What is a Buyer Brokerage Agreement? It is a contractual agreement between a real estate brokerage and a buyer where both parties agree to the type of representation, services that will be rendered, and the fee for those services, for a specific period of time. Similar to a listing contract, it is in essence an employment contract.

I think the first time I used a buyer's representation agreement in Edmonton was in the late 90's. Currently I use them very sporadically, and the use of them in my office is also very low (less than 1%). Most of our business is relationship based, and if it's a issue of trust we just won't work with that person. However, there are circumstances where I may use them and I'll explain how and why we use them in a bit.

In Mr. Turner's article he suggests that these agreements have recently come about because of recent changes in the real estate industry, namely limited service brokerages (often referred to incorrectly as discount brokerages). The reality is, buyer brokerage agreements have been around for years (at least in our market place), and for a considerable time before that in The States. When I entered the real estate industry in the late 80's it was common for commercial buyers to have their own representation which was set out in a buyer brokerage agreement. 

Are more buyer's agents using these agreements more today? Yes. Recent changes to CREA's rules allowing mere postings is more akin to the U.S. model of real estate. In my opinion, when these changes were sought by the Competition Bureau (who modeled their case around the American model) they knew full well these agreements would become more commonly used.

For example, in our market the REALTORS® Association of Edmonton has allowed the mere posting of listings for some time, but has always required that the seller's brokerage offer some form of compensation to the buyer's brokerage. Currently the minimum amount that can be offered to the buyers agent is set at 1 cent (precisely the amount the vast majority of these 'mere postings' are currently offering). In many cases the seller or their posting company has decided the buyer's agent isn't worth paying, or that they should be compensated by the buyer and not themselves.  So the reality is that if an agent is to take the whole market to their client, that includes these properties, and if they trust they will be compensated then they will do that, if they don't they may ask to formalize an agreement in writing. I don't think there is a single business model that could sustain itself on a penny per transaction. Long ago I forecasted that more buyer's agents would look to formalize their relationship as these listings became more common.

When you look at an actual transaction it's a chicken and egg argument when it comes to who pays the buyer's agent's commission: the seller pays the commission out of the proceeds of the sale, but the buyer is the one paying the seller for the home. I do know that without a buyer there is no sale.

One thing that struck me in the discussion is the dangerous assumption that a REALTOR® owes you fiduciary duties when working with you, and that we all provide the same level of service or disclosure.  In reality a mere posting company does not owe the sellers any fiduciary duties (or at least the courts have not established that they owe them a fiduciary duty). Instead of being clients these sellers become customers. This applies on the buyer side of the transaction as well.  For example, the buyer could decide to be a customer and therefore no fiduciary duties would be owed to them by their agent (for all you legal beagles out there this of course does not stand up if an implied agency relationship is created, but for simplicity's sake and brevity we will leave that out here). This means that various levels of service are available, and not all buyer's agents are required to, or will, offer the same services that you have traditionally come to expect.

One commenter suggested that there should be some incentive to sign one of these agreements.  In fact there are some real estate companies that offer incentives and inducements for buyers to sign up with them. Some traditional full service brokers may offer an incentive or an inducement as well. 

In my business I use buyer representation agreements infrequently today.  I have relationships with most of my clients and with that comes a level of trust. If I don't know someone we will not start out in a brokerage agreement, not until they get to test drive me first and vice versa. In general it is my client, who after working with me, reviewing the documents, and discussing them with their lawyer, requests a buyer brokerage agreement. A couple of exceptions to that rule for me are:

1. The buyer is coming from out of town for a number of days on a house hunting trip. These trips are intense, and require a significant amount of time, energy and resources, and limit my ability to do any other business. I can easily spend six days with someone educating them on the market, negotiating offers, and showing them dozens of properties, only to find out they bought a property completely outside the criteria they'd given me (or I would've shown it to them), or went directly to the seller to cut me out because we don't have a formalized relationship. There is also the possibility they will decide to buy a home where the seller is offering an amount of compensation that does not make it financially feasible for me to dedicate that much time and effort to them. This is something I explain to the client long before they get here, so they can decide if they'd like to work with me or find someone else.   
    
2. The type of property the buyer is looking for is so specific, or their criteria is so unique that it may take a require extra time, effort and resources to fulfill our obligations.

A buyer brokerage agreement can be for any length of time, and the terms of the agreement are completely negotiable. The shortest agreement I have signed was for three days, and the longest (after 4, 90 day renewals requested by the client) was 6 months. I am also approached by sophisticated investors on a regular basis offering to sign a buyer brokerage agreement as an incentive to work with them. 

Are there benefits and drawbacks to signing a buyer brokerage agreement? Potentially yes, both on the part of the client and the agent, but those change depending on the parties and their particular issues. 

I will close by clearing up some myths and facts about buyer brokerage agreements:

• Myth - A buyer must sign a buyer brokerage agreement. I'm pretty familiar with Alberta's rules, so I will only speak to them. A buyer absolutely does not currently have to sign a buyer brokerage agreement. An agent may work in a brokerage where the agreements are mandatory, but if the buyer doesn't want to sign one there they can choose another brokerage. I am only aware of one such company in Edmonton, and and I'm not certain of their position on this to be honest.
• Myth - Compensation on buyer brokerage agreements is fixed. They are totally negotiable and so are the terms. Both parties have to agree to any changes to the contract. If someone is not comfortable with the terms they should not sign it. This includes industry members as well.
• Fact - Agency disclosures are compulsory. Not to be confused with a buyer brokerage agreement, this disclosure outlines what your status is with the agent you are working with. Are you a Client or a Customer? It details the fiduciary duties, if any, owed to you. It is mandatory that your agent present this to you and get your informed consent. Signing this does not constitute any obligations on your part in Alberta. Reviewing the document prior to signing  is highly recommended - you should make sure a disclosure is all you are signing and not a brokerage agreement. I always allow people ample opportunity to review what they sign before I ask them to sign anything.
• Myth - Buyer representation agreements are new. Many agents have been using them for years. It is far more common in the States than it is here, but that seems to be the direction Canada is heading in based on the recent changes.
• Myth - that under a buyer brokers agreement you would owe a commission even if you don't buy. That entirely depends on the contract as some buyer brokerage agreements may require retainers. However, our standard buyer agreement in Alberta does not provide for compensation if the potential buyer does not purchase a property.
• Myth- every agent provides the same level of service, knowledge, experience and background information when buying. Even prior to recent changes there were many different business models in our market. People will often hire someone without doing their research, or merely because they like the person, or because the agent has offered an incentive such as a rebate. 

The reality is these agreements have been in place for some time and I look at them simply as employment contracts.  At present if a buyer does not want to sign one there are plenty of buyer's agents out there who don't require one signed. So all in all I don't see the big deal here, and I understand Mr. Turner is just fanning the flames as that's what he does. 

Now, there is a small percentage of slime that conducts business this way. As in any industry you have those that steadfastly hold true to maintaing their clients best interests. There are in fact far more conscientious agents in the industry but this is a rant about the other guys. At the same time I ask myself WHO signs blank forms, and WHO executes offers or management agreements and is ok without getting a copy?Trusting people that’s who.

In just one recent instance a trusting buyer bought an investment property from a friend sight unseen based on certain financial specs. The seller also indicated they could and would mange the property but made no disclosures about the condition of the property. When the investor finally came to town to see the property he discovered hoarders were living there and that it had to be gutted from top to bottom, including replacing all the floors, most of the drywall and some ceilings. When he went to review his contracts he realized he didn’t have final copies (the seller ran the deal through his mortgage broker).

It is interesting from my persepctive how people treat their purchases differently depending on the type of purchase. Be it an investment property, vacation property, recreational property or their primary residence. People are often very diligent and involved when buying their home, but when it comes to buying properties in the U.S. or investment properties, for some reason that level of involvement drops. In and of itself completed the paperwork correctly and getting a copy will not prevent a problem, but generally it is good to have as it can establish the breeches that have occurred.

So all I’m say is a competent professional in my industry won’t have a problem with doing the following:

1. Taking the time to explain and complete the paperwork correctly so that you are not signing blank forms where anything could be added.

2. Providing documents for you to review in advance of signing.

3. Providing you with copies of all signed documents immediately.

If you suspect or know that you’ve dealt with the very small percentage who has not followed this methodology you should contact either the REALTORS® Association of Edmonton or The Real Estate Council of Alberta.

A very good way to avoid that situation is to:

1. Deal with reputable practionshers who have been referred to you.
2. Deal diligently with all your real estate acquisitions
3. Verify information provided to you (honest and competent professionals will have no issue with you doing this because the information they are providing will stand up).

Well as of today that is no longer the case as Service Alberta has come down with the framework that will regulate Alberta's home inspection industry.

I would be remiss if I didn't provide some background first though.  Prior to the early '90s home inspections were non-existent.  Aside from the obvious stuff like shingles, windows and deferred maitenance a buyer was really on their own except for what their REALTOR® might be able to help them with. Needless to say this caused lots of suprises to many new home owners in the Edmonton area as they took possession of their homes and issues started to rear their ugly heads. 

Fast forward almost 20 years and home inspections have become the norm (except for 2006 and 2007), with almost every transaction that I or my office is involved in having a condition subject to the buyers approving of a professional inspection.

So here's where things took a turn for the worse.  As inspections became more common so did new home inspectors showing up at my office on a weekly basis dropping off brochures.  It was easy to become an inspector and there was plenty of demand from consumers. Many of these new inspectors showed up with little or no construction experience, or with a background in only one trade.  Yes there were certainly well qualified people that came as well, but unfortunately those were few and far between.

In my mind the purpose of the home inspection is to open a potential buyer's eyes to the real cost of the property.  This enables them to fully understand what they are getting into. Seems easy enough but there were some restrictions here.  If the home inspector made a glaring error there was often no recourse as many of them did not carry errors and omissions insurance.  All of them had contracts that buyers had to sign prior to the inspection that waived their rights to go after an inspector and many were simply not qualified to do the job they were doing.  

Beneficial results of the new regulations:

• Mandatory errors and omissions insurance.  
• Minimum standards outline what parts of the home have to be inspected.  This is great news as I have sat through some inspections where it should have taken 3 or 4 hours and we were done in 45 minutes.
• No more inspection contracts that waive the client's rights to seek remedies against their negligent inspector.  This is very good news. Lets face it everybody makes mistakes and there should be an ability to seek compensation for those mistakes.
• There is a portion of the regulations that say inspectors shall post a bond to cover losses due to a breach in the regulations.  While this is good news, I'm the least optimistic about this section.

Negative results of the new regulations:

• The last item above requires inspectors to post a bond to protect consumers against loses.  Since the inspectors will be governed under the fair trading act I'm not optimistic the process for complaints will be streamlined enough to make this timely or cost effective.  I guess we'll have to wait and see how it works.  It's obviously a step in the right direction but its still to early to tell how this will take shape.
• No quotes from inspectors on deficiencies, in other words, when repairs are needed the inspector is no longer allowed to estimate the cost of these repairs.  This is bad news and it is going to bog down the inspection process unnecessarily.  In the regulations they have made inspectors accountable for how they conduct themselves and if there is something within their expertise that could assist the buyer and seller than this should be taken in to consideration.
  • As an example lets say a home is found to have 60 amp electrical service when it should have 100 amp service.  This is common enough that I can even ball park this cost, but an inspector is no longer allowed to discuss the cost with the buyers.

What to expect:

• Sellers should be prepared to have longer conditions in order to fascilitate third party quotes on properties that have or are likely to have deficiencies.  This means your property will be tied up for longer and make cause extreme frustration if your buyer bails on you.
• Buyers  should expect to pay more then the $325 - $425 that an inspection costs today.  All these regulations, insurance and bonds add costs that will be passed on to the consumer.

For more info you can check out: Service Alberta

Propertywire.ca reported yesterday that the winds of change were blowing in St John's where CREA had its meeting.  They go on to say that "at the very least it will change the face of the Multiple Listing Service (MLS®)."  A pretty bold statement.  Who is the face of the MLS®, what is the face of the MLS®?  If they could tell me the answers to these questions then I might be able to address them.

The deal that was ratified yesterday was basically the exact deal that was offered to Ms. Aitken, head of the bureau some months ago. So lets look at what is in this deal:

• You can post a listing with a broker for a flat fee in the MLS® system.  This has been the case for some time, years in fact.  There have been flat fee brokers for almost as long as I've been in the business.
• The big change is that the REALTOR® does not have to represent you.  Basically, a listing can be put in the MLS® system by a company who will charge a fee, flat or otherwise, but they may not have to present offers, or show your home, or have any fiduciary responsibility to you whatsoever. 
• As always, in order to have your home in the MLS® system, and displayed on the REALTOR.ca web site, you must use a REALTOR®. Contrary to what has been widely reported there will not be public access to the MLS® system.

What it really means is that more than ever, consumers will have to do their research into what services they want when selling their home.  If you ask me, this does not represent a major change to the industry. There have been competitive business models for years. I have had serval different service options and different fees associated with them, for over a decade.  We will continue to offer these options to our clients.  So when the winds of change have died down a year or so from now then ask me, was it all really much ado about nothing?

The first article in this series contained a discussion of the full ambit of Real Property Reports (RPR).  In summary, they provide certainty as to all exterior matters such as the location of buildings and all improvements and their relation to matters such as utility right-of-ways and setbacks.  An RPR does not cover interior or hidden issues or off-Title issues such as fraud.

In the second article in this series, we discussed title insurance.  It provides coverage for a wide range of issues including matters that would have been disclosed in a RPR, gap coverage, interior or hidden issues, or off-Title issues.  As an insurance product, it only becomes active if an issue becomes an actual problem and then the only obligation is to pay damages not fix the issue.

So, which is better?

Both RPRs and title insurance have a role to play in residential real estate in Alberta.  Real Property Reports provide certainty.  They allow a buyer to see exactly what they are getting.  This information can be used to ensure the seller complies with all the warranties in the Real Estate Purchase Contract (REPC).

As the saying goes, sometimes it is best to let sleeping dogs lie.  That is certainly the case with some real estate.  An RPR that is submitted to the local municipality may trigger a process that can become very expensive.  For example, where a fence encroaches onto the land between the back of the sidewalk and the property line, the cost of an Encroachment Agreement can be very expensive.  Also, some accessory improvements such as a deck or carport may have been in place for many years and may not meet current building code requirements.  If the buyer insists on an RPR, they may be left with an expensive repair bill as the seller does not warrant building code issues.  In these cases, avoiding an RPR and utilizing title insurance is the best means to ensure a trouble-free closing.

In one recent purchase, there was a carport existing without permits.  The carport ran right up to the property line.  It would likely fail to meet building code requirements and would certainly not meet setback requirements.  In this case, the buyer had plans to remove the carport within a short while after purchasing the property.  This is an ideal case where title insurance allowed the deal to close while keeping the mortgage lender secure.  In a separate matter, another purchaser is facing the loss of a covered patio.  In this case, the seller submitted the RPR to the city who said there were no permits in place.  They sent an inspector who ruled the roof did not meet building code requirements even though it had been there for 15 years.  Here is another case where title insurance would have been the preferred alternative.

In conclusion, in my view, a Real Property Report is a preferred tool in most real estate transactions.  It provides certainty – as a buyer you know exactly what you are getting – and you can insist the seller remedy any issues.  However, caution should be exercised where the RPR might open more issues than it resolves.  In those cases, a seller is best to offer to close with title insurance only and no RPR.  A purchaser may find this alternative entirely suitable where they would otherwise face the loss of an amenity.  Title insurance provides comprehensive coverage for a wide range of issues during the entire tenure of ownership and should be considered in every real estate purchase.

About the author: Stan Galbraith is a lawyer with over 25 years of experience.  He was admitted to the Alberta Bar in 1983 and has operated his own law office since 1988. Stan has a wealth of experience ranging from litigation and appeal work, to teaching and writing. He has now left the world of litigation behind and works with commercial and residential Realtors and their clients on closing their transactions. He also practices extensively in the areas of small business and wills and estate planning and administration. You can find his website at www.galbraith.ab.ca.

Within the last 10 years, a new insurance product has arrived in Alberta.  It is commonly referred to as title insurance.

What is title insurance? This product was never available before so what has changed?  What does title insurance provide that cannot more adequately be provided by a Real Property Report (RPR)?

Title insurance has been a popular product throughout the United States for many years.  In fact, Chicago Title traces its history back before the famous Chicago fire caused by the cow.  The three major title insurance companies providing insurance in Alberta all have a parent company in the USA.  These companies first started Canadian operations in Ontario.

Both the USA and eastern Canada operate a different Land Titles registration and transfer system then we have here in Alberta.  We are fortunate in Alberta to have a government-guaranteed Land Titles system commonly referred to as the TORRENS system.  Throughout the rest of North America, when you get a Title, you can never be completely sure that it discloses everything.  For example, there could be an unregistered mortgage or unregistered transfer that may impair your title.  In Alberta, “what you see is what you get” and the government guarantees this.

Previously, title insurance primarily covered the issues covered by the Torrens system.  Eventually, companies became innovative and expanded their coverage, so their insurance had applicability here in Alberta.  Over the years they have continually added new items to their coverage.  Now, their product offers substantial benefits at a very reasonable one-time cost.
Some of the issues title insurance covers is as follows.

It covers the gap between submission and registration.  A couple of years ago when registration was taking 5 weeks or more, you could never be sure when you submitted your documents as to other registrations in the stream that may affect your title.  For example, I acted for one purchaser where the sellers ex-spouse filed a Matrimonial Property Judgment against the title one week before we submitted our Transfer of Land.  When we submitted, the Judgment was not there.  By the time we got registration, the Judgment was registered.  Title insurance will step in to deal with this.

It will cover deficiencies that would not show on a Real Property Report such as unregistered utility easements or builders liens or matters that would be shown by non-Land Titles searches such as deficient corporate status.  It will cover hidden deficiencies such as underground storage tanks or underground septic tanks.  In one case, they paid out a claim to move a septic tank when it turned out the tank was buried partly under the neighbors land.  Coverage is also provided for unknown special assessments on condominiums. 

Title insurance covers issues that would have been shown on a Real Property Report if one had been obtained.  Use of this product can avoid the need to obtain a Real Property Report.  It also covers internal non-compliance issues that would never be shown on a Real Property Report such as lack of building permits or failure to meet building code on renovations such as a basement development.

Even where there are known defects, title insurance will often underwrite these issues.  This could include a fence in the wrong location or a deck that is too big for the property.

Most of this coverage continues after the closing date.  Perhaps the most important coverage that continues after the closing date and during the entire time the property is owned is against forgery, fraud, duress, incompetency, incapacity, or impersonation. 

Title insurance is an insurance product.  As such, it does not fix a problem.  It provides insurance or indemnity coverage.  In other words, the title insurer has no obligation to do anything until a problem actually arises.  When this happens, they have the choice to pay damages rather than actually fix the problem.  Problems can be deferred or masked instead of fixed. 

Deferring or masking problems can come back to haunt all parties at a later date.  For example, when a seller, who accepted title insurance when they bought, sells and the buyer does not accept title insurance they may be forced to solve the problem.  Obtaining Encroachment Agreements, especially where fences or other structures encroach onto municipal land can be quite costly.  Likewise, applying for and obtaining development and building permits can be time consuming and expensive.  If a buyer insists on this solution, the seller may be forced to undertake an expensive remedy and may look to the realtor and lawyer who helped them originally purchase the property for some redress.  Accordingly, it is doubly important to ensure a purchaser understands the extent and impact of title insurance coverage and the fact that it does not apply when they sell the property.  By simply insisting that any new buyer obtain title insurance rather than relying on an RPR, they will continue to defer any issues.

Overall, in my view, title insurance is a valuable addition to the real estate marketplace in Alberta.  The coverage for future fraud for the entire ownership of the property by payment of a one-time premium is enough justification to purchase title insurance on every real estate purchase.  In some cases, title insurance is the only way to effectively close a real estate deal.

About the author: Stan Galbraith is a lawyer with over 25 years of experience.  He was admitted to the Alberta Bar in 1983 and has operated his own law office since 1988. Stan has a wealth of experience ranging from litigation and appeal work, to teaching and writing. He has now left the world of litigation behind and works with commercial and residential Realtors and their clients on closing their transactions. He also practices extensively in the areas of small business and wills and estate planning and administration. You can find his website at www.galbraith.ab.ca.

What is a Real Property Report (RPR)?  And what purpose does it serve in a residential real estate transaction?

An RPR provides a graphic representation of all the improvements and features of the property.  Years ago, it was called a Building Location Certificate and all it showed was the foundation lines of the buildings on the property and the lot lines.  Now, it is called a Real Property Report and provides a much more comprehensive report on the real estate or real property.

An RPR provides information such as the location of utility right-of-ways and easements.  It also shows boundary fences, the overhangs of eaves and additional improvements such as swimming pools and hot tubs.  In other words, it is a complete report on the real property or real estate.

Typically, in most residential real estate transactions in Alberta, this report is submitted to the local municipality for a compliance stamp or certificate.  This is a confirmation from the municipality that the buildings and improvements on the property comply with local zoning and setback regulations.  They will also verify whether permits are in place for all the structures.

The standard Real Estate Purchase Contract (REPC) contains warranties.

The seller warrants the buildings and other improvements do not encroach on any neighboring land.  They also warrant the location of all buildings and improvements complies with all relevant laws.  The RPR provides the proof that these warranties are true and correct.  As such, an RPR provides valuable information to a potential buyer. 

Where the deficiencies are noted in the report, the buyer can insist the seller take action at the time of the purchase to remedy these deficiencies.  For example, when the RPR discloses encroachment onto either municipal or neighboring land, the buyer can look to the seller to obtain an Encroachment Agreement at the time of closing.

Without the report, the warranties lose much of their impact.  Discovering a deficiency many years later makes it very difficult to pursue the seller.  For example, limitation periods may have expired or the seller may simply be difficult to contact and pursue.

Make note that the warranty in the standard REPC only extends to encroachment onto neighboring lands.  There is no warranty offered regarding encroachments onto the land that is bought and sold.  In other words, if the neighbor’s deck extends into the backyard of the purchased property, there is no obligation on the seller to do anything about this.  The buyer has the option, once they obtain Title, of negotiating with the neighbor to either remove the encroaching deck, or leave it as it is and put an agreement in place to cover the issue.

Most lawyers are of the view that an RPR provides the best solution on every real estate deal.  They say that is the only way to have the certainty required by the buyer.  Certainly, in most cases, it does provide certainty.  However, in my view, it's far from the ideal solution on every deal.

In the next article we will look at Title Insurance and what it has to offer.

About the author: Stan Galbraith is a lawyer with over 25 years of experience.  He was admitted to the Alberta Bar in 1983 and has operated his own law office since 1988. Stan has a wealth of experience ranging from litigation and appeal work, to teaching and writing. He has now left the world of litigation behind and works with commercial and residential Realtors and their clients on closing their transactions. He also practices extensively in the areas of small business and wills and estate planning and administration. You can find his website at www.galbraith.ab.ca.

Buying a Foreclosure Property
Buying a foreclosure property is a complex endeavor. Four points to remember:

1. The court is the seller.
2. The court has never owned or lived in the property.
3. The court cannot nor do they have any desire to warrant something over which they have no knowledge or control.
4. The foreclosure process only touches the real estate.

The standard AREA (Alberta Real Estate Association) contract is subject to severe modification. Many standard items are deleted.

The first to go is any reference to chattels. In other words, any reference to freestanding items such as fridges, stoves and garage door openers is deleted. The foreclosure process only relates to the land and that is all that can be offered for sale. Since this sale is not under the control of the owner, chattels cannot be included.

The second major area struck from the standard contract is the provisions dealing with the deposit. The deposit is paid into court and governed by the court process. The rules for dealing with the deposit are covered by the court order in court listing process.

The next item to go is the usual provisions regarding the closing process. Once again this is covered by the court order.

Finally, anything to do with warranties is struck from the contract. Remember the court has no desire to warrant something over which they have no knowledge or control so they will not warrant compliance or lack of encroachments or any other item. This includes production of the Real Property Report in support of the warranties. Often, if the lender has an RPR on file they will produce it. If they don’t, they won’t. If the property has changed they will not provide an updated RPR.

This all goes back to this single point: who is selling the property?

What about the price and the offer?

So, what does a foreclosure property mean for any potential buyer or their Realtor ?

First and foremost, it means a lower price. With none of the usual warranties the price is typically much lower. If it turns out there is no permit for the garage or deck or even the house the buyer is stuck. The buyer must deal with this. Likewise, any other deficiencies such as missing appliances are typically at the risk of the buyer. All of this dictates a much lower price.

Before making an offer make sure you know that if there is no permit in place for the garage or deck you cannot force the seller to get one. If the basement is leaky there is nothing you can do.

Make sure, if you are the buyer or Realtor, your inspection is thorough. In many cases you will have access to the property to allow a professional inspector opportunity to look at the property. In many cases you will not. As a buyer or Realtor look more carefully than you would otherwise.

When submitting an offer make sure it is unconditional. The court and the lender’s lawyers will not engage in a negotiation process. Their first preference is a clean unconditional offer.

Finally, pay attention to the court order when drafting and submitting an offer to buy. Purchasing a foreclosure property can be a great opportunity, however, it is a potential landmine for anyone who is not careful.

About the author: Stan Galbraith is a lawyer with over 25 years of experience.  He was admitted to the Alberta Bar in 1983 and has operated his own law office since 1988. Stan has a wealth of experience ranging from litigation and appeal work, to teaching and writing. He has now left the world of litigation behind and works with commercial and residential Realtors and their clients on closing their transactions. He also practices extensively in the areas of small business and wills and estate planning and administration. You can find his website at www.galbraith.ab.ca.

Mortgage Insurance
The only time the courts issue an order for foreclosure is when there is little or no equity in the property. Even then, it is only done when the lender requests it and most times they would rather have the property sold under the court process. First, most lenders are not in the business of owning real estate. Second, they require a sale so they can quantify their shortfall, if any. This allows them to make a claim under the mortgage insurance policy.

Any time an owner obtains a high-ratio mortgage from a bank or other public lender they must pay for mortgage insurance. A high-ratio mortgage is defined as the mortgage for in excess of 75% of the value of the property. The mortgage insurance is there for the protection of the lender, not for the protection of the owner. In the event of a foreclosure and a sale by the bank at a loss (after payment of the mortgage, all interest, any real estate commissions and all costs of the foreclosure process) the bank will make a claim under the mortgage insurance policy. The bank will recover their loss and break even.

The mortgage insurance company will then seek reimbursement from the property owner for the amount they have paid out to the lender. Although liability under a mortgage does not continue once the property is sold, liability under the mortgage insurance policy does continue. In other words, if someone sells a property and the new owner defaults on the mortgage the original owner can end up with a judgment against them for the full value of the lender’s loss.

In the early 1980s many people in Alberta ended up with a judgment against them for thousands of dollars. This was especially painful where they had sold the property with the belief and understanding the new owner would look after the mortgage. In one case, I dealt with a client facing a judgment in excess of $15,000. They had sold the property to new owners who had subsequently resold the property to a third party. The final owner defaulted and left the property in a mess. The lender sold the property at a loss and obtained judgment against six people; all three couples who had owned the property since the mortgage was granted. The mortgage insurance company went after the first owners as they had the greatest ability to pay the judgment.

About the author: Stan Galbraith is a lawyer with over 25 years of experience.  He was admitted to the Alberta Bar in 1983 and has operated his own law office since 1988. Stan has a wealth of experience ranging from litigation and appeal work, to teaching and writing. He has now left the world of litigation behind and works with commercial and residential Realtors and their clients on closing their transactions. He also practices extensively in the areas of small business and wills and estate planning and administration. You can find his website at www.galbraith.ab.ca.

Court Ordered Sale
Once the redemption period expires the court will issue an order directing the sale or other disposition of the property. This is the point at which the owner has lost control over the ability to sell the property.

What do you do if the law firm controlling the foreclosure says you cannot list the property for sale? Ask for paperwork to establish the status of the lawsuit.

As a matter of historical interest, many of the protections afforded to owners go back to the days of the Social Credit party. During the tenure of William Aberhart and Ernest Manning there was a perception in Alberta that the ‘big bad eastern banks’ were out to get the small time farmers and business people and they must be stopped. Laws were enacted to provide property owners protection against the immediate loss of their property. Owners were given time to put their affairs in order and banks had to satisfy the court on several issues.

The laws were amended once again in the early 1980s to deal with some of the issues that arose when real estate crashed and there were a multitude of foreclosures. At that time many people found they had negative equity in their home. They would then sell the property for one dollar to a buyer who promised to take over the existing mortgage. That buyer would rent the property, make no payments on the mortgage and pocket all the profit. The response of the Alberta government was to dramatically tighten the foreclosure process where the bank can show there is no equity in the property.

There are several ways a sale can happen. If the court has ordered a sale through a realtor it will be listed on MLS. Once this happens the owner has lost their power to choose their own realtor. They property is now listed by the court process and the owner cannot also list the property. It cannot be listed twice.

Sometimes, there will be a Judicial Sale by posting the notice of sale in the courthouse for a brief period of time. This is typical where there is little or no equity in the property. In this case the court is still in control of the sale process and the owner cannot sign their own listing agreement with a realtor of their choice. It is important to contact the lawyer or legal assistant looking after the foreclosure. The owner and their potential new realtor must determine whether they have the right to sell the property even where there nothing to indicate this.

About the author: Stan Galbraith is a lawyer with over 25 years of experience.  He was admitted to the Alberta Bar in 1983 and has operated his own law office since 1988. Stan has a wealth of experience ranging from litigation and appeal work, to teaching and writing. He has now left the world of litigation behind and works with commercial and residential Realtors and their clients on closing their transactions. He also practices extensively in the areas of small business and wills and estate planning and administration. You can find his website at www.galbraith.ab.ca.