RESOURCES

Depending on a transactor’s purchase and sale closing schedule, Bridge Financing can be a tremendous interim financing tool and/or added “insurance” that can increase the likelihood of a successful closing date.

A simplified illustration of Bridge Financing is when a Lender provides short-term financing to “bridge the gap” between the closing dates of a property being purchased (which will be scheduled to close first) and a property being sold. With Bridge Financing, a Buyer utilizes the equity in their home (sold property) prior to obtaining funds from their closing.  When a Buyer obtains Bridge Financing, they will own multiple properties simultaneously while they wait for the sale of their current property to close.

When the sale of a property closes, it is the obligation of the Seller’s lawyer to ensure the payout of all mortgages, and the collection/payment of applicable closing costs (i.e. real estate brokers commission, legal fees, etc.), all of which will be in addition to repaying the bridge loan plus any additional costs (i.e. interest and lender fees accrued between the time of closing of the new purchased property and the closing date of the property being sold).

It is a common misconception amongst Buyers that Bridge Financing should be obtained only when the closing of a sale is scheduled far after the closing of the property being purchased.  However, experience has shown that even when transactions are set to close near or on the same day, Bridge Financing can be the difference maker in assuring that a transaction closes in accordance with the date listed in the Agreement of Purchase and Sale.  Among other reasons, the source of funds will derive from a lender as opposed to a Buyer, avoiding the added risk associated with relying on sale proceeds to fund a firm purchase transaction.  Thus, if you have the option of Bridge Financing, you can schedule your sale transaction to close after your purchase transaction and avoid the hassle/stress of trying to close two transactions on the same day!

When it comes to the day of closing, it is always a possibility that a Buyer may request an extension or fail to close on time for the property that you are selling.  When this occurs, Buyers who are reliant on immediate funds from their sale transactions can be put in the uncomfortable position of being responsible for the added costs of requesting an extension or worse, becoming noted in default of not being able to close their purchase!  However, if funds are available to Purchasers by way of Bridge Financing, an added financial cushion is now available and additional expenses can be more easily avoided. Although arranging Bridge Financing may seem like an added expense, it can be a lot cheaper than extension fees or any fees/damages that can arise if one is in default by not being able to close their purchase transaction.

When arranging financing for your purchase it is important to be cognizant and prepare for all possibilities that may arise on the day of closing.  Plan ahead and do your best to avoid future potential headaches!

If you have any legal questions regarding the purchase and/or sale of your property, please do not hesitate to contact us to speak with one of our lawyers at (905) 270-6660 or e-mail us at:  Info@kormans.ca

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Daniel Kuchuk is an Associate Lawyer at Kormans LLP. You can reach Daniel at dkuchuk@kormans.ca. The information and comments herein are for the general information of the reader and are not intended as advice or opinion to be relied upon in relation to any particular circumstances. For particular application of the law to specific situations, the reader should seek professional advice. Kormans LLP cannot be responsible for the content of other sites. We expressly disclaim all liability with respect to actions taken or actions not taken based on content received from a third party website linked, directly or indirectly, to that of Kormans LLP.  The link to another site is not to be construed in any way as an endorsement of the host, the site or the information contained therein, nor is such link to be inferred as an association or affiliation with the host.