Report from Council, December 2004

Licensees are reminded that the title of a property may contain non-financial charges that are not caught by the exceptions noted in Clause 9 of the “standard” Contract of Purchase and Sale. Clause 9 in the “standard” Contract of Purchase and Sale states as follows: “9. TITLE: Free and clear of all encumbrances except subsisting conditions, provisos, restrictions, exceptions and reservations, including royalties, contained in the original grant or contained in any other grant or disposition from the Crown, registered or pending restrictive covenants and rights-of-way in favour of utilities and public authorities, existing tenancies set out in Clause 5, if any, and except as otherwise set out herein.”

This clause obligates the seller to provide the buyer with a free and clear title except for restrictive covenants and rights-of-way that are in favour of only utilities and public authorities which can remain on title. Notice that this clause does not exempt easements or building schemes and such from the seller’s obligation to deliver clear title. If the title contains non-financial charges which are not caught by the exceptions in the standard contract, the licensee must “otherwise set out “ these charges in the contract. These would include issues like private easements for shared driveways, and private roads encroaching on a neighbour’s land through a friendly agreement which may not pass with the title. A convenient way to “otherwise set out” charges in the contract is to attach a current title search printout to the agreement and use the following clause:

Acknowledgement Clause “A”

The Buyer acknowledges and accepts that on Completion the Buyer will receive title containing, in addition to any encumbrance referred to in Clause 9 (TITLE) of this contract, any non-financial charge set out in the copy of the title search results that is attached to and forms part of this contract.

Further, there may be restrictions on the property that may affect its use or value that are not registered against the title. For example; restrictions relating to Riparian Areas Regulation under the Fish Protection Act, or archeological sites under the Heritage Conservation Act and others that are not currently registered on title but may have substantial impact on use or value .The title search clause should be used to enable the buyer to search for any charges or other features such as those mentioned above that may affect the property’s use or value:

Title Search

Subject to the Buyer, on or before __(date)__ searching and approving title to the property against the presence of any charge or other feature, whether registered or not, that reasonably may affect the property’s use or value. This condition is for the sole benefit of the Buyer.

For more details and clauses concerning Clause 9 of the “Standard Contract”, please see pages 176-184 of the Licensee Practice Manual 5th Edition 2003.

As a result of recent complaints to the Council, this Report contains two important articles relating to contracts. Licensees must ensure that they exercise care and diligence when dealing with any type of contract or document related to a real estate transaction and in particular, licensees must provide true copies to all parties.

You will note that this newsletter also contains an open letter from the Superintendent of Real Estate with respect to mortgage fraud. This is a significant area of concern for the industry and real estate licensees must be cautious not to engage in any questionable practices or schemes. The consequences can be severe, the least of which is the potential of losing your licence.

Later this month a Special Report from Council will be mailed and will provide licensees with important information about the new Real Estate Services Act. I urge every licensee in the province to familiarize themselves with the important information contained in the Special Report and the new legislation. The new Act, Regulations, Rules and Bylaws can all be found on Council’s website at www.recbc.ca.

With the forthcoming introduction of the new real estate legislation, the year ahead is going to be an exciting time for our industry. On behalf of Council Members and staff, I wish you and your family a happy and healthy Holiday Season.

On behalf of Council, Rosemary Barnes, Chair

In keeping with its role of providing advice to the government, the Council regularly meets with representatives of the Office of the Superintendent of Real Estate, the Financial and Corporate Sector Policy Branch and the Ministry of Finance. On October 27, 2004 Council Chair, Rosemary Barnes, Vice-Chair, Dougal Shewan and Executive Officer, Robert O. Fawcett had another opportunity to meet with the Hon. Gary Collins, Minister of Finance to discuss a variety of issues relating to the new Real Estate Services Act. These meetings provide an excellent opportunity for the Council to offer recommendations and feedback on important industry issues.

Over the last several months, considerable media coverage has been given to the increasing problem of marijuana grow operations (“grow-ops”) in the Province and, in particular, the Lower Mainland. Grow-ops have become a major source of concern for many communities resulting in public meetings aimed at trying to address problems associated with their presence. Grow-ops negatively affect neighbourhoods directly through the criminal element that they bring, and the potential for increased violence within the area, and indirectly as a result of their impact on property values. Properties purchased for the purpose of using them as grow-ops often have inflated property values as a result of purchasers’ willingness to pay a premium over and above the market value of the property to ensure a quick possession date. This in turn inflates the value of surrounding properties, and creates false market values. Subsequently when the grow-op is abandoned and it becomes known that the property was used as a grow-op it is often difficult to re-sell the property to a legitimate purchaser, resulting in a significant reduction in both the value of the property and the value of property in the neighbourhood.

Increasingly, we are finding that many of the houses being identified as grow-ops are high-end properties in up-scale neighbourhoods. These properties are being purchased using fictitious purchasers who use false employment and down payment information in the application. The proliferation of these types of transactions is becoming an increasing concern, particularly in view of the potential for adverse effects on the real estate industry as well as on the financial institutions that are funding the mortgages on these properties.

During our investigation of these cases, we are finding that in a significant number of transactions, red flags* are being overlooked which may assist real estate licensees in identifying either so-called “straw buyers” or buyers whose intent is to use the property for illegal purposes such as grow-ops. Little, if any, due diligence has been carried out by either the licensee or the mortgage broker to ensure the accuracy of the information provided in the transaction. Lenders appear to be relying heavily on the information being sent to them by licensees, or the mortgage broker referring the mortgage.

Both licensees and mortgage brokers on the other hand are saying that it is not their responsibility to verify the information being passed on to them by clients, and that it is up to the lenders to ensure the information is accurate. This office takes the position that licensees do have a responsibility to ensure the accuracy of information provided by the applicant. If licensees do not verify any of the information they are forwarding, then it should be made clear to the party receiving the information that either none or only some of the information has been verified.

While no one is suggesting that licensees need to conduct in-depth investigations of every transaction that they process, some due diligence must be undertaken to ensure that the information being passed has been verified. Documentation containing errors or omissions needs additional verification and under no circumstances should licensees be involved in deals where they know or suspect that false or inaccurate information is being passed on to potential purchasers or lenders.

It is essential that licensees are aware of the issues and concerns regarding the purchase and sale of properties, which may ultimately be used for illegal purposes. The early detection and reporting of fraudulent real estate transactions is an essential tool in combating the problem of grow-ops and the further funding of illegal activities. I would encourage all of you to take the time to ensure that you are aware of the red flags associated with the detection of fraudulent real estate transactions and money laundering, and to report suspected cases to the authorities as soon as possible.

Please do not hesitate to call Jay Mitchell, Deputy Superintendent of Real Estate at 604 660-0108 or Ken Fraser, Executive Director of Investigations at 604 660-2508 should you have any questions or concerns regarding this matter. *The following list contains some examples of “red flags” applicable to real estate licensees: 1) Contract is assignable ie. “John Smith or Nominee.” 2) Price is substantially below market value. 3) Deposit cheques have inconsistent dates: cheque #225 dated November 1 and cheque #220 dated December 15. 4) Power of Attorney is used. 5) Multiple contracts.

Recent amendments to the Property Transfer Tax Act change the application of the property transfer tax to pre-sold condos and other strata units purchased on or after January 1, 2001. Previously, tax was based on the fair market value of a pre-sold strata unit on the day a purchaser registered a transfer in the Land Title Office.

Retroactive to January 1, 2001, most purchasers of pre-sold strata units will pay tax on the total consideration paid for the unit, including upgrades or any other premium paid for assignment of a written agreement, rather than its fair market value at registration.

This amendment brings certainty to taxpayers who purchase pre-sold strata units by basing the amount of tax due on the total consideration they paid, rather than a potentially unknown fair market value on the date of registration.

First-time homebuyers who purchase presold condos and other strata units are also provided with certainty on whether they qualify for the First Time Homebuyers’ exemption. Now, these new owners will know if their unit meets the maximum value and financing requirements of the First Time Homebuyers’ exemption when they enter into a written agreement to purchase a pre-sold unit.

Pre-sold strata units that were assessed under the previous legislation are being reviewed by the Ministry of Provincial Revenue. Assessments will be revised and refund cheques issued, where appropriate, to affected taxpayers. Consumers who believe they qualify under the amendment but have not received a revised notice of assessment, a refund cheque, or been contacted by the Ministry of Provincial Revenue by November 30, 2004 are asked to call 250 356-9268. Further information can be obtained from the Ministry of Provincial Revenue — Property Taxation Branch at PO Box 9427 Stn Prov Govt., Victoria BC V8W 9V1, Fax: 250 95

The provincial government recently introduced the Riparian Areas Regulation as a replacement for the Streamside Protection Regulation under the Fish Protection Act.

The Riparian Areas Regulation calls on local governments by, March 31, 2005, to protect riparian areas during residential, commercial, and industrial development by ensuring that proposed activities are subject to a science based assessment conducted by a qualified environmental professional.

The Riparian Areas Regulation approach to urban fish habitat protection is designed to provide certainty and flexibility to development while not being dependent on limited local provincial and federal government resources as found under the Streamside Protection Regulation.

For further information, visit the Fish Protection Act home page at https://www.bclaws.gov.bc.ca/civix/document/id/consol27/consol27/00_97021_01

A number of recent consumer complaints received at the Council involve licensees who have failed to deliver copies of documents related to a real estate transaction to each party. The Council reminds licensees that each of the parties to a Contract of Purchase and Sale must promptly receive a true copy* of the contract.

Section 37(1) of the Real Estate Act states: “When a licensee has secured a signed acceptance of an offer to sell, purchase, exchange, lease or rent real estate, the licensee must without delay deliver to each of the parties to the transaction a copy of the acceptance signed by the acceptor.”

Similarly, the Council reminds licensees that all parties to a listing agreement must promptly receive a true copy. As many forms are now being generated using WebForms, licensees are reminded of their responsibility to promptly deliver true copies to all parties named in the document. Faxed copies are also acceptable.

* A true copy is defined as a copy that is exactly the same as the original, accurate and complete.

Andrzej Karol Rezmer, while licensed as a salesperson with Sutton Group – Killarney Realty, requested the Real Estate Council of British Columbia to discontinue disciplinary proceedings against him as he has decided to permanently retire from real estate practice. Mr. Rezmer was facing many serious allegations of misconduct related to real estate activities and would have been required to appear before a hearing panel of the Real Estate Council to respond to these allegations. Considering the nature of the misconduct allegations and the fact that there is likely no greater disciplinary penalty than not being licensed to act again, the Real Estate Council agreed with Mr. Rezmer’s request. The lifetime ban on Mr. Rezmer’s licensing under the Real Estate Act is effective as of December 1, 2004.