Simply Junior

In this day and age of increased criminal activity it was only a matter of time for the latest crime wave to reach real estate. I am referring to money laundering. Real Estate brokers and sales representatives must report suspicious transactions if there is reasonable grounds to suspect that the transactions are related to the commission of a money laundering offence.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires Realtors to report suspicious transactions to the Financial Transactions and Report Analysis Centre of Canada (FINTRAC). Suspicious real estate transactions come in different flavors: for example, when a Client arrives at a real estate closing with a large amount of cash (it has actually happened – twice, in both instances in Toronto), or when the Client buys a property in the name of a nominee, like an associate or a relative. Naturally not all transactions involving nominees are symptomatic of shady dealings, but some may be. Another situation that may raise eyebrows is when Clients do not want their names to appear on documents connecting them with the property they are in the process of acquiring, or when they insist on using different names or fictitious business names on documents and forms. Or when they change the name of the purchasing party at the very last minute and fail to adequately explain the reasons for the substitution.

There are, of course, explanations for changes that the parties – especially Buyers – may wish to make, and some of these explanations are absolutely legitimate. For instance, in a recent transaction where I was involved the Buyer made an offer to purchase a restaurant in New Westminster, then was advised by his own accountant that it would have been tax-proficient for him to complete the transaction in the name of his limited company. I prepared an Amendment to the Contract of Purchase and Sale, had the parties sign it and that was the end of it.

There are instances, however, when changes cannot be reasonably explained. Take a look at this one, happened right here in Vancouver a few months ago: a Buyer negotiated a purchase price through his Real Estate Agent, but then requested his own Agent as well as the Agent for the Seller to record the transaction at a lower value on all documents, as he was going to pay the difference in cash ‘under the table’. A quick report to FINTRAC by both Agents uncovered a money laundering scheme involving marijuana. A variation of this example is when a Seller agrees to sell his property for below market value requesting an additional ‘under the table’ payment. And in another recent case (again in Toronto – which is not developing a great reputation these days when it comes to money laundering in real estate), a Buyer proceeded to purchase a property by making a large down payment in cash and financed the balance through an unusual offshore banking institution.

Some of these crooks have no business sense at all. Take for instance the Tenant that proceeded to lease an apartment right here in Downtown Vancouver. The term of the Lease was one year, and the Tenant showed up at the doorsteps of the Property Management Company with all twelve monthly installments plus the half-a-month security deposit … all in CAD $20.00 cash bills. The whole CAD $15,000 in $20.00 bills, in advance … now, you tell me if this is not dumb.

When there is a grounded suspicion, the real estate professional has a duty imposed on to him to report the transaction to FINTRAC within 30 days. Once the report is finalized, moreover, the real estate professional has an obligation not to inform anyone of such reporting, including of course the Client, if this could harm or otherwise impair a criminal investigation. No legal proceedings can be brought against the Agent for making a report in good faith.

Every so often, real estate transactions can go bad. This often results in one party demanding the other specifically perform pursuant to the real estate contract.

Specific Performance Demands In Real Estate Transactions

Once a seller and buyer agree on a price for a property, a real estate contract is signed. The contract contains provisions each must comply with, provisions that are legally binding. If problems arise during escrow, particularly if things turn nasty, one party may look to legal remedies to force the other party to do something.

Specific performance is a legal demand that a party perform some act. Although the theory can be applied to many situations, it is often seen in real estate transactions. This is because courts have determined that property is unique, and specific performance is often more valuable than monetary damages.

In the case of real estate, specific performance demands often involve the conveyance of title. Having met the conditions of the contract, the buyer demands the seller convey title to them. Why would sellers not do this automatically? Situations can include seller remorse, basic flakiness or the realization the seller accepted far too low an offer compared to what the market would produce.

Specific performance demands are a two sided situation. Courts often are reluctant to grant them because human nature is such that the defendant will often poison a situation by damaging the property or screwing up title. This does not mean the seller is off the hook.

While courts are hesitant to grant specific performance demands, they are not hesitant to enforce real estate contracts. Depending upon the laws in your state, the court may grant something called a lis pendens. The lis pendens represents the equivalent of the monetary damages suffered by the buyer. More importantly, it is recorded against the deed of the seller’s property. This effectively forces the seller to pay the buyer if the seller ever hopes to sell the property. When a title insurance company reviews title for any subsequent sale, it will notify the new purchaser of the lis pendens and refuse to issue title insurance. With no title insurance, the seller is going to have an extremely hard time moving the property. In fact, it will be nearly impossible as it is difficult to imagine any buyer that would want to get involved in the dispute.

While there can be sniping in real estate transactions, most go fairly smoothly. When they fall apart, specific performance and lis pendens can become dominant issues.

Everything in a real estate transaction has to be correct, since there are a lot of legal ramifications, laws and policies in effect. Real estate is a serious business, for both buyers, sellers, renters, and real estate professionals. There are many different forms depending on the situation one is in. Forms come and go, new forms are created, and new laws make older forms obsolete. It is good to know where to go to get the needed form. It is easy using the services of a professional, but often, individuals like to go on their own, which is fine.

One important part of any real estate dealings or transactions, is the legal requirement to disclose. Yes, this is the age of disclosure, such as we never had before in history. Particularly, real estate agents refer to material issues of a residence, commercial property, or raw land. If there are any known issues, like leaks in the roof, termites, wood rot, chemical deposits, or other issues that can materially impact the value of real estate, this must, be disclosed in writing, not just verbal. The courts like to see things in a written manner, with signatures.

If a seller of a house, is aware of some material defect to the structure, for example a crack in the wall, and it is not something apparent, or easily noticed by an interested buyer, then the seller has the obligation to make this known. The agent then, has the responsibility to make it know to the buyer-customer. In Florida, we have what is called a Seller’s Disclosure document, in which each mechanical system (plumbing, electrical, air conditioning, etc) has to be identified as having a problem, prior problem, or no problem at all. The seller also has to describe any issues relating to the structure, environmental concerns, prior flooding, age of property, prior work done to the house systems, and more.

Like any document in any business, it must be signed, and dated by the seller, or sellers. Each person interested in the property has a right to have a copy of the Seller’s Disclosure, and the real estate agent has to have copies on hand. Almost all real estate agents have seen copies in open houses for visitors to take. These are very useful documents. The Seller’s Disclosure is a very practical tool, and it is a legal form.

At the heart of the matter, the purchase or sale of a home is a legal transaction. When we mention the world legal, lawyers cannot be far from the discussion.

Whether you are buying or selling, the real estate industry has developed forms that often can be used to get the deal done. Many people rely on these forms every day, but the outcome isn’t always so great. If there is any problem in the transaction, the forms become obsolete. At that point, it is time for legal representation in many situations.

The first thing to know about a real estate lawyer is you may be legally required to have one involved in the transaction. The rules vary by state. In California, for instance, you are not required to use a lawyer and they usually only get involved in disputes or commercial transactions. Florida, on the other hand, has a strong policy towards using lawyers with the idea being to get the matter right at the outset instead of having problems later on.

Whatever your particular reason of needing a real estate lawyer, you are still going to need to find one. There are a couple of things to keep in mind when selecting one. Here are some tips.

1. Find a real estate lawyer. By this, I mean someone who practices primarily in the field of real estate. Most lawyers own homes, so they think they can handle real estate transactions. This typically is not true. Real estate law can be complex, so get someone that already knows it.

2. Go local. Real estate laws tend to be state wide, but regulations tend to be local. Obviously, it depends on the situation in your state, but you need to seriously consider getting a lawyer in the area you are selling or buying.

3. Comfort Level – Many people just choose any old lawyer. This is a mistake. Get one who speaks your language and you are comfortable. If you like aggressive people, get an aggressive lawyer. If you like yellers, get a yeller. If you prefer a more poised attorney, a yeller is probably not a good choice.

4. Know Your Purpose – Lawyers have distinct styles. Some prefer to try to find solutions to disputes. Others prefer to crush the other side. You need to know what your goal is when interviewing lawyers and communicate it clearly. Their reaction should give you an idea of whether they are a good choice or not.

Perhaps the biggest rule to remember when dealing with lawyers is your role. You are the client. They represent you. Most people hire a lawyer and then ask for advice on what they should do and what decisions they should make. This makes lawyers uncomfortable because they don’t know you from a hill of beans. Know what you want and communicate it to them. Their job is then to go get it.