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Option
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Legally enforceable agreement. Seller promises buyer to keep an offer open for acceptance until a specified time. May serve as a substitute for consideration.
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Transaction with a subjective subject clause: buyer's representative may better protect the buyer by recording presence of separate consideration for the seller's promise to refrain from cancelling the agreement before the subject removal deadline
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True Conditions Precedent
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dependent on will/actions of someone who is not a party to the contract. No party may unilaterally waive.
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Condition
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fundamental term of contract.
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Condition Breach
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injured party can terminate and/or sue for damages or specific performance
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Property Disclosure Statement
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completed any time property is listed for sale. DOES NOT form a party of their contract unless agreed to.
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Contains the obligations of the vendor and purchaser with respect to purchase and sale
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Legible, names/occupations, description of property, description of financing/price
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Protection of personal information: obtain consent for various use
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Terms and Conditions:
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warranty: breach allows to sue for damages but not terminate
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conditions, deposit, consideration
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note: if the parties to the contract do not consent in writing to the release of the deposit, then the brokerage cannot release the deposit from trust.
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Deposits protected under contract
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Record Keeping: receipt of funds, client info, large cash transaction, suspicious transaction, client identification, unrepresented parties and third party determination, penalties: criminal charges
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keep record of steps involved to ascertain the existence of party
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Warranties: express or implied (verify implied)
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written warranties necessary to preserve a parties right to sue after transaction
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When an agent acting within authority discloses he is acting as an agent enters into a contract with 3rd party, the parties to the contract are: PRINCIPAL + 3RD PARTY
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Power of attorney, undersold property: succeed for damages for breach of agency contract (not for warranty of authority)
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Ratification: agents authority created retroactively by principal
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An agent will be personally liable to third parties: where they fail to disclose that they are an agent
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The licensee may advise the buyer that the offer exceeds the stated price in listing contract
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Reasons to borrow funds
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Diversify investments and reduce overall risk by using only part of total funds
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Invest the borrowed funds at a higher rate of interest than the borrowing rate
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Purchase real estate as a hedge against inflation
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Save or release equity for activities
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Primary objectives of the lender-investor
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Regular and predictable return on capital as specified in the loan contract
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Return of capital through the scheduled payment
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Primary Mortgage Market: sale of interests of land
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Secondary Mortgage Market: mortgages bought/sold as investment
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Interest Rate Charged on a Mortgage Loan is Comprised of:
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Return on the invested capital which is determined by current interest rates in investment markets and by the supply and demand for mortgage funds
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Inducement to accept risk on the capital resulting from an uncertain investment; prime investments will generally be granted a lower rate than higher risk
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Payment to the lender for part of the costs of managing m. lending activities
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Elements Considered in Setting Rate
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Credit rating of the borrower, property value
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Administrative work
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Type of property used
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Amount of borrower's equity; rate being lower as the amount of equity increases
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Interest Act: no limit on the rate of interest which can be charged in a mortgage. Borrower must be individual, rates must be determined
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Criminal rate is over 60%
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Mortgage Fraud Offences:
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person who acts under POA for the mortgage of property to fraudulently use proceeds for an unauthorized purpose
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agent of seller to fraudulently conceal title info to induce a sale
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person who has knowledge of unregistered mortgage to sell property
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Provincial Legislation Over Mortgages: Business Practices and Consumer Protection Act
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BC can intervene if loan is excessive, even rewrite entire transaction
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Mortgage Brokers Legislation: registrar has power to investigate complaints, freeze funds
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Environmental Legislation and Mortgage Loan Application Procedures: creates exemption from remediation liability for lenders who act primarily to protect their security interest. Lenders become liable for remediation when
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they make requirements which cause a site to become conaminated
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registered owner of a contaminated property
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they must get approval from director of waste management within 10 days of purchase
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Remediation: cleanup of environmentally contaminated site
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5 c's of credit in notes
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Commercial Underwriting Process
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Residential property which is not owner occupied (income producing), and all non residential property (predominantly income producing). Focus is on NOI. Application Factors Include:
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Applicant's track record
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Mortgage and real estate market conditions at time of application
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Type, age, condition and location of the property securing the loan
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Strength of the covenants of tenants resident in property
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Lending Constraints: LVR and income constraint (lower of 2)
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Income Constraint: safety margin ensures that the NOI can cover the mortgage payments by expressing the margin between the net operating income and mortgage payment as a percentage of NOI
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DCR = NOI/Annual Mortgage Payments
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s59 of the Law and Equity Act (prevention of fraud)
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Should be in writing, otherwise it is NOT void, hard to enforce
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EXCEPTIONS
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contract for less than 3 years
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indication of subject matter, money ahs been spent, reasonable reliance, deposit/prepayment given,
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court may order deposit returned
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writing can be sufficient even though a term is left out or improperly stated
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Doctrine of Merger
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limits remedies available to the parties after real estate conveyance
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doesnt apply to: fraud, mutual mistake, condition, warranty,
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caveat emptor applies: buyer must be responsible for checking accuracy before purchase is made
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if deficiencies are discovered, they must be acted upon before contract closing. Remedy: recession
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Statutory Land Title System: transfers of freehold estate must be in a transfer form instead of a deed
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seller executes a prescribed transfer form: seller has the right to convey title, buyer has quiet possession, title is free from encumbrance
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seller will sign further docs, produce docs that support title and release claim to land
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Encumbrance: judgement, mortgage, lien or any other claim which is registered against land
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Fiduciary: person who holds a position of trust with respect to someone and is obliged, to act solely on the persons benefit
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Builders Liens: claim registered against the title to land by a contractor/supplier of material
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Refusal to Perform Remedies: court will order
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restitution (return deposit)
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Incomplete contracts can still be enforced
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you cannot enforce contract against person who did not sign
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Exclusive Listing
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Exclusive right to sell for a specific period of time
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If the owner sells himself, he must still pay commission
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If the owner uses 2nd agent to sell his property - two commissions could be payable
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Multiple Listing
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Exclusive right to sell
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Listing must be distributed to all members of the real estate board and placed on MLS
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Listing is not valid unless: its signed, in writing and true copy to owners, provision that it will expire on date
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Open Listing
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The owner may employ a number of agents to find the purchaser
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A commission is paid to the agent who is the effective cause of the sale
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Owner can also sell himself and no commission is payable (mostly commercial listings)
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Brokerage promises to use best efforts to locate a ready, willing purchaser
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Supply of Mortgage Funds: linked with capital market: competes for share
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When demand increases, interest rates increase, investment funds attracted to m. market
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Demand of Mortgage Funds: activity of RE market and terms/price of loan. UP when expanding economy
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stickiness: slow response
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Characteristics of Mortgage Loans
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unique investment, hard to trade, long repayment terms, admin work, large capital outlay
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CMHC: the only government mortgage insurance in canada
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Source of Mortgage Funds:
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Institutional Lenders: banks, credit unions, trust and loan companies, life insurance companies
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Private Lenders: individuals, vendors of property, investment groups, trust companies, pension funds, might charge higher rates
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Government: insured by govt agencies, source of mortgage funds
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Mortgage Investment Corporations: if borrowers cant qualify, their own lending policies
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note: by creating a m.loan, the borrower (MORTGAGOR) pledges their property rights as collateral for the loan.
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Possession and right to redeem the clear title to the property remain with the mortgagor, they are able to build up a series of claims against remaining collateral (get more mortgages)
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Assignment of Mortgage (transfer to another). Risks: payments
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Property Law Act Protection For: acquiring residence, making improvements, making expenditures for household, refinancing
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Property Law Act limits continuing liability of a vendor under a mortgage or agreement for sale under these circumstances:
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Term has expired and lender does not make a demand for payments within 3 months of the expiry
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Mortgage assumed or agreement for sale transferred is payable upon demand, no demand within 3 months: liability extinguished
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Lender expressly approves purchasers assumption of mortgage or agreement for sale then vendor's liability will cease, subject to requirements (approval made within 3 months, lender is entitled to reasonable financial info about purchaser)
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Novation and Impairment of Security
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With novation: borrower will be released from further liability. Substitution of one contract for another
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Impairing the Security: lender does something which prevents lender from being able to restore the property to original state to the borrower upon the borrower repaying mortgage debt.
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Acceleration
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maturity date of loan is pushed forward and lender demands to be paid out in full
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Omnibus
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in default of payment the lender will do payment and it will be added to the loan
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Lender's Remedies
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gives lender complete discretion to use most suitable remedy
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Mortgage in Possession
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foreclosure
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Federal statute designed to hold businesses accountable for misleading advertising, enforced by Competition Bureau
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Criminal Provisions: agreements in restraint of trade
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conspires to fix, maintain, increase, or control prices for product supply or sales, allocate territories, eliminate supply of product
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Civil Provisions: agreements between competitors requiring/prohibiting any person to take any action
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misleading advertising, price maintenance, sale above advertised price
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Express Contract
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Written or Oral, Mutual agreement of both parties
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Most common relationship
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Implied Agency
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can be implied by conduct, not to common, "bring me the buyer", agreeing to do something
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past consideration is no consideration!
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Ratification
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An agent's authority can be granted retroactively
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When the agent informs the principal of his actions and the principal accepts, the principal will be bound by the contract
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Gives sellers word before seller agrees, seller accepts past actions, if the seller says no - the agent will be responsible
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Agency by Estoppel
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(not too common) Where the principal acts in such way as to lead a 3rd party to believe that the agent has authority to act on behalf on the principal.
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Limited right. Agent CANNOT sign for anyone, seller gives [similar to] power of attorney
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Actual Authority
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Express Authority
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How long/much/commission
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Is created and limited by the terms of the contract
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Promise to pay commission must be supported by consideration (listing agreement)
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(implied + express) Painting/Rolls Royce question: The agent has express authority to not come back without the original
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Implied Authority
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Every agent has implied authority to do anything necessary for carrying out the express authority granted (ie. enter property with buyer)
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Goal: to sell
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Usual or Customary Authority
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(most common) The agent is governed what is usual in the trade (to collect deposit)
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Apparent Authority
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Where the 3rd party would reasonably consider, from the conduct of the principal and agent, that the agent did in fact possess authority
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Not common. ie. the seller lets the agent act on behalf of them "sell my house for any price, i trust you"
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THE AGENT CANNOT SIGN!
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Termination of Authority
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The relationship is based on mutual consent, either party can terminate at will
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Can be revoked orally or by conduct
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Principal that is inconsistent with the communication of authority (ie. one doesn't listen to the other)
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Frustration: something happens after the contract is signed (house burns down)
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Death, Insanity, Bankruptcy
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Lender: mortgagee
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Borrower: mortgagor
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Implied Terms of A Mortgage
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Prohibition Against Clogging: borrower has right to have the title conveyed in the same state free of any encumbrances.
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Option to Purchase the Property when Negotiated: clog on the equity of redemption and makes the contract void.
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Option which makes the redemption date distant is void - a term which restricts prepayments or prevents assumption does not constitute a clog.
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Stipulations for Collateral Advantage: mortgagee can give the borrower terms which benefit itself, but it has to extend outside of the mortgage (ie.buying their products)
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Express Terms of A Mortgage
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Land Title Act: delivered and signed to both parties
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Land Transfer Form Act: interpretation of terms
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Vendor "take back" Mortgage
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taken back to facilitate a sale, vendor becomes mortgagee, purchaser becomes mortgagor
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Reverse Annuity Mortgage
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lender makes periodic payments to borrower. At the end of term, borrower will have to repay balance by owing or refinancing the property
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Wrap Around Mortgage
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2nd m. registered, includes prior m. Writing for equal or greater amount. Payments include all sums, responsibilities same as original
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Interest Act: if the document does not mention interest, no interest can be charged.
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If document requires interest to be paid with no set amount - rate allowed by law is 5% (does not apply to companies)
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Foreclosure: Process
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Demand Letter: short time to pay
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Petition: BC Supreme court registry
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1st Court Order: Order NISI (redemption period)
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Petitioner May Apply For:
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Judicial Sale: Not enough equity, owner can still be liable, most common in BC (ie someone bought it for too much and cant sell)
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Order of ABSOLUTE foreclosure: enough equity in property, owner no longer liable, lender becomes registered owner, no further action can be taken against owner
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1st Mortgage: Legal Mortgage
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2nd Mortgage: equitable mortgage
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