Real estate law column by Bob Aaron

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.

 

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.

 

Before closing the purchase of their home, Pierre Marcoux and Caroline Bougie discovered the City of Toronto building department had an “open file” on the house. They wanted the seller, Darlene Remlinger, to rectify the situation by having the city’s file closed.

 

Typically, sellers are required by the purchase agreement to provide clear title free of any liens, mortgages, and other matters including breaches of the building code or zoning bylaws.

 

The purchase agreement signed by Marcoux, Bougie and Remlinger was on the typical standard form published by the Ontario Real Estate Association (OREA). It contained a very badly worded 149-word sentence which deals with title problems and outstanding municipal orders.

 

Translated into understandable English, the tortured provision says that if the buyers object to any outstanding municipal work order or deficiency notice, and the seller is unable or unwilling to rectify the issue or obtain insurance (but not fire insurance) protecting the buyer and any mortgage lender, then the agreement is ended and the deposit returned.

 

Unfortunately, the sentence was a major contributing factor to the litigation which arose in this case.

 

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.

 

Back in April, 2006, Walter and Shelley Cotton signed an agreement to buy their dream home in Brantford. After closing, the house turned out to be the worst nightmare they could have imagined, requiring them to spend more than $85,000 to bring it up to building code.

 

Before the Cottons signed the offer to purchase, they reviewed the Sellers Property Information Statement (SPIS) provided by the sellers, Gary, Laurie and Carey Monahan.

 

The Cottons and their agent went over each question and answer thoroughly. The form disclosed that extensive renovations had been done to the house by the sellers without any building permit.

 

Finding themselves in the midst of a “hot” real estate market, the Cottons instructed their real estate agent to submit an unconditional offer without a home inspection clause — despite the agent’s advice to the contrary.

 

It was only after the transaction closed that the buyers conducted a home inspection and an electrical safety inspection, both of which revealed numerous problems.

 

Eventually, the Cottons had to gut a significant portion of the house so repairs could be done. The house, they said, was “in chaos” for the next six months.

 

Emma and Henry (not their real names) live in a modest three-bedroom detached home near Bathurst and Lawrence. A few weeks ago, their laundry room experienced a minor sewage backup caused by a cracked sewage pipe under the front lawn.

 

After the pipe was replaced, the couple became concerned about mould beneath the flooring tiles in the laundry room. They called in their insurance company, and it wasn’t long before the vinyl tiles were being ripped up — only to reveal a layer of asbestos tiles underneath.

 

For a half century, until the mid 1980s, asbestos was widely used in many household products, including millions of flooring tiles such as the ones found in Emma and Henry’s house.

 

In the 1980s, it was discovered that inhaling asbestos fibres can cause lung cancer, and its use in domestic and industrial products began to decline rapidly.

 

The insurance adjusters decided that it was necessary to remove all three layers of floor tiles which had been glued on top of the original concrete floor (with an adhesive containing asbestos).

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.

 

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 sad tale of the Glenlake Ave. driveway featured in the Star late last month has focussed public attention on the difference between the Land Registry and the Land Titles systems of property ownership. It has underscored yet again the fact that the single most important document in any real estate transaction is the land survey — formally known as surveyor’s real property report.

 

As reported in the Star, the Perkovic family owns 104 Glenlake Ave. in Toronto’s west end, and the Roslins recently purchased the house next door at 106. In between the two properties is a wide driveway, leading to the back of both properties and to the Perkovics’ double garage on the west and the Roslins’ parking area to the east.

 

For 33 years, the Perkovics had been using it to access their garage. Unfortunately for them, they only own a small strip beside their house — not wide enough for a car to navigate. Recently, the Roslins blocked access by the Perkovics to their driveway.

 

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.