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Archive for September, 2014

Understand the consequences before you sue

A wise philosopher once said: “I went bankrupt twice in my life; the first time when I lost a lawsuit, the second time when I won.”

I couldn’t have said it better. In most cases, the only winners in lawsuits are the lawyers, who get paid, no matter whether they win or lose. Here are 5 things to consider before you ever think of suing anyone.

1.    Lawsuits take a lot of time.

Even if you sue in Small Claims Court, it will typically take 1-2 years before your matter is heard. There will be a lot of time spent on preparing and filing documents, attending settlement hearings and finally the trial. How do you feel before going to traffic court to fight a speeding ticket? Stressed out? Multiply that by 100 when it comes to how you will feel throughout any court proceeding.

2.    Even if you win, you may not collect anything

Even if you win your lawsuit, there is no guarantee that you will collect anything, especially if the person you are suing ends up having no money. In the meantime, you still have to pay the lawyer or paralegal who was working for you. Before suing anyone, make sure they have a job so that you can at least try to go after part of their wages if you are successful in court.

3.    It is not easy to sue lawyers or real estate agents

Many unhappy buyers and sellers contact me for advice about suing their real estate agent or lawyer as a result of a bad experience buying or selling real estate. You must remember that real estate agents and lawyers are both protected by errors and omissions insurance policies. What this means is that if you sue them, their legal costs will be paid by the insurance company. In the meantime, you have to pay a lawyer right away to get started with your lawsuit. I have seen many litigation lawyers ask for a minimum of $5-10,000, up front, just to get started on a lawsuit.

4.    Beware of social media

I have written about many real estate related court decisions over the years, primarily to educate buyers, sellers and investors as to how to be properly prepared so that they do not make the same mistakes themselves. However, when you write about a case, you also mention the people who are involved. I have received many complaints from people who have either lost or even won a lawsuit, because of the negative feedback they have received as a result of their case being mentioned on the internet. For example, a distinguished professor wrote to me that although they had achieved many awards in their career, the first thing anyone now  sees when they Google the professor’s name is the negative portrayal in my article. In another case, the winner of a case started receiving hate mail from readers, who thought they acted unethically even though they actually won their case.

Remember, once you sue and there is a decision, it can be made public for the whole world to see via the internet.

5.    The worst settlement is better than the best lawsuit. In my opinion, if you have the opportunity to settle any lawsuit, take it. The settlement will typically remain confidential, so no one will learn about the case and most important, you will be able to put the matter behind you. There is no such thing as a bad settlement.

Think twice before suing anyone. It is usually not worth it.


Protect yourself against condo insurance deductible

There is a lot of confusion out there by buyers and real estate salespeople as to what insurance is required when buying a condominium. The mistake is thinking that the insurance policy for the building will always cover your situation. In most cases, the buyer will still have to pay for part of the damages, even if they have done nothing wrong.

Here’s why:

Condominium buildings do have an insurance policy that insures the building and the units. However, it will not cover any improvements to the unit made by the owners or the owners’ contents, should damage occur, whether by water leakage, fire or smoke damage. In addition, if someone you invite into your unit gets hurt, they can sue the owner personally for liability. As a result, most condominium buyers purchase a policy that provides coverage for their contents, any upgrades that they do to their unit and liability insurance to protect them if someone gets hurt visiting their unit.

What is confusing to most buyers is that just about every condominium insurance policy has deductibles, which become the owner’s responsibility should any damage occur, even if it is not the owner’s fault. The deductibles are usually $5,000 but I have seen many policies that have $10,000 deductibles. What this means is that let’s say you leave the bathtub overflowing and water damages the unit below you. You are responsible to pay the deductible, and the condominium will pay for any damage above the deductible. This will also be the case if you are responsible for the HVAC equipment in your unit and any malfunction causes damages to the building or to other units.

Let’s say the pipes in the wall burst, your unit was damaged and you did nothing wrong. Although the pipes may be the responsibility of the condominium corporation, you will still have to pay the deductible before the condominium pays anything extra to repair the damages. The only way to fight this is if you could prove that the condominium corporation was negligent in conducting repairs and should have known that the damage could occur. In my experience, you will pay more in legal fees to fight this than the deductible, so it is just preferable to have the proper insurance instead.

In every condominium status certificate, there is a summary given of the insurance policy for the building, including any deductibles. One way to protect yourself is to send this certificate to your own insurance company and tell them that you wish to buy extra coverage for the deductibles noted on the policy.

A better idea, in my opinion, is to use the same insurance company that your building is using for your own insurance package. This company likely understands the deductibles better than anyone and will make sure that your package covers any gap that may exist in the building insurance policy.

If you are buying a condominium as an investment, you still need to make sure that you have this type of insurance protection. Most tenants purchase insurance for their belongings and to cover liability. If you want the tenant to also pay for insurance for the deductibles, you need to say so in your lease agreement and make sure that the tenant provides proof that they have obtained all required insurance coverage before you give them the keys to the unit.

When you understand the insurance you need before you move into a condominium unit, you will be prepared should anything occur later.

 

Mark Weisleder

Real Estate Lawyer, Speaker, Author


Lessons from a condo bankruptcy

The bankruptcy of a proposed condo development and the arrest of a prominent real estate lawyer last month left many buyers potentially out of deposits totalling millions of dollars. It shouldn’t have happened.

Here’s why:

When you buy a new home or residential condominium from a developer in Ontario, part of your deposit is protected by the Tarion New Home Warranty Program. This covers up to $20,000 for a new residential condominium deposit and $40,000 in deposits for a new house. However, deposits over and above these amounts are not protected. Similarly, no deposits for a proposed commercial or hotel condominium development are protected by Tarion. In most cases, all deposits are paid to the developer’s lawyer, to be held in trust.

Under the regulations governing the Condominium Act, a lawyer is not supposed to release the moneys from trust unless and until they have been given proof by way of a security bond from the developer that the money is protected. In virtually all cases, the money is released when the developer is ready to begin construction on the project and would like to access the deposits for this purpose. As long as the security bond is provided, the law firm will release the funds from trust.

In the Centrum condominium bankruptcy in North York, the Bratty’s law firm was holding millions of dollars in trust for the proposed residential condominium that was never built. The money was never released to the developer Yo Sup (Joseph) Lee and the buyers who purchased these residential units will get their deposits back, in full, even though the development is bankrupt and it appears that Lee has disappeared.

However, Lee retained another lawyer, Meerei Cho, to handle the commercial/hotel condominium project and although over 14 million dollars in total was placed into her trust account from buyers, it has since disappeared, even though construction never started and it does not appear that any security bond was posted. In another twist, 1.9 million of the 14 million dollars in deposits was originally placed into Bratty’s trust account but developer Lee then instructed Bratty’s to pay this money to Cho, which they did, and this money is part of what is now missing.

If Cho made an error in releasing the money, then part of this loss may be covered under her errors and omissions insurance policy, but this may only provide 1 million dollars in coverage for the victims. The law society has a discretionary fraud victim fund of $150,000 but this will also not be nearly enough to compensate all of the victims.

I imagine that some buyers may sue the Bratty’s law firm for giving the money to Cho but in my opinion, as long as Bratty’s obtained proof from Cho that the money was going to be held by her in trust according to the rules, they should succeed in any claim against them.

The good news is that over the past 20 years, in thousands of new condominium buildings, this has not occurred before, showing that in virtually all cases, lawyers follow the rules and buyers are protected.

The main lesson when buying a new condominium is still the same; check out the reputation of the builder. Reputable builders follow the rules, finish buildings on time and deliver what they promise. Still, whenever you are paying more than the Tarion protected deposits, you should now insist that the developer provide proof that they have sufficient security to protect any deposit over $20,000 if it is a new residential condominium and over $40,000 for a new residential home. It would also be a good idea for the government to just change the rules and make it a law that all lawyers holding trust moneys be bonded themselves, so it can’t happen again.


Housing starts showing signs of easing over next two years: CMHC

OTTAWA: September 3rd, 2014
Canada’s housing market may start showing some signs of slowing down over the next two years as new construction begins to ease, according to the latest forecast by the Canada Mortgage and Housing Corp.

The national housing agency is forecasting housing starts in Canada to range between 179,600 and 189,900 units in 2014 on an annual basis, dropping to a range of between 163,000 and 203,200 units in 2015.

“Recent trends have shown an increase in housing starts, which is broadly supported by demographic fundamentals,” said Bob Dugan, chief economist at CMHC. “However, our latest forecast calls for starts to edge lower as builders are expected to reduce inventories instead of focusing on new construction,” Dugan said Wednesday.

The third quarter outlook also says that Multiple Listing Service sales are expected to range between 450,800 and 482,700 units in 2014, with an average price of between $394,700 and $405,700.

In 2015, the CMHC says Multiple Listing Service sales are expected to range from 455,800 to 502,900 units, with and average price of $396,500 to $416,900.

Across the various regions, housing starts in the Prairies are projected to increase to 52,900 units in 2014 before moderating to 50,800 in 2015, as net migration to that part of the country is expected to decline from the record achieved in 2013, as is employment growth.

Ontario housing activity will regain momentum through the course of 2014 before easing later in 2015, with housing starts in that province ranging between 50,900 and 63,300 units over the next two years.

“An improving economy by 2015 and less out-migration to western Canada will provide support to the broader Ontario housing market,” the CMHC said. “As home prices continue to rise, albeit at a more modest pace, demand will shift to less expensive housing both by type and geography.”

Quebec housing starts are expected to amount to 38,400 units in 2014 and 38,700 units in 2015, as moderate economic and employment growth will hold back demand for existing and new homes.

In Atlantic Canada, housing starts are expected to decline close to 14 per cent in 2014 and a further three per cent in 2015, amid a slowdown in economic growth.

Earlier this week, CMHC said in its monthly update that housing starts increased to a seasonally adjusted annual pace of 200,098 in July, a slight increase from 198,665 in June.

It was the fifth consecutive monthly increase in new housing construction, with gains in urban starts were concentrated in Ontario and Atlantic Canada, while the Prairie provinces and Quebec all recorded declines. There were also modest decreases in British Columbia.

On Wednesday, the Teranet National Bank National Composite House Price Index reported home prices were also up in July, rising 1.1 per cent from the previous month and exceeding the historical average for July. The index measures price changes for repeat sales of single-family homes.

A separate condo report commissioned by Genworth Canada, also out Wednesday, found that population, economic and employment growth all point to a stabilizing of the Canadian condominium market, suggesting that while pockets of higher risk still exist in Toronto and Vancouver, a broad-based downturn is unlikely.


Bought a house together. Broke up. Now what?

Falling in love and buying a home together sounds great, but if problems arise, it becomes expensive to sort it all out. Here’s why:

Pascale Vaudrin and her boyfriend, Glenn Caron decided to buy a home together in the City of Clarence-Rockland, just east of Ottawa, Ontario. They took title as joint tenants, meaning that if one passed away, the property would automatically go to the other.

In January of 2014, the parties separated and Pascale moved out of the home and wanted to sell it. Glenn continued to live there and would not agree to the sale of the home. Pascale then brought a court application for Partition, meaning that she was asking the judge to order that Glenn leave the home, that the home be sold and that she be paid back everything that she contributed to the purchase, including carrying costs. She had a lawyer represent her.

Glenn did not have a lawyer and represented himself in court. This is never a good idea. He wanted an adjournment as he wanted time to prove all of the money that he had contributed to the home, but in general he said he was not against the idea of selling the home. He would also need time to move out. Glenn also wanted to use the services of a local For Sale by Owner Company, called Grapevine, while Pascale wanted to use a traditional real estate agent, Richard Chartier of Coldwell Banker in Ottawa.

In a decision dated August 19, 2014, Master Calem Macleod of the Ontario Superior Court of Justice ordered that Glenn leave the home by November 30, 2014 and that the property be listed for sale for the price of $415,000 with Richard Chartier, instead of Grapevine.

In choosing the agent, the judge stated that the agent was well qualified and noted that if they used the Grapevine company, this would be more of a “do it yourself service” which would require a lot more involvement and co-operation of both Glenn and Pascale. He stated that the listing should not be for longer than 60 days. Once the property was sold, he ordered that an accounting be done so both Pascale and Glenn received what they each contributed to the property.

Many times clients ask if there is anything they can do if they have taken title as joint tenants with their spouse and now are not getting along. The good news is that you can break a joint tenancy, without much expense, by just transferring your share in the property to yourself. This is what Pascale did before going to court with Glenn. Ask your lawyer for assistance to make this happen.

I often have clients call me complaining that they want to sell their home but their partner or spouse is refusing. If it is a matrimonial home, it doesn’t even matter if your spouse is not on title; they can still prevent the spouse on title from selling if they do not agree. This is true even if they paid no money for the house in the first place. In most cases, if there is no agreement signed beforehand, it will take an expensive court proceeding to either remove someone from the home, or get an order forcing the sale to occur.

It is best to consider having a contract with your partner signed at the time you buy a home that sets out clearly what will happen if the relationship breaks down. It will save you expensive court proceedings later.

Mark Weisleder is a lawyer, author and speaker to the real estate industry.