Toronto Real Estate and Neighbourhoods Blog | Move Smartly

Mortgage fraud fallout working way through courts

Bob Aaron in Legal

Mortgage fraud may no longer be on the front pages, but the fallout from hundreds of past fraud cases is still wending its way through Ontario courts.

The most recent decision in this area of law was released in June by the Ontario Superior Court of Justice, and involved a mortgage fraud perpetrated on the Royal Bank of Canada.

The story begins in a Tim Hortons back in October, 2004. Angela Isaacs was having a coffee with her then-common law husband, Dexter Abrams, discussing the sorry state of their finances. Another customer overheard their conversation and introduced himself as Mike. He said he could help them and left his phone number if they wanted more information.

 A couple of weeks later the couple contacted Mike, who offered to pay $4,000 if one of them would co-sign a mortgage for an acquaintance who had trouble getting financing on a house.

Ultimately, Isaacs reached an agreement with a woman who identified herself as a mortgage broker named Marcia Briggs. She agreed to pay $6,000 to Isaacs for co-signing mortgage documents on a house being purchased by someone named Mark Forrest.

Briggs and Mike told Isaacs she would only be liable as a guarantor for six months and that during that time Forrest would be making all the payments.

Briggs later went to a Royal Bank branch and signed some bank forms, including a mortgage application for a house on John Stoner Dr., near the Toronto zoo.

Later she met with a secretary in a law office and signed a mortgage for $279,451.29 and other documents without any explanation or discussion.

The fraudsters never made any payments on the mortgage. Upon investigation, Isaacs discovered the true extent of the fraud:

Lawyer not obligated to negotiate better purchase agreement

Bob Aaron in Legal

When a lawyer is presented with an unconditional but obviously defective agreement of purchase and sale by a client, does he or she have an obligation to try to negotiate an improvement to its terms?

That was the question for the court to decide in the case of Graham v. Diamond, released by the Ontario Superior Court of Justice in June.

In July, 2002, Patrick and Heather Graham entered into an agreement to purchase a house on Carrington Lane in Quinte West from George Diamond. The agreement was conditional until the end of the month on the Grahams arranging satisfactory financing, failing which the deal would die and the deposit money would be returned.

There was no condition for either an environmental assessment or a home inspection.

After the financing condition had been waived and the deal was firm, the Grahams retained Belleville lawyer Raymond Kaufman to represent them in the transaction.

Prior to closing, Kaufman confirmed with the city of Quinte West that there were no outstanding work orders on file against the property. The transaction closed August 16, 2002.

Three years later, the buyers sued the sellers, their real estate agents, their lawyer, and others claiming damages for “serious and permanent injuries” resulting from apparent contamination of either the land or the building itself.

Among other things they claimed that Kaufman failed, neglected or refused to ensure that a proper environmental site assessment was performed at the property, and that it was a customary practice to have a home inspection performed on the property before the closing of the purchase.

RECO decision heralds new rules about basement apartments

Bob Aaron in Legal

A discipline decision by the Real Estate Council of Ontario (RECO) earlier this year has established what may be a new disclosure standard for real estate agents dealing with basement apartments and land surveys.

Back in 2006, Richmond Hill real estate agent Sean Marandi listed a property for sale. In the published listing, it was described as a “magnificent house . . . elegant design with two apartments in the basement ($1,150 income) . . . three fridges, three stoves . . . Seller and agent do not warrant the retrofit status of basement apartment.”

Two days after the listing was published, Marandi drafted an offer on behalf of a buyer. He had advised the buyer that the property would be an excellent purchase for investment purposes because the previous owner had built a separate entrance to the basement.

The buyer signed a dual representation acknowledgement confirming that Marandi and his brokerage represented both buyer and seller.

In preparing the offer, Marandi did not insert a clause to ensure that the buyer was fully informed of the legality and suitability of the basement units for his intended use.

The offer did, however, contain a clause requiring the seller to provide an existing land survey of the property. That was never done.

Monopoly of land registration system inappropriate

Bob Aaron in Legal

Is the Ontario government about to auction off exclusive access to our land registration system to the highest bidder? Is it in the public interest to have a private monopoly control our land registration system?

These are two of the questions which arise from the passage of the Electronic Land Registration Services Act, 2010 (ELRSA) which received Royal Assent on May 18. It is certain to have a profound impact on every Ontario resident who is a party to a deed, mortgage or other document registered in the province’s electronic land registration system.

The legislation was buried in the March 25, 2010, budget bill and enacted without any announcement, publicity or meaningful stakeholder consultation. Since it originated with the Ministry of Finance rather than the Ministry of Government Services (which oversees the land registration system), it is reasonable to assume that the purpose of the law is to raise money for the government.

A ministry spokesman explained to me that the ELRSA legislation gives the province “new tools” to manage contracts effectively and efficiently for the delivery of electronic land registration services. It allows the province to enter into “new business arrangements to continue to enhance and modernize the electronic service offerings available to the public.”

The new law creates the position of Electronic Land Registration Services Commissioner to oversee and regulate the financial and operating relationship among the government, Teranet and third party service providers.

Attached religious object likely should have stayed with house

Bob Aaron in Legal

Is a religious object attached to the outside of a house or condominium a fixture, which remains with the home on a sale, or a chattel, which can be removed by a departing owner?

That was the issue raised recently by a colleague, Gary Posesorski, who practices real estate law in Toronto.

One of his Jewish clients was selling his house and asked Posesorski whether he could remove the mezuzahs attached to the doorframes. Posesorski asked for my take.

A mezuzah is a small piece of parchment contained in a decorative case. The parchment contains handwritten Hebrew verses from chapters six and 11 of the book of Deuteronomy. Following the biblical commandment to write these words “on the doorposts of your house,” ancient custom requires a mezuzah to be attached to the doorframe of the front door and often most other rooms in a Jewish home.

The purpose of the mezuzah is to remind the occupants of God’s presence in the home.

I asked six lawyer colleagues whether a mezuzah may be removed when the house is sold, and, predictably, I received seven different answers.

The law of fixtures is, at best, murky when it comes to making a determination of whether an item of personal property — a chattel — becomes a permanent fixture when it is attached to a building.

According to court cases dating back some 150 years, a chattel becomes a permanent fixture when it is “sufficiently attached” to land or buildings so as to become part of the ownership of the property itself.

City takes dim view of junked car 'planter'

Bob Aaron in Legal

Down the street from my house, one of my neighbours has an old bathtub filled with earth sitting on the front lawn. In season, it contains flowering plants and is quite attractive. During the rest of the year, it just looks like an old bathtub.

I was reminded of my neighbour’s bathtub when I came across a recent court case from the United States Court of Appeals in Texas.

Michael Kleinman operates a chain of Planet K stores in the San Antonio and Austin, Texas, areas. The stores are what a judge called “funky establishments” that sell novelty items.

Kleinman has a tradition of celebrating new store openings with a “car bash,” a charity event at which the public pays a dollar per person for the privilege of sledge-hammering a car to “a smashed wreck.” The proceeds are donated to charity.

The wrecks have the tires and engine removed, and the roof sawed off. Then they are filled with dirt, planted with cactus and other vegetation, and painted. Placed outside each store, the “planters” serve as unique advertising devices.

When Kleinman opened a new store on Interstate 35 in San Marcos, Texas, he created a car planter with an Oldsmobile 88. The smashed car was planted with a variety of native cacti and decorated with paintings of life in San Marcos. Incorporated into the painted design are an image of Ralph the Swimming Pig (a local San Marcos attraction), and the phrase “Make love not war.”

Lender didn't have right to add credit card balance to mortgage

Bob Aaron in Legal

Does a mortgage lender have the right to add the outstanding balance on your Visa card to the amount outstanding on your mortgage?

That was the issue in a 2009 court case involving Toronto law firm Dale & Lessmann LLP and the Royal Bank of Canada.

When Dick Soong defaulted on the Royal Bank first mortgage on his house in 2007, the bank sold it under power of sale and applied the proceeds to pay off Soong’s $180,000 Homeline Mortgage and his $60,000 line of credit.

The law which applies to power of sale proceedings requires that surplus funds be used to pay off debts subsequent to the first mortgage in the order of their priority.

In this case, there were two other mortgages on title. One was to ensure that the fees of Soong’s trustee in bankruptcy got paid, and the other was for Soong’s legal fees. After the power of sale proceedings, the Royal Bank applied about $30,000 in surplus funds to pay off Soong’s RBC Visa card debt instead of paying it to the second and third mortgage lenders.

Last year, the law firm asked the Ontario Superior Court to determine who had priority over the leftover money — the Royal Bank for its Visa card debt, or the second and third mortgage lenders.

Developer-imposed purchase agreements challenged

Bob Aaron in Legal

It has become common practice in Toronto for some developers to require condominium purchasers in each building to contribute to the costs of guest suites, superintendent’s units, carwash bays, car share units and similar amenities.

Typically, the total price for these units is between $250,000 and $500,000 per project, and the cost is amortized over 10 or 15 years with interest at 4 per cent above the 10-year Canada Bond rate.

Instead of the charges for these facilities being buried in the purchase price of each condominium unit, they are added to the monthly common expenses for a decade or more after closing. As a result, over a period of years, each condominium buyer can expect to pay a total of perhaps $1,000 to $1,500 in addition to the purchase price. The cost varies with the price of the units and the applicable interest rate.

Although the added charges are set out in the small print of the condominium disclosure statements, they are not referred to in the purchase agreements, and in my experience, never mentioned in sales offices.

This practice may soon end in the wake of a decision of Justice Julie A. Thorburn last year, in a case involving condominium developer Lexington on the Green Inc., and the unit owners of Toronto Standard Condominium Corp. 1930.

Victory for non-smoking condo couple in B.C.

Bob Aaron in Legal

A decision of the British Columbia Human Rights Tribunal late last year could have an enormous effect on owners and occupants of condominiums and rental apartments across Canada in the coming months.

Paul and Rose Kabatoff live in a suite in an attractive three-storey condominium building in Langley, B.C. They both have a number of health problems including respiratory illnesses and allergies that are negatively affected by second-hand cigarette smoke.

In August 2008, smokers moved into the suite below their own. The Kabatoffs appealed for help to their condominium corporation (known in B.C. as a strata corporation), claiming that the second-hand smoke coming from their neighbours downstairs worsened their health problems. They provided a letter from their doctor supporting their request.

Ideally, the Kabatoffs wanted the condominium to adopt a no smoking bylaw, which it would not do.

Buyers overpay builder for estimated taxes

Bob Aaron in Legal, Condo Buying Tips

In 2005, Stuart signed an agreement to purchase a condominium unit for $326,900 in an upscale 20-storey project not far from the Annex area.

He was able to take possession of his unit early in 2008 and final closing occurred on Aug. 12, 2008.

On Stuart's closing, as with every other real estate transaction, the seller's lawyer prepared what's known as a statement of adjustments. The statement is used to calculate the unpaid balance of the purchase price due on closing. In addition, it allocates adjustable items like tax bills between the parties as of the closing date.

As set out in the purchase agreement, the builder adjusted 2008 taxes with Stuart (and the other 215 owners) on the assumption that it would pay all of the taxes for the year of closing when the bills were issued.

On this basis, the builder would be responsible for 222 days of taxes (to Aug. 12), and Stuart would be responsible for the remaining 143 days of the year.

But since the actual 2008 tax bills were unknown at the time of closing, the builder estimated the taxes and adjusted with the purchasers on the assumption that the taxes had been (or would be) paid.

On the builder's closing statement of adjustments, the 2008 taxes were estimated at $3,970.

But when the city finally issued the 2008 tax bill in January 2010, it came in at only $2,107.92. As a result, the builder had over-estimated the 2008 tax bill by a staggering $1,862.08.