By Brian Madigan LL.B.

(Ontario Real Estate Source)

The cases involving husbands and wives are complex. Guarantees are not uncommon. Courts increasingly must interpret the laws in favour of the institutional contracting party, usually a bank, against one spouse, usually the wife.

Typically, the husband requires the wife to attend and sign some documents at the bank.

Here’s a case in the British Columbia Supreme Court in Toronto-Dominion Bank v. San-Ric Developments Ltd.

In this case, at her husband’s request and on his representations that the documents were standard account matters, the wife signed, without reading, two unlimited continuing guarantees for the husband’s company.

The trial Judge. held that the wife was careless in not reading the documents and that she was therefore liable to the bank on the guarantees, notwithstanding the misrepresentation by her husband and the fact that the bank did not send her for independent legal advice.

The trial Judge, Southin J. stated:

“In the case before me, Mrs. Loren was, on her evidence, the victim of a misrepresentation by her husband. I do not consider that, in this day and age, a woman of adult years and understanding who is literate can avoid the consequences of her executing an instrument by saying, “I relied completely on my husband. Such reliance is careless”.

Comment

This is another example of a case involving family members. Courts will just not permit the excuse that the documents were not read or explained. Consumers signing what appear to be legal documents must be wary, and protect themselves by having their wits about them.

The courts are there to apply the law fairly and adminsiter justice. They are not consumer advocates for the disadvantaged, or those who believe they might be.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

(Ontario Real Estate Source)

A recent court case dealt with the issue of mortgage fraud. In the case of Royal Bank v. Isaacs (2010)the bank sought summary judgment of its mortgage.

However, the case was not simple and straightforward. Mrs. Isaacs had been persuaded for a fee of $6,000 to act as guarantor on a mortgage. It was only to be for a term of 6 months. There was a fellow who arranged the deal, a mortgage broker and a lawyer involved. In the end, Mrs. Isaacs got her $6,000 and was content with the transaction.

Only one little problem, the arranger, the new homeowner and the mortgage broker, all flew the coop with the mortgage money. They didn’t even make one payment. So, that left Mrs. Isaacs with $6,000 to pay a $280,000 mortgage.

She didn’t want to and claimed she was a victim of fraud. Indeed, she was, but so was the bank. Mrs. Isaacs claimed that the Royal Bank had a legal obligation and duty to protect her (even from her own greed).

The Royal Bank, agreed that she was a victim, but they too were victims. They also claimed that by signing the documents, Mrs. Isaacs was an active participant in the fraud. Any problems that arose, she brought upon herself.

Here are some excerpts from the case:

Introduction

• This is not, however, a run-of-the-mill claim on a mortgage. This mortgage was obtained by fraud and both Ms Isaacs and the Bank were victims of the fraudsters (who have long since vanished). The question is who, as between Ms Isaacs and the Bank, should bear the loss.

• Ms Isaacs argues that the Bank should take the loss because the Bank was in the better position to detect, and therefore avoid, the fraud.

• The Bank argues that Ms Isaacs should be liable for the loss because she actively assisted the fraudsters to carry out the fraud, thereby misleading the Bank, even if unwittingly.

Analysis

Note: some paragraphs omitted

[23] I do not accept the submission by Ms Isaacs’s counsel that the Bank was in the best position to discover the fraud and should therefore bear the financial loss occasioned by it. That argument is based solely on casting the Bank in the role of sophisticated commercial lender and Ms Isaacs as uneducated, unsophisticated victim.

[24] Ms Isaacs is an adult, competent person, and is able to read. If Ms Isaacs had taken the trouble to read the documents she signed, she would have immediately known that the transaction was not what she understood it to be. She not only did not read the documents, she did not ask for them to be explained to her by the mortgage broker or the lawyer, and she did not obtain copies of them. Nobody prevented her from reading the documents. She simply failed to do so.

[25] On the other hand, the documents as presented to the Bank appear on their face to be exactly what they are – normal documents for a standard mortgage transaction. Simply reviewing the documents submitted by or on behalf of Ms Isaacs could not, and did not, reveal any fraud to the Bank.

[26] I therefore conclude that, as between Ms Isaacs and the Bank, Ms Isaacs was in the best position to notice something was amiss.

[37] The root of Ms Isaacs’s problem is that she signed numerous documents without taking any care about their content. She knew that these documents would be relied upon by the Royal Bank in advancing mortgage funding. If she had taken the simple precaution of reading the documents she was signing, she would have realized that she was being lied to and she could have backed out of the deal. She is in the position she is now because she allowed her name to be used without any consideration for what she was actually agreeing to. She was, at the very least, careless and because of that carelessness cannot avoid liability for what she signed. She was in the best position to avoid the fraud and did nothing to protect herself.

[39] There is no fiduciary duty owed by a Bank to a borrower – their relationship is strictly that of debtor and creditor. Here, there was no special relationship between the Bank and Ms Isaacs, no special knowledge held by the Bank, and no exceptional circumstances that would change the nature of that relationship.

[40] Therefore, there was no obligation on the Bank to explain the documents to Ms Isaacs or verify that she knew what she was getting into. The Bank was not required to protect Ms Isaacs from others who were deceiving her without any knowledge of the Bank. It was not the Bank’s role to provide advice to Ms Isaacs or to protect her interests. The Bank made no misrepresentations to Ms Isaacs and Ms Isaacs placed no reliance on the Bank. Theirs was a contractual relationship in which Ms Isaacs sought to borrow money and the Bank agreed to lend it to her.

[41] A lender has no obligation to obtain an appraisal before it extends mortgage financing. If it obtains an appraisal, it does so for its own protection, not for the protection of the borrower.

[48] Ms Isaacs seeks to characterize herself as the completely innocent victim of a fraud. Although there is nothing to suggest that Ms Isaacs was herself privy to the fraud and no reason to disbelieve her assertion that she did not know the true nature of the transaction, it is not completely accurate to portray her as a stranger to the fraud. In truth, she assisted the fraudsters to perpetrate the fraud, even if she did not know the particulars of the transaction. For this reason, her situation is quite different from cases relied upon by her counsel in which negligent lenders were disentitled from relying upon mortgages obtained on property without the knowledge of the owners.

Decision

The Court awarded judgment for the bank for its claim of approximatelty $280,000, plus accrued interest and costs of $13,500.

Comment

While you might ordinarily expect Judges to be sympathetic, particularly to a victim of fraud, the legal system must uphold the rule of law. This is precisely what happened here. No special favours! Yes, there were two victims of fraud, but in this case, the greedy, but foolish good guy had to take the fall. It was not the bank’s fault, and there was no reason to deprive the bank of its legal rights.

Be careful! Exercise caution! Never, ever, ever sign a guarantee for someone you don’t know.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

(Ontario Real Estate Source)

In Ontario, listing agreements may be negotiated for any length of time. However, MLS requires a 60 day minimum.

The law requires clients to understand and appreciate the length of a listing, if it is to exceed 6 months. If that is the case, then the client must “initial” the term.

So, how do you get a 6 month listing without initials?

Very simple! You go for 2 months and then add 4 later.

I was recently consulted by a consumer who had signed such a listing. He was cautious about the agent and wanted the shortest term possible. This local agent was somewhat belligerent and harassing in nature. The only redeeming feature was that he quoted a sale price substantially above everyone else.

Yes, you guessed it, within two weeks of the high listing, he wanted to reduce the price. In fact, a couple of price reductions took place. No one came to see the property because the price was too high.

As the end of the 2 month period approached, we saw the second “cool move”. The price will be lowered, the old listing will be terminated and the property will come on the market as a fresh new listing. Great strategy for the uninformed, but, every real estate agent said “haven’t I seen this before?”

The consumer was not told that the listing would go any longer. The consumer still thought: “thankfully when the 2 months are up, I will be rid of this guy”.

However, not so!

The new agreement contained a new 4 month listing. The spot where this is specified, did not have to be initialled since it was less than 6 months. And, somehow, the client never really got a good look at the document.

So, does the client have a remedy?

Of course, they do. There are remedies available under:

1) the Real Estate and Business Brokers Act, 2002, and
2) the Consumer Protection Act.

The wise consumer should investigate and know their options and their rights.

This particular agent is known for this tactic. It apparently happens all the time. While it is well known to his competition and also the other agents within his own office, this repetitive behaviour is ignored (if not condoned) by his broker.

This type of slick practice should be reported not rewarded.

Oftentimes, the victims of this type of scam are vulnerable vendors. In fact, most of his listings are with vulnerable vendors.

Don’t put up with this type of unprofessional conduct.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

(Ontario Real Estate Source)

Increasingly, in the times of litigation, people want to know how to sue their lawyers. While it used to be that the lawyer was atrusted friend, now, legal services are just another commodity to be purchased, and they should come with a warranty.

If something goes wrong, then take it back to the store for a replacement. If there is something wrong with the property, then the lawyer must have made a mistake.
A few years ago, the Ontario Court of Appeal looked at the role of a solicitor in a real estate purchase. Judge John Laskin wrote the following:

Ontario Court of Appeal (1999, Wong v. Hui)

• A lawyer’s duty to a client will vary depending on the client’s instructions and the limits on the lawyer’s retainer.

• Here, Hui was given an executed agreement of purchase and sale by his clients and instructed to close the transaction.

• The agreement warranted the rental income on the building for a year after closing.

• But the warranty was given only by the vendor, a numbered Ontario company, and thus if the rent was not as warranted the respondents could look only to the numbered company for relief.

• The giving of a warranty by a numbered company should raise a red flag for a reasonably prudent lawyer.

• Ordinarily a lawyer should discuss this warranty with the client and warn the client of the risk of non-recovery should the warranty be breached.

• Mr. Lamont said as much and Hui led no expert evidence to the contrary.

• Indeed, if the respondents had retained Hui before they signed the offer, I would have no hesitation in holding that Hui should have raised with his clients the possibility, even the desirability, of obtaining security for the warranty and sought their instructions on whether to try to negotiate some form of security, be it a holdback on the purchase price of a vendor take back mortgage.

• But the respondents did not retain Hui until after they had signed the agreement of purchase.

• Having not sought his advice beforehand, they then sought to hold him liable for failing to improve on the deal they had negotiated without him.

• In Mr. Lamont’s opinion, Hui still had a duty to try and obtain security for the warranty.

• The trial judge echoed that opinion when she said “[n]o lawyer should presume that no rights can be negotiated.”

• In my view, the trial judge was not sensitive enough to the limitation on Hui’s retainer implicit in his being consulted after the agreement had been signed.

• Mr. Lamont’s opinion may represent a counsel of perfection, but I find it hard to admonish Hui, let alone make a finding of negligence against him, for failing to try to negotiation something to which is clients had no legal entitlement.

• Cases may arise where a duty of this kind should be imposed on a lawyer, but the court should at least take into account the timing of the lawyer’s retainer.

• I do not, however, rest my concern about Hui’s duty to negotiate security on any distinction between business advice and legal advice.

• Hui submitted that he had no duty to negotiate security for the warranty because this was a business matter, not part of a lawyer’s retainer.

• I do not accept this submission. Although ordinarily clients retain lawyers for legal advice not business advice, on some transactions the two are intermingled and no clear dividing line can be drawn.

• Thus, a lawyer may well have a duty to give advice on the financial or business aspects of a transaction, depending on the client’s instructions and sophistication, and on whether the client is relying on the lawyer for that kind of advice.

• As I have said, had the respondents consulted Hui before signing the agreement, they could reasonably have looked to him for advice on the risk of relying on an unsecured warranty by a numbered company, be it characterized as business advice or legal advice or a mixture of the two.

• But they consulted Hui only after they had assumed this risk by signing the agreement… The respondents believed that they had made a good deal; they did not want to get out of the transaction; and at no time did they ask Hui to improve the terms of their agreement.

• Thus, I am doubtful whether Hui had the duty imposed on him by the trial judge.

Comment

In this particular case, a client sued his lawyer Mr. Hui for failing to negotiate a better deal. At trial, the client was successful. Expert testimony had been given in this case by Mr. Lamont a pre-eminent real estate lawyer indicating that the lawyer should make an attempt to negotiate a better deal.

The Court concluded that was the counsel of perfection, and perfection was not a contract term.

So, the obvious clear message for consumers is to retain a lawyer early in the transaction, the sooner the better, because that increases the lawyer’s liability. Real estate agents should encourage their clients to retain lawyers early.

Also note that the lawyer may provide both legal and business advice. The Court thought that the two were often mixed.

In many situations, real estate agents believe that the lawyer’s role is restricted to legal advice and that they are the sole and only ones who deal with business matters. That is not the case according to the Ontario Court of Appeal. Lawyers can be held liable for both. But, in this case Mr. Wong had not retianed Mr, Hui early enough.

Consider the case of a real estate agent who delays, stating ‘let’s get the agreements signed first”. Now, the lawyer’s retainer is limited. And, the same person who was prepared to sue their own lawyer in this case, will sue their real estate agent for this failure (whatever it may be).

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

(Ontario Real Estate Source)

Here is the “ORES REAL ESTATE INDEX” which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the five year average used as a standard benchmark comparison in the mutual fund industry.

As of 31 January 2010, here is the Index representing average prices:

Real Estate

130.12…..GTA single family homes
132.64…..All condos in GTA
134.41…..Downtown Central Condos
129.70…..East condos
129.78…..North condos
135.76…..West condos

Other market comparisons

273.29…..gold (price per ounce)
179.37…..oil (price per barrel)
130.12…..ORES Index single family homes
127.26…..TSX index
110.35…..CPI index
109.32…..NASDAQ index
99.77……Dow Jones index
93.26.…..S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of April, the index stood at 130.12. That’s a 30.12% increase in 67 months. That means the increase is 0.449% monthly, or it could also be expressed as 5.39% annually. The performance here is shown without annual compounding for the sake of simplicity.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

• Commodity prices are just commodity prices

• There is no other “extra return” for commodities

• The same is true for the CPI

• The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 109.31 (It has been modest and appears under control)

• For a realistic performance goal, you should aim for CPI plus 3.5% annually

• Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices

• The stock market Indexes only measure the survivors. So, this year both GM and Chrysler would have been dropped due to the bankruptcies

• If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes

• Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

• Actually, I should have mentioned that if you held gold bullion, you could sit in a room, count it, and enjoy that experience too. I’m not quite sure how to measure that. You’ll have to ask King Midas or Goldfinger!

Comparative Observations Using the New Index

• Gold was the best performer

• Oil was the most volatile, (yes it dropped in half over our measurement period)

• Real estate was the most stable, with solid predictable returns at about 5.39% annually

• condos showing a higher overall return than single family homes, which is quite unusual

• Our own stock market posted reasonable gains, and now slightly trails single family homes over the last five years, however, don’t forget that the TSX is still well off its highs

• Two of the three US stock market indicators still show negative numbers, with the NASDAQ approximating our CPI.

Conclusion

For steady, predictable, measured gains pick real estate. It’s a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it’s never “wiped out” completely, like GM or Chrysler stock. So, unless you’re sitting on the edge of a tsunami, you’ll still own something when the storm is over.

For a benchmark of success, there’s 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt, including CanWest Global, and many US Banks) that would have been happy with that return.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

(Ontario Real Estate Source)

Sometimes, it’s important to know what different people do. This can be helpful when looking for an expert, and perhaps just as importantly what people are not qualified to do.

We’ll start with the legal professionals who are involved to some extent in the real estate industry. Just what are the names, titles, qualifications and experience of each of the various professionals?

Let’s consider:

• Lawyers
• Barristers
• Solicitors
• Notaries
• Attorneys
• Commissioners
• Conveyancers
• Paralegals

After that, we should also consider the following professionals and outline their roles:

• Real Estate Agents
• Real Estate Appraisers
• Real Estate Assessors
• Real Estate Broker
• Real Estate Brokerages
• Real Estate Companies
• Real Estate Developers
• Real Estate Mortgage Officers
• Real Estate Practitioners
• Real Estate Sales Representatives
• Realtors

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

(Ontario Real Estate Source)

It is very commonplace to see wooden decks constructed at the rear of houses. They have become extremely popular over the last two decades. And, with popularity comes problems.

What if:

• The deck isn’t safe
• The deck was never constructed properly
• A permit was necessary

These are, of course, some of the fundamental issues.

So, if you’re the buyer’s agent and you come across an older home in the city, what are you going to say?

Consider the basic wooden deck at three levels on an older three storey home. At ground level, there is likely a walkout, patio deck, level in nature, just off the ground, probably without a handrail. At the second level, you might have a smaller deck coming out of the master bedroom or a living room (if the building has been divided). Structurally, it will need some major supporting posts from the ground. On the third level, this time likely out of a bedroom you will have a deck that is really in the form of a small balcony. This time, the supports are beams extending from the house.

This set of circumstances is not unusual. There are literally thousands of such three deck houses in central Toronto.

What can really go wrong? After a while, the wood simply rots, if left unattended. You probably don’t have to worry for twenty years. But, were these decks built before 1990? If so, they could be “at risk”.

If you are the buyer’s agent you will have to include a home inspection clause.

Were the decks built properly? Was there a permit? Were all three built at the same time? Were they ever inspected?

You need this information before the home inspection clause time limit expires. You might consider including a clause like the following, to address some of the concerns:

“The seller warrants and represents that the three decks on the rear of the house (main level, second level and third level) have each been

The seller shall deliver to the buyer a copy of the building permit and the inspection report issued by the City of Toronto in respect to each of the decks at least 24 hours prior to the time limit for the satisfaction, waiver or fulfillment of the home inspection condition, failing which such time limit shall be extended accordingly.”

In the case of uncertainty, seek legal advice. It’s better to consult a solicitor ahead of time than retain a barrister to conduct legal proceedings afterwards.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

(Ontario Real Estate Source)

The Bank of Canada hiked its key interest rate by a quarter point, 20 July 2010. A similar increase took place in June.

The Bank noted that it “expects the economic recovery in Canada to be more gradual than it had projected in…April, with growth of 3.5 per cent in 2010, 2.9 per cent in 2011, and 2.2 per cent in 2012. This revision reflects a slightly weaker profile for global economic growth and more modest consumption growth in Canada.”

Financial institutions will likely respond by increasing their prime lending rates by a quarter point. Lending institutions have different policies as to the timing of rate adjustments for variable-rate mortgages.

Fixed-rate mortgages are largely based on movements in the bond market. So, this announced increase will not likely have much impact.

This is not really a surprise. This increase was quite expected and has already been factored into the market.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

The Law of Disclosure and the Seller Property Information Statement

Three Hour(3) Credit Course Approved by RECO

Learning Objectives

Participants will understand and appreciate:

• law of disclosure

• the SPIS document

• risks associated with an incorrect interpretation of the document

• importance of truthful and complete answers

• obligations of the seller

• conflicting obligations of the registrant

• fraudulent and negligent representations under the law of torts

Course Material

Participants will take away from the program over 120 pages of material including:

• A line by line commentary on the SPIS document for future reference

• A Disclosure Checklist for Risk Management

• Liability of Seller, Buyers and their Agents in the Disclosure Process

• Obligations under the Criminal Code

• Two (2) years access to regularly updated legal cases

Please contact me if you would like to take the course. I can advise you of the course availablity.

Brian Madigan LL.B., Broker
Royal LePage Innovators Realty, Brokerage
905-796-8888
BRMadigan@rogers.com
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

(Ontario Real Estate Source)

Where’s the Toronto Market Going?

If past years are any indication of the future, then we may be able to make some reasonable predictions.

This year has been quite predictable. The market peaked 15 May 2010, and has been in decline ever since.

July and August are likely to show poorer numbers. This is the summer doldrums. It happens every year, and this year, it has nothing to do with the HST.

In September, the market should start to pick up and turn upwards.

The market will continue to rise through to the end of October. The final numbers in October are likely to match the earlier highs that we saw in May. So, that means that there is a little more room for the market to grow.

The market is likely to settle down somewhat in November, and decline a bit in December. The reason I say this, is that it happens most years.

Now, I do have to qualify that by saying “all things being equal”. Actually, I don’t have any idea what that really means, but I still need some kind of a qualifier here.

Let’s assume that there is no major market meltdown. The worldwide stock exchanges don’t lose half their values. Let’s also assume that banks generally don’t fail. And, insurance companies too! As well, as the major manufacturers.

Assuming those things, and that we have a normal market, then the average price of a single family home should rise to $446,593 by the end of October. While it will lose some ground, that number should reappear once again in February 2011.

The year started out at $411,093. A $446,593 figure should it hold would provide $35,500 in increased value. That would be an 8.64% return over the year. The end of the year, or 31st of December results could easily be 1% off that figure for about a 7.5% annual return. That’s better than most years.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com