The Mortgage Instructions Toolkit provides practical guidance for lawyers responding to lender requests in residential real estate transactions. This page addresses municipal taxes.

The situation

Municipal property taxes have priority over mortgage. As such, lenders want assurances that all these taxes have been paid or will be paid on the closing date.  

Before title insurance, lawyers checked the status of municipal taxes and asked for a tax certificate from the municipality. Now, title insurers often do not require lawyers to verify tax status.

Sample lender instructions

You will obtain a current tax certificate to verify that there are no unpaid taxes (including special levies, local improvement charges, interest and penalties) in respect of the Mortgage Property as at the time of the advance and that all taxes that are due have been paid in full and if not paid in full must be paid by the first advance of the mortgage loan proceeds and a tax certificate obtained at that time.

Practice guidance

Best practice – with or without title insurance

• Check the tax status of the property. Your borrower client may not think well of your services should the vendor’s in arrears tax situation come to light after ownership has changed hands.
• Be aware of other tax liabilities that may be added to municipal taxes owing and could dramatically increase the outstanding amounts:
  • school taxes as a separate item (Quebec)
  • water, gas or other charges
  • outstanding fines under the Provincial Offences Act, such as parking tickets (Ontario)
  • reciprocal agreements between municipalities to collect each others’ outstanding fines, interest, and penalties.