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Real Estate

Understanding Municipal Tax Sales: Legal Challenges

Other Legal Challenges

Earlier we have discussed three Municipal Tax Sales clauses, which if applicable, leads to cancellation of sale. Besides cancellation by the treasurer, the tax sale could be challenged by others as voidable for neglect, omission, or error as provided in s. 382 (1).21

Redemption

The statute states that the cancellation price has to be paid within one year from the date of registration of the tax arrears certificate because the tax arrears certificate is required to announce that the land will be sold by public sale if the cancellation price is not paid within one year following the date of its registration. In addition, the tax deed has to include a statement that the cancellation price was not paid within one year following the date of the registration of the tax arrears certificate.

It has been seen, however, that a treasurer has the discretion under s. 12(6) of the Rules to cancel a tax sale any time up to registration of the tax deed. The failure to exercise such discretion is a lapse against which a court can grant relief.  This, however, is of no consequence as the Courts have found that a municipality has no obligation in law to complete the tax sale.

Courts support a municipality’s practice of accepting payment of the cancellation price after expiry of redemption period, but before commencement of advertising for sale. This is done in absence of notice to the purchaser and mortgagee when no prejudice to the purchaser and mortgagee was demonstrated. The courts do not accept the proposition that there is a right to redeem by paying the cancellation price after one-year when the land is offered for sale, the right exists as long as a tax deed is not registered. The purchasers are to use whatever methods are available for prompt registration of the tax deed. The purchaser’s solicitor is recommended to formally ask the municipality to register immediately upon payment.

Extent of Land Sold

The municipality’s ignorance of the particulars of the land being sold and the restraint on the purchaser to enter and inspect the property causes misunderstanding of what is in fact being sold. There are instances when a purchaser bids on a vacant land believing that the neighbouring house is included. The purchaser’s lawyer should therefore ensure that the client understands the importance of identifying the property being sold before tendering, attains whatever information the municipality makes available, inspects the property as far as possible, and obtains a survey where conditions permit.

Vacant Possession

Restraints on entry for inspection have serious implications for purchasers, particularly when the property sold includes a residence or other building. Once registration is over, a purchaser may discover, upon entering the property as the new owner, that a tenant or former owner is in occupation because a tax deed does not impose an obligation on the municipality to provide vacant possession.  Combined with such a possibility is the risk of becoming an involuntary bailee of chattels or furnishings left on the property, which the municipality cannot sell as part of a tax sale.

PROCESSING

Due Diligence

Once a tenderer is notified that his bid is successful, the purchaser is to find out when the balance of the purchase price is to be paid. Due diligence is to be carried out then, if it has not already been done before making a bid. Purchasers are often prepared to accept this responsibility for due diligence in tax sale proceedings so as to avoid the services of a lawyer.

Having regard to the different ways of purchasers, and the different tasks they wish to dispense within any given transaction, it is prudent to delineate solicitor and client obligations in a retainer or other form of agreement. This would address who is responsible for due diligence and other requirements to purchase, including investigation of title for interests surviving after registration of a tax deed. This agreement has to include easements and restrictive covenants that run with the land, and estates and interests of the Crown in right of Canada; and enquiry into rates payable by reason of s. 379 (10), assessed, imposed, or charged on the land by the municipality before the registration of the tax deed, which accrues or becomes due after registration. It has also to take into account enquires into zoning, building compliance including work orders, survey and title insurance along with:

Applicability and payment of GST;

Forwarding balance of the amount tendered, the applicable land transfer tax, and accumulated taxes together with land transfer tax affidavit and payment of GST, if required, and any other necessary documents, within 14 days of the mailing of the notice to the purchaser; and

Close scrutiny of the tax deed prior to registration, demand for prompt registration and notification of registration.

It is necessary to request the purchaser to formally acknowledge any limitations on the services provided, such as those services that will not include any work following registration of the tax deed. Also included therein are services required to obtain vacant possession after closing or to ensure registered interests cut out by the tax deed are deleted from the register.

The purchaser is to acknowledge that it has been advised of interests to which title may be subject under the statute, including easements and restrictive covenants running with the land, estates, and interests of the Crown, adverse possession by abutting landowners, and the absence of an obligation on the part of the municipality to provide vacant possession.

The acknowledgement should express satisfaction regarding the extent of the property being purchased, the importance of identifying the property being sold before tendering, review of whatever information the municipality has given, and inspection of the property at least to the extent possible.

It is helpful to contact the municipality’s solicitor on the file as early as possible, as they can and often will be prepared to facilitate the processing of the sale. A review of the draft of the tax deed and formal demand for registration should be requested as soon as possible after meeting all requirements for being declared the successful purchaser. A request for notification should be made immediately upon registration.

Municipal tax collectors are quite familiar with the unusual nature of municipal tax sales. The Association of Municipal Tax Collectors of Ontario has issued a very useful guide to municipal tax sale proceedings, namely The Tax Practitioner’s Guide to the Municipal Tax Sale Process, which is available for order at http://www.amtco.on.ca/.

The aforesaid suggestions, by no means an exhaustive list, are matters to be considered in a municipal tax sale transaction. Not all the provisions of the legislation have been dealt with here, such as the provision for mobile homes. Nonetheless, there is the Act and the Rules to refer to in any event.

Ensure that your assets are protected. For more information and assistance regarding Real Estate or Canadian tax law contact Levy Zavet PC (Levy Zavet) in Toronto, Ontario today.

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