By Brian Madigan LL.B.

Well, it’s over! It’s now “time to buy”.

I know that everyone has been waiting for that advice. And, I have it on good authority. Canada’s own Warren Buffet, Prem Watsa pointed out to the Fairfax AGM that the worst is over. The stock market has found its bottom. The recession is not over, but the worst news is behind us. It’s now time to look to the future.

You might well recall that Prem Watsa’s Fairfax Holdings was the only company to increase its value in the stock market since October 2008 crash.

Prem Watsa has been investing in securities that would take advantage of failures in the US banking industry, and the financial services industry. At one time he was one voice in the wilderness, but now, he has the voice that everyone wants to listen to.

Watsa’s point is simply that the worst is over. So, you should now be looking for good opportunities. That doesn’t mean buy anything and everything right now. You have to do your own “due diligence”. You must be careful. You must investigate. And, remember just about all the stock market gurus got it wrong. That includes Warren Buffet the world’s richest stock market investor, Ben Bernanke the current head of the Federal Reserve and Alan Greenspan the former head of the Federal Reserve. Yet, for the last five years this is precisely what Prem Watsa has been saying.

But, don’t forget that Prem has made some mistakes too. He bought Torstar, Can-West Global and Abitibi-Bowater, all at prices that were somewhat optimistic by current standards. So, nobody’s perfect!

However, one thing that I can say for sure is that Prem Watsa does his homework before the deals are done. Sometimes, projections, descriptions, assumptions just don’t work out. So, place your bets accordingly.

Diversify and don’t put all your eggs in one basket.

Note: Fairfax AGM, April 2009

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Brian Madigan LL.B.

There are actually two separate and distinct documents used to evidence an agreement to convey land:

1) agreements of purchase and sale, and
2) agreements for sale.

The first category is relatively straightforward and is the common document in use. The agreement results from the acceptance of an offer and specifies the terms upon which the vendor will convey title. The closing date is typically, three or four months in the future and the funds are exchanged in return for the title to the property. Well in excess of 99% of real estate transactions are undertaken using this form of agreement.

The second category is a little different. Sometimes it is referred to as a long form of agreement.It also involves financing. This form of agreement is used in specific commercial transactions. Oftentimes, it is used by developers in their sales to builders. The plan of subdivision has not been approved, the property cannot be properly conveyed and the result is that it cannot be properly financed.

A developer will still nevertheless wish to enter into an agreement. They will want to give their own financial institution some evidence that they have sold various parcels of property. The essential issue is that the property is probably not registered as a specific parcel. Or, there could be many matters that are too onerous to solve for an independent third party mortgagee. One way to resolve this problem is to use the “agreement for sale”. This agreement is much like a conditional sales contract. The title will be conveyed only when the entire purchase price has been paid. The purchaser will start making payments in much the same way as he would if the property were financed by way of a mortgage.

What is the purpose of the agreement of sale? Basically, it saves time and money. The builder will acquire the property and start building. There will be no delay awaiting financing since the developer will be self-financing the property.

This is beneficial to both parties, and ultimately to the eventual purchaser of the new house. By that time, arrangements will have been made with a lender who will be in a position to register proper mortgages on title. The next agreement will be in regular form, using the agreement of purchase and sale.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Well, it just doesn’t matter anymore!

No one seems to care. The possible bankruptcies of GM and Chrysler are now taken for granted.

Here are some recent statements by the parties:

• No government financing without further wage concessions (Ontario Government)

• No further concessions (CAW)

• Bankruptcy is now probable (GM and Chrysler)

Just a few months ago, this would have been the worst result that anyone could imagine. Now, it’s worked itself through the system. It has been factored both into the stock market crash and the stock market recovery. Only 22% of Canadians are in support of a government bailout plan for the auto industry. And, while many don’t care one way or the other, there is a clear message that very few Canadians support this bailout at this time. Let them fail, seems to be the common view.

Other than auto workers themselves, and perhaps their suppliers, this topic has lost interest for most. The CAW is viewed as being greedy and uncooperative. Management is viewed as incompetent. Governments are viewed as foolhardy. All in all, this is not a happy picture.

So, let GM and Chrysler go bankrupt. Let’s get on with it. While all this is happening stock markets have been rising this past month. What this means is that the demise of these two former giants in the industry have already been factored into the numbers.

Both Oshawa and Brampton are part of the GTA, so there will be others who can purchase the homes of the distressed workers. The impact on the real estate market will be minimal.

The market in Windsor has been in decline for a decade. Perhaps a consolidated automotive industry will actually spark the real estate market.

At this time, most observers recognize that the North American auto industry is shrinking and there is excess capacity. Something has to give! And, right now, that might mean bankruptcy. What is clear is that there will emerge a new, more efficient and competitive auto industry. The damage to the economy has already largely taken place. The fear was worse than the cure.

In the GTA, the real estate value impact will likely be imperceptible.

Note: comments published mid April 2009

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Condominium conversions present additional risks to purchasers since they are not covered under the Ontario New Home Warranties Plan Act. Under the Warranty, a purchaser’s deposits up to $ 20,000 are covered and the premises are guaranteed to meet certain minimum standards.

The obligation is of course upon the builder to return the deposit or repair the building as required. If the builder fails to do so, then the purchaser has recourse to the Warranty which is administered by Tarion Warranty Corporation (an agency charged with the responsibility for administration of the Act).

However, this is not the case with respect to condominium conversions. The purchaser will be out of luck if there is a problem with the builder.

Recently, the Superior Court of Justice considered such a case. The purchaser provided a deposit and negotiated the acquisition of an apartment unit within a complex which was being updated, renovated and converted into a condominium by the builder. The project was delayed and the builder experienced all kinds of problems including substantial cost overruns.

The builder found it necessary to extend the closing on numerous occasions. To some degree that was fine, since the purchaser had plenty of notice. But, a little closer to the promised closing date presented real problems. The purchaser had given notice on her apartment, moved out and was told the premises were still not ready for occupancy. This was after 18 months of extensions.

Now, one provision in the standard form agreement of purchase and sale used by the builder, permitted the builder to extend the closing date as many times as he wanted for 18 full months. Naturally, in retrospect that seems unreasonable, but at the time of the Offer it was not thought likely (in all probability it was not likely even noticed).

The purchaser terminated the agreement and was forced to sue for the return of her deposit and certain other items she had purchased. The purchaser had acquired some upgrades, some appliances and other items. One other rather objectionable clause in the agreement had to be considered. That provision required all extras and additional items to be purchased to be paid for in full at the time they were ordered. And, the provision went on to say that these additional payments were to be treated as deposits.

So, when the purchaser finally terminated the agreement, the builder took the position that the deposits had all been forfeited. This made it necessary for the purchaser to sue and after several years and considerable expense the Court ruled:

• The builder was in breach of contract
• The purchaser was ready, willing and able to close on the closing date specified
• The provision in the agreement allowing the builder to retain the money paid for the extras was unconscionable

All in all, this seems to be a pretty good result for the purchaser. But, the purchaser never got paid. You can’t take a Judgment to the bank.There simply was no money available. The principal of the building company had died. In this case, all other purchasers in the Province of Ontario would have recourse to Tarion, but not here.

There are some lessons to be learned:

• Condominium conversion projects are not covered by a Warranty
• The project and the builder’s reputation should be thoroughly checked
• The agreement should be reviewed by a lawyer before it is signed (afterwards is too late)
• Caution should be exercised about extras
• Numerous extensions are red flags, and the transaction may never get completed
• Lengthly closings suggest that there can be significant changes in the market, including the builder’s costs

This project ran into difficulties. The problems were beyond the control of the builder, and even after pouring thousands of additional monies into the project, there was still not enough money to pay everyone. However, you can well imagine that just about everyone else from the municipality seeking its taxes, to the mortgagees seeking their financing costs, and to the construction crews who filed liens, all of these individuals had some degree of priority for payment. But, not so with the purchaser! So, beware and be careful.

If you are interested in following this case, see Logger vs. Bear Inc. (Justice David S. Crane, December 2006)

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Question: I thought that real estate was exempt from the provisions of the Bulk Sales Act?

Well, that is true to some extent. Let’s have a look at the operative part of the Bulk Sales Act:

Where no right of action

(2) No action shall be brought or proceeding taken in respect of real property included in a sale in bulk if the real property has been sold, transferred, charged or mortgaged to a purchaser, transferee, chargee or mortgagee in good faith for valuable consideration without actual notice of non-compliance with the Act by the buyer. R.S.O. 1990, c. B.14, s. 17 (2).

That was the actual exemption and when we break down the operative parts of the definition, we are left with the following:

The exemption applies:

Disposition: If the real property (otherwise part of the bulk sale) has been:

1) sold,
2) transferred,
3) charged or mortgaged

To Whom: to a

1) purchaser
2) transferee
3) chargee or mortgagee

Qualification: provided that such person

1) acquires the real property in good faith,
2) for valuable consideration,
3) without actual notice of non-compliance with the Act by the buyer.

So, what does this mean? Obviously, real estate is not exempt. It applies without reservation to the buyer (the first purchaser) under the Bulk Sales Act.

The only possibility of an exemption, is the second purchaser. And that person certainly needs to be arms-length in terms of the deal. This probably works with a financial institution, but not the one financing the acquisition of the business. They would either know, or they ought to have known of the bulk sale. The exemption may not save them.

However, the financial institution assisting the second purchaser is not placed upon inquiry. They can consider the proposed transaction as a straightforward commercial mortgage.

There is a qualification in respect to “valuable consideration”. Again, this means a true commercial transaction. This will not apply if no real money changes hands, that is, if it’s a friend, relative, or other trade creditor.

And finally, the purchaser must have no knowledge of the buyer’s non-compliance with the Act. The provision says “actual” notice. In that regard, this purchaser is not placed upon inquiry. This purchaser does not have to go looking for an error or mistake. This purchaser will require actual notice, before the exemption will not apply.

As a result, it is clear that there are some rules that need to be followed for the real property exemption to apply. Watch your step!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

You probably never thought of this and it certainly doesn’t happen very often, but when it does it definitely causes havoc.

Let’s take the case of Jim and Wendy. Wendy’s parents never really liked Jim. He was a truck driver and stopped in most evenings at a late night diner where Wendy worked while she was putting herself through school.

One thing led to another and Cynthia was arrived in nine months. Jim was a long distance trucker. He said he would do right by the child, and married Wendy. Her parents allowed the couple to stay in a small house that they purchased when they were first married. So, they turned out the tenants and Wendy, Jim and Cynthia all lived in the house.

The only problem was that he was never home, he never put any money towards the household expenses and eventually Wendy and Jim obtained a divorce. Yes, they made a little mistake. The house had been registered in the names of both Wendy and Jim. Not having any money to buy out his interest, Wendy went to her parents. They came to the rescue and bought out Jim’s interest in the property.

Some time went by, Jim never paid any child support, he never came to visit and after a period of time, they lost touch with him.

Wendy’s father passed away and left his estate to Victoria (Wendy’s mother). One day tragedy struck! Victoria, Wendy and Cynthia went on a family vacation. They were involved in a car accident. Both adults were pronounced dead at the scene. Cynthia because she was in a car seat survived, but did not make it to the hospital.

So, what happens to all the money? Wendy’s parents had Wills. They included survivorship provisions. In other words if the husband and wife were in a common disaster, the survivor had to live for at least 30 days before they would inherit the estate. This was initially intended to avoid double taxation of estates.

However, Victoria’s Will did not include this provision in respect to other beneficiaries, only her late husband.

Wendy, always intended to make a Will, but never really got around to it.

You need to know some of the legal rules that will apply:

• The younger is deemed to survive the elder
• The insured (under a life policy) is deemed to survive the beneficiary
• The laws of intestate succession will apply if there is no Will

I should point out that the first two rules only apply in the case of uncertainty. In this case, the some of the facts are clear; Wendy and Victoria were both survived by Cynthia, even if it was for only a few minutes.

Victoria’s estate went to Wendy. There was no common disaster clause. Her life insurance although made payable to Wendy as her beneficiary instead went to her estate. However, that was Wendy again. They just had to pay probate fees on the life insurance proceeds.

Wendy’s estate went to her daughter Cynthia. This included all the money from Victoria’s estate.

Now, what happens to Cynthia’s estate. Well, she didn’t have a Will, she was only 5 years old. All her money went to her parents equally (or the survivor of them). So, Jim was entitled to everybody’s money!

This is not a good result. Wendy’s parents came to despise Jim. He was the last person on earth that they would ever give money to. They hadn’t seen him in over 4 years. Wendy didn’t care for him either, and particularly the fact that he never once called to see how Cynthia was. Again, he was the last person on earth that she would leave her money to.

Wendy thought that since she was divorced from Jim, he was gone forever. No, not really, once married they were inextricably intertwined forever. So, the immortal words “til death do us part” applied in this case.

Do you think that Jim would surface? Of course, he did. And, do you think that he would give the whole estate to charity? Of course, not. He did however, inherit enough money to quit his job and retire to a sunny vacation smarriage contract
• don’t put the house in Jim’s name until you know him
• give the house to Wendy and secure it by a mortgage loan on title
• use common disaster pot.

There is obviously a lesson to be learned. This fact situation is repeated all to frequently.

So, here’s what to do:

• get a clause for close family members not just spouses
• get a full release from possible inheritances at the time of divorce
• sign a new Will
• consider trust provisions and alternative gifts if minors have funds but cannot make a Will

In this particular case, Jim inherited everything, and this didn’t need to be the case. With a little cautious planning, Jim could have been blocked at several steps.

Caution: this would be the result under Ontario laws, other jurisdictions may have different results.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

The average price for a single family home in the GTA has held relatively firmly. There was a decline in January, followed by a resurgence in February of 5.14%. There is a further slight gain in March of 2 tenths of 1 %.

The buyers seem to have returned to the marketplace. There were 6,171 sales recorded. That’s 6.94 % less than last year (6,631).

The market is stronger at the bottom end than it is at the higher end. There are fewer listings. This means that sellers who have a choice have decided not to participate in the market, particularly at the higher end of the market. The consequence is that a greater number of lower priced transactions will reflect a lower overall average price than you might otherwise expect.

It is quite clear that the GTA real estate market is not declining this Spring. The general expectation is that with some apparent stability having returned to the marketplace, sellers with better quality homes will participate, as will buyers of the more expensive properties.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

In Ontario, unsecured creditors of a vendor of a business are protected by the Bulk Sales Act.

The Act is designed to protect trade creditors where the tangible assets of a business are sold in bulk. A sale of substantially all of the assets of a business would be a sale in bulk.

Compliance

The Bulk Sales Act provides for a number of procedures to ensure that creditors are paid, including:

• obtaining a list of creditors and discharging them on or before closing,
• obtaining consents from the creditors, or
• obtaining a court order exempting the transaction from the requirements of the Act.

If the assets being sold represent all or substantially all of the vendor’s assets, then a Court Order would be unlikely. Unless the Bulk Sales Act has been complied with, any creditor (secured or unsecured) could make an application to Court and have the sale declared void, and the Court will likely further order that the purchaser will be liable to the vendor’s creditors for the value of any property received.

Waiver

Frequently, a purchaser will waive compliance with Act, providing:

1) that a portion of the sale proceeds are held in escrow, or

2) an indemnity from the vendor is arranged.

The bulk sales issue is often considered in the context of the size of the acquisition and the creditworthiness of the vendor. The larger the transaction and the less creditworthy the vendor, the more likely that actual money will be set aside in the transaction to deal with creditors.

However, what type of position would a purchaser be in if they had accepted a written indemnification agreement from General Motors on the acquisition of a small GM subsidiary, factory or plant? This question is posed as GM rests on the brink of bankruptcy protection and without any long term commitment of a government bailout.

The onus is placed upon purchasers to prove that the vendor has complied with the legislation. If a purchaser closes the deal without compliance, it is the purchaser himself who suffers by having to account to the vendor’s creditors. After the transaction has been completed, it will be too late. The money will likely have been dispersed within a few days. Recovery will be impossible.

Methods of Compliance

There are basically three ways to comply:

1) Court Order: the seller obtains a Court Order exempting compliance. Here, evidence is necessary to prove to a judge that all creditors associated with the assets being sold will be paid,

2) Payment in Full: pay all creditors on closing. This can be arranged utilizing the closing funds and directing payment to them, and holding funds in trust as required, and

3) Trustee Appointment: if all the creditors cannot be paid (because the proceeds are inadequate), the proceeds have to be paid to a Bulk Sales Act Trustee who will distribute the funds to the creditors.

In practice, there is usually no compliance with bulk sales legislation since the purchaser is confident of the vendor’s solvency and ability to continue to pay its debts and obligations.

In a recent case, the Court set aside a sale because it fell under the bulk sale provisions of the Bulk Sales Act, and there was no compliance. Without compliance, the sale was voidable upon application of the trade creditors whether secured or unsecured. The result was clear. The secured creditors were paid off on closing. The Court set aside the acquisition and forced the purchaser to pay again. But, this time since the secured creditors had all been paid, the extra money went to the unsecured creditors.

So, the purchaser paid twice for the same business! Why not simply follow the Act? Compliance is risk free!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

What kind of statement is that? How often have you heard that?

Actually, that sort of gratuitous comment comes with almost every offer.

Does it really ever mean anything? No, it’s absolute nonsense!

The only purpose is to have you consider the first offer seriously and sign it back very close to its stated price, or just accept it outright.

The real issue is who is saying it.

Buyer’s Agent

If the buyer’s agent says it, then, it’s probably just “puffery” and you can safely ignore it.

Seller’s Agent

If the seller’s agent says it, then, this is a little more disturbing. Here, notwithstanding the listing price, the seller’s own agent is trying to encourage the seller to accept it and move on. This type of comment is often followed by the great and deep philosophical comment:

“let’s all get on with our lives”.

That comment, is, of course, just as absurd!

You are here to list and sell your property. You need to sell it for a good price. You don’t need to hear that “you should be getting on with your life”, and you don’t need to hear that “the first offer is the best offer”.

The Variations

Here are some of the variations:

• the first offer is frequently the best offer
• the first offer is always the best offer
• the first offer is probably the best offer
• the first offer is sometimes the best offer
• the first offer is possibly the best offer
• the first offer is many times the best offer
• the first offer is oftentimes the best offer
• the first offer is usually the best offer
• the first offer is just about always the best offer

What you won’t hear is:

• the first offer is never the best offer

That would be silly. They would never say that. It makes no sense. They would just simply have to go back, and increase their offer.

So, when does it makes sense? Actually, it only makes sense, if you succumb to the pressure and accept it. Then, you only got one offer. You accepted it, and of course it was the best offer.

Substantive Value

Is there any substantive value to the comment? I mean it’s used by somebody in just about every deal, so it comes up all the time.

There are two real examples of truthfulness in the comment:

1) declining market, and
2) the bully offer,

The Declining Market

If the market is actually declining which has been the case in the recent past, that is May 2008 to January 2009, then, there is a reasonable chance that the overall market will have declined by the time you receive another offer. So, that would mean that all things being equal, a second offer, made perhaps 30 days after the first would reflect new, but worsened economic conditions.

Naturally, you should ask for the statistics to back up the statement.

The Bully Offer

Should you be so lucky as to receive a bully offer, then, it truly might be the best offer.

You will recall that a bully offer is an offer substantially higher than the listing price. It comes in early just after you have listed the property, and is designed to have you accept it outright without seeing other offers. The person submitting the bully offer reasonably believes that you have a good property and that you have under-priced it to the market conditions. They want to avoid a bidding war, so they will overbid the property right at the outset.

Now, if that is the situation that you are looking at, then clearly this is a situation when “the first offer is often the best offer”. But, you have to admit, that’s rare.

It occurs infrequently. It happens in the Spring market with hot properties in hot neighbourhoods, otherwise, you are not going to see it.

So, all in all, when someone says “the first offer is the best offer”.
It’s usually just “sillytalk”.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Coldwell Banker Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

You have to wonder about folks who actually believe that we can spend our way out of an economic downturn.

Dan Mitchell decisively debunks this Keynesian approach in this short video, which I hope you will share as widely as possible while Saint Obama spends your grandchildren into oblivion.