchase is signed between a seller (Mr. B) and a buyer (Mrs. C). The signing of the deed of sale is scheduled for June 1^st before notary D.

Transaction K – Mr. L, seller, accepts a promise to purchase made by Mr. B who is acting this time as a buyer. The funds from transaction A will be used in the purchase made by Mr. B. The signing of the deed of sale is scheduled for June 3^rd before notary L.

The time period between the signing of the two deeds of sale is much too short. Here is why. In an ideal situation, the funds from transaction A will be available after publication i.e., within a time period of 24 to 48 hours from the signing of the deed of sale. At best, Mr. B will therefore receive the totality of his sum following the sale of his property only on the 2^nd or the 3^rd of June. At worst, if the notary was unable to obtain from the mortgage creditor the commitment to provide a release upon receipt of sums due, the time period can take up to 30 days or more. For more information on this topic, read “Why mortgage statement? The rules surrounding the discharge of an hypothec” article.

To carry out transaction K, the notary L must deposit and keep in his trust account the cheque received from Mr. B (or from notary D). Since the cheque drawn on the trust account of a notary is subject to the same clearing rules as another cheque, the signing of the deed of sale of transaction B cannot be made before a minimum time period of 72 hours to 10 days excluding Saturdays, Sundays and bank holidays. We can easily note that June 3^rd date initially scheduled in transaction K for the signing the deed of sale cannot be complied with.

The nature of sums paid and clearing times

More often, the money for the purchase of an immovable comes from:

• the mortgage lender; and
• the buyer himself, for the down payment.

This money can be sent to the notary in different ways, including:

• Electronic funds transfer;
• Bank draft;
• Certified or regular cheque.

It is important to know that bank clearing times vary depending on the type of payment.

Electronic funds transfer

The simplest and quickest situation for the parties is when the notary receives all the funds required for the transaction by electronic transfer, both the portion coming from the mortgage lender and the buyer’s down payment via his financial institution. In this situation, the funds received by electronic transfer can be redistributed by the notary on the same day. He can disburse the funds as soon as he sees the deposit go through in his trust account.

Electronic circulation of money

Unlike the electronic transfer, the electronic circulation of money is subject to bank clearing rules of which the time ranges from one to two business days. Therefore, we should expect that the notary requests to receive the electronic funds transfer three business days before the signing of the deed of sale.

Bank draft

Often, the acting notary receives the funds required for the transaction by bank draft, whether it is the portion coming from the mortgage lender or the buyer’s down payment. Bank drafts must be requested and deposited in the notary’s trust account at least 24 to 72 business hours before the transaction. Only after this time can the notary disburse the funds, after checking with the financial institution, of course, that the draft was honoured during this time. Note that if the financial institution receiving the deposit decided to withhold funds in the notary’s trust account, the 24 to 72-hour time period could be 7 to 10 business days.

Certified cheque

The situation most likely to create delays is when the notary receives the funds required for the transaction by certified cheque, either the portion coming from the lender, or the down payment.

Certified cheques must be requested and deposited in the notary’s trust account between 72 hours and up to 10 working days before the transaction. Only after this time can the notary disburse the funds. This variable delay is explained by the various steps required between banks of the different parties involved. Within 72 hours, the notary will be notified if the cheque cannot be cleared, but the reasons and the actual return of the instrument can take up to 10 days. The notary must validate the transactions in his trust account and make sure the funds are available before proceeding with the transaction.

Although a certified cheque results in the freezing of the amounts in the issuer’s account, this freeze is not final. In case of death of the cheque signatory, or if the account is blocked due to seizure, bankruptcy, unpaid alimony, or simply because the signatory has put a stop-payment on the certified cheque, the cheque will not clear and, consequently, a notice will be sent to the payee indicating the reasons why the funds were not disbursed. This last example means that a certified cheque does not completely guarantee the presence of the funds, unlike the bank draft or the electronic transfer, which is why the clearing time is much longer, therefore requiring the signing date to be set accordingly.

Particular attention must be paid when the buyer deposits the funds to cover the cheque in an ATM or night deposit. This can further increase the clearing time. In those rare cases where a regular cheque is used, the minimum clearing time is 10 days.

International money transfer

Special procedures apply for a transaction involving funds from a foreign source. For example, current clearing times are at least 30 days for any international paper instrument. The licence involved in such a transaction should always notify the acting notary so that an appropriate signing date can be set for the act of sale.

In conclusion, given the clearing dates, the quickest way for the notary to free up the funds is by electronic funds transfer. This will make it possible for the act of sale to be signed much more quickly, and the seller will have his funds almost instantly, to the great satisfaction of all involved.

In short, what is the time frame to allow for the signing of the deed of sale?

When two or several real estate transactions are interrelated, it is important that the real estate broker ensures to allow a reasonable time period between the dates of the signing of the deed of sale of various transactions. From the point of view of the Chambre des notaries du Québec, this minimum time period could be 10 business days given the clearing times required by the Canadian banking system. Depending on circumstances, brokers should of course adjust this time frame upwards if circumstances so require.