Be Mindful of the Short Sale

Transcription

1 V o l u m e 3 6, n u m b e r 3 A U G U S T Be Mindful of the Short Sale Article provided by Chris Ferronato, Bull Housser Sellers often assume that the sale price of their home will be enough to pay out the costs and financial obligations associated with the sale, but that s not always the case, especially in a slow real estate market. A short sale occurs when the amount outstanding under a seller s mortgage, along with other payout obligations and closing costs, is greater than the sale price of the home. REALTORS acting for sellers should be mindful that, if a sale price is not sufficient to payout all of the associated financial obligations and closing costs, the entire transaction may be in jeopardy. Generally, the Contract of Purchase and Sale (CPS), together with the standard conveyance process for a residential purchase and sale transaction, obligates the seller to pay the following in full by the completion date: outstanding loan amounts secured by mortgages on title to the seller s property, pre-payment penalties and discharge fees payable to the seller s lender connected to the payout of any mortgages, liens or judgements secured against title to the seller s property, the seller s share of property taxes and civic utilities (sewer and water) for the year that the sale takes place, together with any arrears, penalties and interest, the seller s share of strata fees for the month in which the sale takes place, together with any arrears, and unpaid special levies and fines, plus any moveout and document fees, legal fees, disbursements and applicable sales taxes to close the transaction and attend to the payout and discharge of mortgages and financial encumbrances, and commissions and applicable sales tax pursuant to the terms of a listing contract. If the total amount of the foregoing costs and financial obligations exceed the sale price of the home, then the seller will require other funds to make up the difference, and pay such funds to the seller s lawyer in trust for payout on the completion date. If the seller is unable to do so, then they will be unable to complete the transaction as required under the CPS, and could be sued by the buyer for damages. Additionally, the seller would also still be liable to the listing brokerage for the commission and applicable taxes pursuant to the terms of the listing contract. The listing REALTOR can assist the seller in avoiding such detrimental circumstances by discussing the associated closing costs and financial obligations with them before listing the property. This will help avoid a potential short sale by ensuring the seller is aware of the minimum price for which the property must be sold. Additionally, if the REALTOR is uncertain whether such minimum price is achievable in the given real estate market, the REALTOR should advise the seller accordingly. Then the REALTOR and the seller should discuss whether additional funds are available from other sources, to allow the short sale to proceed. If not, the financial circumstances of the seller would not make listing the property viable under the applicable market conditions. If the REALTOR or seller has any uncertainty about the payouts required in connection with a particular sale, monthly statements and/or other records or invoices should be obtained from the appropriate sources (e.g., lender, property tax office, strata management company). Of course, the REALTOR must keep the seller s financial information in confidence and should inform them accordingly. While these may be sensitive issues to discuss with the seller, being mindful of a potential short sale may be invaluable in determining the merit of listing a property at a particular time, and for facilitating a smooth and efficient transaction. I N S I D E President s Report Pg 2 REALTOR Voices Real Estate Sector Pg 3 Assisting With the Purchase and Sale of Cooperative Properties Practical Points Pg 4 Asbestos: What s a Licensee to Do? Education Pg 5 The Road Ahead: A New PDP Coming November 2013 Real Estate Sector Pg 6 Working With Home Inspectors Practical Points Pg 6 REALTOR Safety: Staying Safe on the Job The Bulletin AUGUST 2013

2 President s Report REALTOR Voices Provincial politics are rarely dull in BC, and 2013 is no exception. Following the election in May, the recently-elected Liberal government has held its first legislative session, and Premier Christy Clark has reclaimed her place in the legislature by winning the Westside- Kelowna by-election. This past election was notable for many things, including pollster reputations. At BCREA, we were proud of the Association s election support for real estate boards across the province. For the first time, we provided all boards with funds to help support their provincial election activities. Member boards could also apply for additional funds, depending on the scale of their projects. We were thrilled that ten out of 11 real estate boards in the province applied for, and received, this provincial election funding. Projects ranged from sponsoring all-candidate forums to get out the vote websites providing information on candidates and voting. BCREA also provided a one-stop website with a wide range of information, including the Association s public policy positions, a list of member board election activities, analysis of major parties election platforms related to real estate issues and a Twitter feed of election news. We also provided downloadable No Vote, No Voice logos for REALTORS to use in their social media profiles to promote voting. In addition, BCREA acted as the official election advertising sponsor under the Elections Act, saving boards the expense and effort of registering themselves. This election project is a good example of what BCREA can do provincially for REALTORS and their member boards to help ensure the continued value of REALTORS in the province. This project wouldn t have been able to move forward without a provincial association in place. As REALTORS, we re intimately involved in our communities. We spend time with our clients and their families as they move into new communities or leave familiar ones. Supporting civic activities, like the real estate board election projects, helps promote a positive and engaged image of REALTORS in the public mind. Some real estate boards were even able to work with media companies in their areas to have ads promoting election activities and mentioning REALTORS as sponsors. I m proud to be a REALTOR, and I hope that projects like these help you feel proud to be a REALTOR, too. Jennifer Lynch President Jennifer Lynch Board of Directors Core Ideology Officers REALTOR Directors Core Purpose Ensuring the continued value of REALTORS in BC. Core Values Member board vitality REALTOR success REALTOR professionalism Quality of Life - Ensuring economic vitality - Providing housing opportunities - Preserving the environment - Protecting property owners - Building better communities Public trust President Jennifer Lynch jennifer@ discovergabriola.com Past President Jim McCaughan jamesmccaughan@ hotmail.com President-Elect Jake Moldowan jake@jakem.ca Chief Executive Officer Robert Laing rlaing@bcrea.bc.ca Claudia Holland claudia@claudiaholland.com Dick Pemberton rpemberton@kadrea.com James Palanio jamespalanio@shaw.ca Jim Stewart jstewart@coastrealty.com K. Scott Russell russell@direct.ca Rosario Setticasi rsetticasi@gmail.com Public Directors Donna Bridgeman d_bridgeman@telus.net Sharon Bryan sharonebryan@me.com The Bulletin AUGUST 2013

3 Real Estate Sector Assisting With the Purchase and Sale of Cooperative Properties Article provided by Bruce Woolley, Stikeman Elliott LLP Acting for buyers or sellers of cooperative properties can be a more difficult task than acting for buyers or sellers of ordinary houses. The majority of real estate bought and sold in BC is fee simple. However, there are a number of properties that have a different legal structure and therefore require that different questions be asked. One of those types of properties is the cooperative, of which there are different kinds. This article deals only with cooperatives where the purchaser acquires an equity interest in the cooperative itself, currently created by incorporation of an entity under the Cooperative Association Act, not with government or non-profit cooperatives. When a purchaser buys a cooperative unit, instead of buying the land or the building, the purchaser buys shares in the cooperative that either leases or owns the land and building, and the right to occupy a particular unit for a set period of time. The cooperative determines how many shares will be allocated to each unit in the building usually in proportion to the value of the unit. Then the shares are offered for sale. The initial buyer of the shares enters into a long-term lease from the cooperative, while subsequent purchasers take an assignment of the balance of the term of the lease. The amount of time left in the term may have a significant impact on value. Some issues to consider Financing and Monthly Payments Financing for a cooperative unit may be more difficult to obtain than financing for an ordinary house. Because the purchaser will not be granting a first mortgage of a fee simple security well-recognized by financial institutions and instead will pledge shares and probably grant a mortgage of leasehold interest, the REALTOR should investigate the availability and rates of the financing. Cooperative s Financial Condition Purchasers should be advised that a cooperative has no statutory obligation to disclose its complete financial condition to third parties. However, the cooperative is required to keep its registers of debentures, indebtedness and allotments available for public viewing, and whether a receiver has been appointed. This can provide some insight into the cooperative s financial state. REALTORS should ensure this information is disclosed to the purchaser and advise that the purchaser make further inquiry into the cooperative s financial condition. Eligibility Cooperatives make their purchaser eligibility requirements public primarily through their rules. But, because the sale is privately approved by the cooperative s board of directors, approval is not automatic even if the purchaser conforms to the rules. Richard Nixon, former president of the United States, was refused as a purchaser in a cooperative in New York based partly on his notoriety. In BC, cooperatives must adhere to the Human Rights Code, which states that people must not be denied the opportunity to purchase a dwelling unit because of their race, colour, ancestry, place of origin, religion, marital status, physical or mental disability, sexual orientation or sex of that person. REALTORS should keep this in mind, along with Article 16 of CREA s Code of Ethics and Standards of Business Practice (the Code ), whereby a REALTOR cannot deny professional services based on similar grounds. Lease, Memorandum and Rules REALTORS should obtain a copy of the lease, memorandum and rules and policies of the cooperative and provide them to prospective purchasers. Special attention should be given to rules respecting termination of membership, especially material conditions. Maintenance, repair and improvement obligations may be extensive and differ from those of strata developments. The above is not a complete list of investigations that should be made, but is merely intended to provide a better understanding of the underlying structure. REALTORS should ensure that they consider other issues, such as any pending legal actions against the cooperative. Additionally, REALTORS should always keep in mind the following from the REALTOR Code: Article 4. A REALTOR has an obligation to discover facts pertaining to a property which a prudent REALTOR would discover in order to avoid error or misrepresentation. Article 10. The REALTOR shall encourage parties to a transaction to seek the advice of outside professionals where such advice is beyond the expertise of the REALTOR.

4 Practical Points Asbestos: What s a Licensee to Do? For buildings constructed prior to 1990, provincial legislation requires hazardous materials surveys be completed before renovation, expansion or demolition, to protect occupants and workers from harmful exposures. Hazardous materials include asbestos in all types of building products, storage tanks, PCBs from fluorescent lighting ballasts, abandoned paint, solvents and cleaning products, and Freon from cooling equipment. More than 71 per cent of occupied homes in BC were built before 1990, according to the 2006 Census, which means that most of the province s supply is impacted by this legislation. Hazardous materials requirements are determined by the provincial Occupational Health and Safety Regulation (took effect on April 15, 1998), under the Workers Compensation Act. Although this is Some asbestos facts Asbestos could be present in any building constructed or refurbished before Undisturbed asbestos-containing materials in good condition typically don t present a significant exposure risk and are often safely managed in place. Between 1990 and 2009, WorkSafe BC accepted 980 claims for asbestos-related diseases. More than half of those claims originated with these five groups: metal works and mechanics, plumbers and fitters, carpenters and painters, insulators and dry-wallers, and electrical workers. In 1990, Worksafe BC accepted the highest number of fatality claims due to asbestos exposure. provincial legislation, local governments have varying procedures for ensuring compliance, and may not enforce the legislation. WorkSafe BC encourages local governments to take action, and continues to raise awareness around the province. That means REALTORS, homeowners and homebuyers should be aware of the requirements, and there are several resources available. The Real Estate Council of British Columbia s Professional Standards Manual provides some guidance to licensees including a safety, health and environmental inspection/testing/ government approval clause, and others that may be appropriate regarding asbestos insulation, and more generally about health and environmental concerns. The Council also published an informative article in the December 2012 issue of its Report from Council newsletter. WorkSafe BC s Occupational Health and Safety Guidelines provide further information about the hazardous materials inspection (with an emphasis on asbestos). The organization s asbestos website, helps to inform the public and includes a list of frequently asked questions for homeowners. BCREA s Property Disclosure Statement (Residential, Rural Property Land and Building) includes this question, which can be an excellent start for buyers to conduct additional research: 3C. To the best of your knowledge, have the Premises ever contained any asbestos products? Because local governments play an important role in enforcing these requirements, REALTORS and their clients should also look into their local governments resources. While real estate licensees aren t expected to identify asbestos or other hazardous materials, when dealing with clients who plan to repair, renovate, expand or demolish buildings constructed before 1990, REALTORS should: inform clients that hazardous materials surveys are required before renovations or demolition can begin, encourage buyers to have inspections conducted to determine the presence/ absence of asbestos, inform clients that, if asbestos and/or other hazardous materials are present, they can be expensive to remove, and encourage sellers to complete the Property Disclosure Statement. More Information: Real Estate Council of British Columbia: Professional Standards Manual: Asbestos Awareness is a Licensee s Responsibility, Report from Council (December 2012): /12/december-2012-reportfrom-council-newsletter/#asbestos WorkSafe BC: Occupational Health and Safety Guidelines (in particular, section G Hazardous materials Asbestos): www2.worksafebc.com/publications/ OHSRegulation/GuidelinePart20.asp Hidden Killer website: Ten Steps to Compliance With Asbestos Abatement Requirements: health_and_safety/by_topic/assets/pdf The Bulletin is published quarterly by the British Columbia Real Estate Association. Real estate boards, real estate associations and REALTORS may reprint this content, provided that credit is given to BCREA by including the following statement: Copyright British Columbia Real Estate Association. Reprinted with permission. BCREA makes no guarantees as to the accuracy or completeness of this information. Send questions and comments about The Bulletin to: Editor: Damian Stathonikos Assistant: Lindsay Macmillan Georgia Street West PO Box 10123, Pacific Centre Vancouver, BC V7Y 1C6 Phone: Fax: bcrea@bcrea.bc.ca Printed on recycled paper. ISSN:

5 Education The Road Ahead: A New PDP Coming November 2013 The New PDP at a Glance BCREA and its 11 member boards are excited to announce that a completely redesigned Professional Development Program (PDP) will begin to roll out in November To better match the range of REALTORS learning needs, this new program design will include a number of improvements, through better flexibility and choice. As a result of your input through focus groups, surveys and research, key areas of improvement to the PDP now include: enhanced course quality, increased course diversity to better meet REALTORS needs, and improved course access through face-to-face, online and accredited member board and industry event options New ways to earn PDP credits The PDP accreditation system has been expanded to recognize several new kinds of learning experiences, which REALTORS know to be of value to their business and their clients. New courses and new course formats Eleven new courses will debut between November 2013 and March 2014, followed by a substantial number of new courses over the three-year implementation of the new PDP. These new courses promise to provide innovative and interactive learner experiences, focussing on tangible value and takeaways that can be immediately used in your business. More choice in where and how to learn Every REALTOR has a unique preference in how, when and where they learn best. The new PDP provides more choice of realtime, self-paced, face-to-face, online and blended courses. Learning paths for personalization Because each REALTOR has unique educational needs, BCREA has developed learning paths for the four key segments. Emerging Professionals REALTORS in their first or second licensing cycles Career Builders REALTORS with approximately three to ten years experience in the business Seasoned Professionals REALTORS with over ten years experience, and Managing Brokers These learning paths aren t mandatory they re designed to provide a new way for REALTORS to see, at a glance, which courses best meet their needs, whether they re provided by their member boards, offered online or by an accredited external vendor. Financial investment required Investment in an improved PDP will not be costless. At the same time, BCREA undertakes to deliver improved value while keeping the resulting cost increases as low as possible. More ways to earn PDP credits 11 new course offerings in Year One Improved course design and instruction Online, face-to-face, blended and just-in-time choices New PDP learning paths New A-B-C Accreditation Model Still 18 credits per two-year licensing cycle 6 credits Mandatory Legal Update 6 credits minimum Formal PDP courses 6 credits maximum (optional) Member board-sponsored education events Five Course Types New or redesigned courses Industry Watch Explore the trends, issues and legal developments in the real estate industry. Strategic Look at the strategic connection of knowledge, skills and attitude to REALTOR business plans. Practical Hands-on courses that allow REALTORS to delve into the details and nuances of their trading services. PDP on Demand Three-credit, online, on-demand, less formal courses on timely topics that rotate every two to three years. External vendor course Accredited for the PDP when courses deliver important content better and cheaper than BCREA can produce them.

6 Real Estate Sector Working With Home Inspectors Article provided by Consumer Protection BC In March 2009, British Columbia became the first province in Canada to license home inspectors. Consumer Protection BC, the licensing body for this industry, enforces the province s home inspector laws. BC s Home Inspector Regulation provides added protection to homebuyers by requiring that home inspectors are qualified to make professional assessments and are therefore required to: be licensed by Consumer Protection BC, carry errors and omission insurance as well as general liability insurance, and meet training standards of one of the following associations: Applied Science Technologists and Technicians of British Columbia Canadian Association of Home & Property Inspectors (BC) Canadian National Association of Certified Home Inspectors National Home Inspector Certification Council A list of licensed home inspectors is available on the Consumer Protection BC website ( REALTORS should note that consumers can ask to see home inspectors' walletsized licenses issued by Consumer Protection BC before signing contracts for home inspections. Consumer Protection BC would like to remind REALTORS that they should not request information about the contents of a home inspection report, as it is against the law for home inspectors to disclose the contents, except: with permission from the consumer, as required by law, or if, in the opinion of the home inspector, the property poses a serious health or safety risk. REALTORS should also not make a referral to a home inspector if there is a conflict of interest in relation to a home inspection that results in a material gain for the home inspector. Penalties for a violation of the regulation may include a licence refusal, suspension or cancellation, or conditions being imposed on a home inspector s licence. Consumer Protection BC may also impose an administrative penalty of up to $5,000. To find out more information about BC s Home Inspector Regulation or ensure a home inspector is licensed by Consumer Protection BC, visit Practical Points REALTOR Safety: Staying Safe on the Job In response to the recent assault of a REALTOR at a Port Coquitlam open house, BCREA reminds all BC REALTORS to take precautions in their day-to-day real estate practice to help ensure their safety. The Association has posted a reward of up to $10,000 to any person who comes forward by July 18, 2014 with information that leads directly to the apprehension and conviction of the person or persons responsible for the attack. For further information, please visit news-and-publications/news-room/newsreleases/ realtor-safety. Here are a few tips to help REALTORS stay safe on the job: Keep a cell phone at your side and program 911 on your speed dial. Have a distress code word or statement prearranged with your office, colleagues, family and friends that you could say or use when you feel uneasy. Make sure someone knows where you are, who you re with, where you re going and when you ll be back at all times. Don t publicize personal information but, if you must, limit the amount of personal information shared. Know who you re dealing with, meet new clients at your office or a public place and verify their identities. Take precautions at open houses for your personal safety and don t work alone. Here are a couple of valuable apps that can alert emergency contacts and/or police that you need help, and can also note your GPS location: Guardly snaps photos of suspicious persons and shares them with a group of emergency contacts. Real Alert has a quick tap alarm and flashlight, can instantly locate the nearest hospital and can track creep data on suspicious persons. To view the Canadian Real Estate Association s REALTOR Safety Manual, visit realtorsafetybooklet.pdf.