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Homebuyers are always on the prowl for a good deal on a home. If that’s you, consider looking at property tax sales in Ontario. You could end up finding a home for a few thousand instead of a few hundred thousand. 

Let’s go into more detail about these types of real estate sales, how they work, and what you should consider before making a home purchase.

What Are Property Tax Sales In Ontario?

A property tax sale refers to the sale of a home with property taxes in arrears. In other words, the homeowner did not keep up with property tax payments, and as a result, the municipality seized the property and offered it up for sale. 

The proceeds from the sale will then go toward covering the back taxes that have not been paid to the city. All types of properties may be sold as a property tax sale, including the following:

  • Residential properties
  • Commercial and industrial properties
  • Cottages and waterfront homes
  • Vacant land
  • Farmland
  • Islands

Types Of Property Tax Sales In Ontario

Property tax sales in Ontario take place in one of two ways:

Public Tender

Most property tax sales in Ontario are conducted by public tender. That means interested buyers must place their bid for the property, either in person or by mail. Your tender must be received by the municipality before the date of the tax sale which is listed in the tax sale’s listing. 

Public Auction

A small minority of property tax sales in Ontario take place via public auction. Bidders must attend these auctions in person. The successful bidder can complete the transaction with cash, cheque, money order, or a bank draft. 

Regardless of how the sale takes place, the winning bidder must pay additional fees on top of the purchase price of the property, including land transfer taxes and HST where applicable.

Do You Need A Mortgage To Buy A Property Tax Sale In Ontario?

No, you do not need a mortgage to buy a home via a property tax sale in Ontario. However, you generally must have funds available to purchase the property upfront and in full. It’s important to understand your financial obligations when you buy a property through this type of transaction. The funds will be required immediately if you buy through a public auction, or within 14 days if the sale is conducted through public tender.

That said, if you don’t have the money, you could look into taking out a personal loan. Then, you could use the funds from your loan to cover the purchase price of the home and make smaller installment payments over a longer time period to repay the loan.

Keep in mind, however, that there are limits to how much you can borrow through a personal loan. Depending on how much you need, a personal loan may not be enough to provide you with the money to bridge the gap between the money you have available and the purchase price of the home.

Alpine Credits

Can You Use Your Home Equity To Purchase A Tax Sale Property In Ontario?

Instead of a personal loan, you would have better luck getting access to a much higher loan amount through a home equity line of credit (HELOC). If you’re already a homeowner, you could tap into the equity in your current home and use that money to complete the transaction of a property tax sale in Ontario if you’re the winning bidder.

You can apply for an equity loan from a variety of lenders, but it can be difficult if you have poor credit. In such cases, perhaps the fastest way to get approved is through an online lender like Alpine Credits. They base their approval on how much equity you have in your home, not your credit score.

The online application process is quick and takes no more than a few minutes. Once your application has been completed and submitted, you’ll get a no-obligation quote to find out how much you can qualify for.

How To Buy A Tax Sale Property In Ontario: Public Tender 

As mentioned, public tender is the most common way that buyers place their bid to purchase a property tax sale in Ontario. Follow these steps to get your bid in and ensure a successful transaction: 

Determine Your Bid Amount 

What’s the most you’re willing to spend on the home? You may want to do some preliminary homework to find out how much the property is worth based on current market conditions. You should also consider your finances and how much you can comfortably spend before deciding on the bid amount.

Complete Form 7 – Tender To Purchase

For Ontario property tax sales, you’ll need to fill out Form 7 to make your tender offer. Include information such as your full name, address, and tender amount. Then, sign the form and place it in a sealed tender envelope. 

Get Your Deposit Funds Ready

You must include a deposit along with your tender in the form of a bank draft, money order, or certified cheque. This deposit must be at least 20% of the tender amount; otherwise, your tender will be rejected. 

Send The Tender Before The Due Date

Your tender must be received by the date specified by the municipality. The envelope should specify that it’s a property tax sale along with a short description to identify the property.

Arrange To Have The Full Purchase Price Amount Available

If you win the bid, you’ll have 14 days to come up with the funds, as mentioned earlier. Make sure you have the money readily available when it’s due. The total amount will include the purchase price of the property, along with land transfer taxes and HST. 

How To Buy A Tax Sale Property In Ontario: Public Auction

If you decide to attend a public auction to place your bid on a tax sale property in Ontario, follow these steps: 

Request A Bid Package 

A bid package contains information about the property being auctioned off by the municipality. It’s important to understand everything about the property before attending the auction and placing your bid. 

Update The Title Search The Morning Of The Auction

Having the title search updated right before the auction will help you determine if there are any new mortgages or other interests that will impact the property after the last title search was done.

Make Sure You Have Enough Money Available Right Away

Unlike a public tender that gives you a couple of weeks to come up with the money, a public auction requires that the winning bidder have the funds readily available to cover the cost of the purchase up front. You can pay in cash, money order, bank draft, or certified cheque.

Attend The Auction

You will need to attend the public auction in person. The auctioneer will read out all pertinent rules about the auction and the property being sold. You can then place your bid. 

If you win the auction, you’ll pay for the home immediately, including any applicable taxes. You will receive a receipt for the amount paid and a tax deed showing that you are the new owner of the property. 

Things To Consider Before Purchasing Property Tax Sales In Ontario

Before you place your bid on a home being sold under tender or auction after the homeowner failed to pay their property taxes, there are a few important considerations to make first: 

There May Be A Crown Mortgage On Title 

Mortgages are removed from the title on property tax sales when the tax deed is registered, except Crown Mortgages, whether federal or provincial. Mortgages held by the provincial or federal government will remain on title, which means the Crown has the power to potentially seize the property and sell it to recoup any outstanding loan balances. 

If you’re interested in a property tax sale, you’ll need to get in touch with the applicable government agency to find out how to pay off the debt on a property with a Crown Interest.

There May Be Liens On The Property

If there are any Crown liens on title when the tax deed is registered, they will remain, as mentioned. All other liens will be deleted, such as construction liens, legal liens, or mechanics liens. Since the Crown liens will remain in title, this gives the Crown the power to repossess the property and sell it if required to recover any losses from debts still owed.

You Might Have To Evict Anyone Living In The Property

If the previous homeowners refuse to vacate the premises after you’ve legally acquired the property through a public tender or auction, it’s up to you how to deal with the situation. The municipality is not required to evict anyone who is still living in the home, so the liability rests on your shoulders to kick them out. If you want to evict people who remain on the property, you’d be well-advised to hire legal professionals to help.

You Can’t Inspect The House Or Visit It

You don’t have the right to enter the property until you’re the rightful owner. That means you can’t visit the inside of the home until after the tender or auction has concluded. The only thing you can do is view the property from the sidewalk or road.

You May Be Liable For Environmental Contamination

A property is considered “environmentally contaminated” if it’s polluted in some way. This is more common on industrial or farming lands and less common on residential homes. 

If you purchase a property that is deemed environmentally contaminated, you may be on the hook to pay for any required environmental clean-up. This could add up to a substantial amount, even as much as hundreds of thousands or even millions of dollars. 

Are There Advantages Of A Tax Sale?

The biggest benefit of buying a tax sale property is that you can potentially get a very good deal. Properties sold under these circumstances can often be purchased at prices well below market value. 

How Is The Minimum Tender Amount Calculated?

The minimum tender amount is the lowest amount that municipalities must obtain to sell a property. It is calculated by adding all outstanding taxes, interest, penalty fees, and costs to conduct the tax sale procedures. The minimum tender amount should not be less than this total amount.

How Can I Find Tax Sale Properties In Ontario?

Several resources list tax sale properties in Ontario. These resources include all information required to help you decide to place a bid, including the following:

  • Location
  • Property description
  • Tax sale date
  • Title availability
  • Photos

Final Thoughts

If you’re looking at getting a great deal on a home in Ontario, consider looking into property tax sales. You could potentially save tens of thousands of dollars on a home purchase, though there are some risks involved that you should be aware of. Be sure to do your due diligence before placing your bid on a property tax sale in Ontario.

Property Tax Sales Ontario FAQs

Can a tax sale on a property be cancelled? 

Yes, the municipality may cancel a property tax sale at any time until the tax deed is registered on the title. However, a tax sale can’t be cancelled once the tax deed has been registered.

Do I have to pay taxes on property tax sales in Ontario?

Yes, you must pay 13% HST on a tax sale property, with two exceptions:
  • The property has a residential building on it and the property and residence have already been sold in the past. 
  • The buyer is an HST registrant and the municipality is given all paperwork specifying that you will remit the required HST.

Can I withdraw my tender? 

Yes, you can withdraw your tender by requesting in writing to the treasurer of the municipality before the specified date for receiving tenders.

Can my credit score affect my ability to buy a tax sale property? 

Yes, your credit score could indirectly influence your ability to buy a tax sale property in Ontario. If you have to take out a loan to come up with the funds to pay for the property (since the funds must be readily available to complete the transaction), you may have trouble getting approved if you have bad credit. However, you may have better luck securing a loan when you apply with an alternative lender.  Before applying for a loan, be sure to check your credit score to see where you stand. You can do so for free by using Loans Canada’s CompareHub.

How much is land transfer tax in Ontario?

Land transfer taxes in Ontario are as follows:
  • Amounts up to and including $55,000: 0.5%
  • Amounts over $55,000, up to and including $250,000: 1.0%
  • Amounts over $250,000, up to and including $400,000: 1.5%
  • Amounts over $400,000: 2.0%
  • Amounts over $2,000,000, where the land contains up to two single-family residences: 2.5%
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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