My Background Continued... 7

After I made the call to notify the Seller we planned to close at the End of September, he notified me that there was a Certificate of Pending Litigation (CPL) on the property now.

Step 10. I informed my partners. We tried to research the CPL, but did not get far, so we had our Lawyer investigate what was involved in the CPL. (The short version It turns out that in an agreement between the Seller and his significant other, he received ownership of the company that held/owned the Warehouse in question. As part of a prior agreement, the Seller would pay the significant other a specified sum of monies by a certain date for sole ownership of the company, and if he failed to do so, the property would be put up for sale and the proceeds would be used to pay off the agreed amounts. There were also other charges and the total was a significant amount.

From there I went back to re-run the estimates of owner's equity and see if the owner would have any left after the sale of the warehouse. The answer put us in a grey zone as the estimate put the seller close to 0. All of the seller's equity would now be taken out to repay our loan, and the CPL...

What to do next?

Well we were also informed by the seller, that his company also had another warehouse unit in the same complex and there was a pending close on that property as well. The CPL was tied to both properties. So we proceeded as if there was a small + for the owner and assumed that some if not all of the CPL would be cleared by the other sale.

Step 11,Since we were now behind the Mortgages and CPL to have our loan paid off, we involved an accountant to see if we could make a change to the offer. Previously we were going to pay the full price and have the Seller's lawyer undertake to pay off our note separately. (we were concerned with Capital gains in the future and wanted to ensure the CRA viewed the sale at full value.) We now verified with an accountant that we could still list the property at full price and use our note as a credit on the statement of adjustments. In this way, we could guarantee that our note was included as part of the sale and if there was not enough funds, then the sale would not go through.

The changes and discussions between our lawyer, the seller's lawyer and the lawyer for the Significant other took another two months, but we finally came up with a revised offer (same value, but new terms that involved the CPL) and a proposed closing date of December 3, 2020.