I will relay a sad story about how a home buyer got swindled by an unethical vendor in a resale transaction in the City of Toronto recently. In August of 2007, a purchaser closed a real estate transaction and bought a very cute little bungalow in the east end of the city. Unfortunately, the vendor did not pay the water bill. The arrears did not show up on a search and the fact that the account was overdue was only discovered after the transaction closed.
At the request of the bank, the purchaser was required to get title insurance and did. The policy of title insurance stated that it would cover water arrears, but ONLY if they were the kind of arrears that would be revealed by a search. Unfortunately for our purchaser, these were the kind of arrears that are not revealed by a search, and thus not eligible for compensation under the policy.
Water arrears, like tax arrears, will be registered as a lien against the property – meaning that the unsuspecting purchaser foots the bill when the unscrupulous vendor flees.
Certainly small claims court is an option, but it will be difficult to collect the funds even if the purchaser is successful in their suit because the vendor has moved to another country.
This story made me particularly annoyed for a variety of reasons, not the least of which is the fact that when you use someone's utilities without paying for them it is called stealing, plain and simple, and I have no tolerance for it.
The moral of the story? If you are purchasing property being sold under a power of attorney, protect yourself and ask your agent to insert a clause allowing for a reasonable holdback for utilities. The same can be said if you know the vendor intends to move to another province or country following the closing. Unfortunately, there is no way to ensure you will find out and it is almost impossible to collect these funds after closing. Truly, buyer beware.
Rachel Loizos is an associate lawyer at Sotos LLP in Toronto. She practices in the area of real estate law.
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May 7, 2008
Legal |