Friday, September 30, 2011

Mortgage Acceleration Clause



What is an Acceleration Clause?

Ontario Real Estate Source

By Brian Madigan LL.B., Broker

This is a clause in a mortgage which triggers the obligation to repay the entire principal sum outstanding in advance of the time that it is otherwise due.

Consider a borrower who pays $1,200 per month on his $135,000 mortgage. The mortgage runs for five years. If he breaches an important covenant contained in the mortgage like for example failing to provide insurance, the entire $135,000 is due and owing, even if it is just year one in the mortgage.

Some breaches are considered substantial enough to “accelerate” the principal.

This is an option available to the mortgagee (lender). But, in cases, where the rate of interest is high the borrower may wish to have the mortgagee activate this clause which provides the opportunity to pay earlier.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

The Toronto Office Market is Shrinking

The Shrinking Office Market in Downtown Toronto

Ontario Real Estate Source

By Brian Madigan LL.B.

Employers appear to be moving out of the downtown core. It seems unusual but small companies are moving into the downtown core and large companies are moving out.
Many properties originally zoned for "office space" have be rezoned for a combination of "commercial and residential".

Two good examples would be Trump Tower on Bay Street and the Shangli-La Hotel on  University Avenue
.
While Toronto has traditionally been home to the financial services sector, this is one industry that seems to be "on the move".

The banks are relocating to the "905", being the suburbs around Toronto.

A primary example would be the Royal Bank which has relocated about 8,000 jobs to its new location on Financial Drive in Mississauga.

While head offices remain in the downtown core, major departments have fled to the suburbs. If this trend continues, then inevitably there will be a shortage of prime office space downtown. In 1980, 63% of office space was downtown Toronto, now it has declined to 54%.

The prospects do not appear to be high in terms of a current reversal in this trend, so wee see the conversion to residential condominium development. And, pretty soon, the prime properties could be all gone.

So, here's an opportunity: buy out the entire condo, rent it out, then when the office market turns convert it to office space. 

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com


Thursday, September 29, 2011

The Meaning of "Aborption Rate" in Real Estate

absorption
What Does “Absorption Rate” Mean?

Ontario Real Estate Source

By Brian Madigan LL.B.       

This is the rate at which homes are being sold on a monthly basis.

It is based on a particular market area. Assume that there are 2,400 homes listed for sale in a particular market. And, we know that 200 homes are sold every month. That means basically that we have a 12 month supply of inventory.

The rate is calculated as 200/2,400, or 1/12th, or expressed as a decimal .0833.

There are some areas which calculate the relationship somewhat differently. They take current listings at 2,400/200 being the number of current sales. The result is 12, meaning that we have 12 months of inventory.

No matter what, and however you seek to compare the two numbers,  it will still take 12 months to get rid of the present inventory.

This is a key factor used by real estate developers when they decide to build a condominium or new subdivision.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Monday, September 19, 2011

Should Condo Property Managers be Regulated?

Should Condo Property Managers be Regulated?  ~ $ 20 million Fraud

Ontario Real Estate Source                                 

By Brian Madigan LL.B.

The question following a $20 million fraud of at least 7 condominium corporations is whether or not the Ontario Government should take steps to regulate property managers.

Manzoor Khan as the principal of Channel Property Management is alleged to have defrauded lenders and condominiums out of millions by falsely registering mortgages against the titles.

The essential reason is that the board of directors in many residential condominiums are simple, average, unsophisticated homeowners who may have the time to devote to the board but don’t have the necessary qualifications, education or experience for the position.

Retail and commercial owners can fend for themselves. It is the smaller, lower end condo corporation which is vulnerable. As the building gets older and the residents age and lack new sources of income, they become more and more vulnerable to rogue property managers.

I should, of course, point out that there is not a growing trend of rogue property managers, but I suppose one is enough, based upon the damage that one person can do.

It can have a severe impact when millions of dollars are pledged in a series of fraudulent transactions against a condominium.

In one case, a condo unit was purchased for $152,000 but can’t be sold for $70,000 just a few months later. In some cases, it is the working poor who suffer. Many families have immigrated and are often dependent upon a single wage earner in a low end position. There’s not much room left for saving. Others have second and third jobs, and they are the lucky ones, while others on welfare have no other source of income and may eventually face eviction.

If the industry were regulated:

1)     training and education would be provided,
2)     a code of ethics would be followed,
3)     mandatory spot audits would operate as a deterrent, and
4)     basic insurance would be mandatory.

In this case, with respect to insurance I’m referring to bonding the individuals involved with money and having insurance to back up fraud and defalcation.

So, who pays? The condo corporation of the lenders! They were probably both negligent in the handling of the situation. It sounds more like tort liability than contract.
So, who gets paid? Obviously, the lawyers and the auditors!

As a society, we have failed to protect some of our most vulnerable. We have encouraged them to buy, but we have not provided the basic tools to allow them to protect themselves. The condos that were victimized were not the high end expensive downtown condos owned by lawyers, doctors, stock brokers and the like. They were the lower end, poorer condos catering to the working class new Canadians. What a great way to invest in your new country!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Sunday, September 18, 2011

Be careful About Condo Fraud in Toronto and the GTA



Is it Safe to Buy a Condo ~ $ 20 million Fraud

Ontario Real Estate Source

By Brian Madigan LL.B.

Channel Property Management operated in Toronto for years under Manzoor Khan of Brampton, Ontario.

Channel specialized in condominium management and gained the confidence in many cases of immigrants who identified with him from his native Bangladesh , where he has now returned.

It appears that Manzoor looked after about 15 residential condominium buildings.

While it does not really seem that sophisticated, here is what he did:

1)     Manzoor had his employees pose as senior officers of the condominium corporation,
2)    As President and Secretary, they could issue certified copies of the by-laws of the company,
3)    They certified a new banking by-law and/or borrowing by-law authorizing certain loans to be negotiated,
4)    The proceeds of the loans were placed in bank accounts over which Manzoor Khan had signing authority,
5)    The total borrowed appears to be about $20 million and such loans are secured against about 7 properties.

The arrangement is simple enough. The fraud is clear and the man has fled the country.
But, are the owners of the residential condominiums at risk? They might be!

The lenders are innocent and the homeowners are innocent. Both were duped by the same person. Hopefully, they all had insurance bonds as against Manzoor and his company. If they did, then they will be compensated.

This may not be just the fault of the lender. At the outset, it will be necessary to determine whether the board of directors might be liable. There may be directors and officers liability insurance. That would be helpful too.

However, the fundamental question for the courts is going to be whether these mortgages were valid.

This is an extremely costly undertaking. And, it could be that one or more of the residential condominium corporations do not have insurance and is therefore at risk of liability.

In the meantime, if you were a purchaser about to close a deal, you would want a very large holdback and if you were looking for a condo to purchase, you would probably avoid these buildings until the issues are resolved.

With all this uncertainty, homeowners will just have to put their lives on hold. And, this could go on for years!

Make sure you see and understand the financial statements of the condominium before you buy. Ask yourself whether the property manager is reputable and whether the board members are sophisticated. Get professional assistance right from the beginning.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Saturday, September 10, 2011

15 Reasons to Buy Title Insurance

 
By Brian Madigan LL.B.

I thought that I would give you 15 good reasons to buy title insurance. Actually, there are more than fifteen, but if these fifteen are not enough, then you're just not going to be convinced.

Until 1997, the common practice in Ontario was to secure an opinion on title from a solicitor. If something went wrong, then you simply sued the lawyer. Now, that's easier said than done! Title insurance has now come to the rescue. Certain identified risks are covered under a policy of insurance. The coverage is much broader than the matters set out in an opinion letter from a solicitor.

Here are some of the reasons why "insurance" may be better than an "opinion":

1) it covers matters not included in a title opinion,

2) you don't have to sue your lawyer if something goes wrong,

3) it provides funds to solve the problem,

4) the insurer provides creative solutions to rectify the issues,

5) it pays your legal fees,

6) it provides compensation to you, if your problem cannot be resolved,

7) it covers the claim and legal fees if someone sues you,

8) it's inexpensive, and there is a one-time premium,

9) you may save on the usual disbursements in a transaction because some searches are not completed,

10) you may save the cost of a new survey in most cases,

11) it protects you against survey errors, in both old an new surveys,

12) it protects against errors in information provided by municipalities and utilities,

13) you may negotiate to obtain additional coverage for other issues including environmental hazards, native land claims and risks you have assumed by contract,

14) it protects you against certain construction liens,

15) it protects you against fraud and forgery,

16) it continues to provide coverage for problems arising after the closing date,

17) it protects your mortgagee so that the deal will be closed and the mortgage funds advanced,

OK, I gave you seventeen, if you still need a few more, contact me and I'll send them to you......

And, I'm sure you really didn't want to sue your lawyer!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Friday, September 9, 2011

Construction Liens in Ontario



By Brian Madigan LL.B., Broker

If you are planning on any renovations or you are building a new home, then you need to know about the Construction Lien Act.

First, there is a lien which can be registered by anyone who provides work or services or supplies materials which are used for your property. The lien has to be registered within 45 days of the last work being performed or the last supply of goods. Then, the lien has to be "perfected" within 90 days of that same date by instituting an action and registering that on title as well. Many liens are registered but never perfected.

Second, there is a statutory holdback under the Act. Every person responsible for payment is required to holdback 10% of the amount for 45 days to ensure that there are no liens. If you pay this amount, and a lien is registered, then you may have to pay this again. So, be careful!

Third, there are other provisions for liens under the Act, in excess of the 10%. If a sub-contractor gives written notice of a claim for a lien, then that full amount (not just 10%) must be heldback. This is the most risky situation for homeowners.

Many contractors will tell you that you have no right to hold back any money because it's not in the contract. But, don't worry, the Act has you covered. Every contract is deemed to be amended so as to be in conformity with the Construction Lien Act. So, even if it's not in there, it's still part of the contract, and not only do you have the right, but you also have the obligation to holdback sufficient funds.

Let's assume that you are having a hot tub installed. Your price was $10,000.00, so you are obligated to holdback $ 1,000.00 for 45 days, but you receive written notice of a lien from the manufacturer for $ 6,000.00 and one from the installer for $ 1,500.00. So, how much do you holdback? The answer is $ 8,500.00. The full amount of the written notices together with the statutory holdback. But, if you're actually in this situation: don't pay anything! You may still hear from the electrician and the gas installer, both of whom may still have claims. Better safe than sorry, make sure everyone has been paid and get proper releases and authorizations signed. This is a good time to involve your lawyer.

The purpose of the Construction Lien Act is to protect all the suppliers and workmen down the line, so that they all will be paid. It is an Act intended to benefit sub-contractors from the general contractor. It is also designed to protect the general contractor from you if you don't pay. As a lien, it has priority over both unregistered and unsecured interests and it follows mortgages (provided the funds have been advanced) and taxes which have a higher priority.

So, where does title insurance fit in? If you have a valid title insurance policy, then you will be covered for any claims of the manufacturer or installers. You did not have a direct contract with them. However, you may not be covered for the general contractor's claim. You have a contract here, and you may not have lived up to your side of the bargain. If you were supposed to pay in installments, and you failed to do so, then this whole lien mess, may be your fault. If you're in breach of your obligations under the contract with the supplier, then title insurance won't save you. However, maybe they brought the wrong unit and you were quite within your rights to refuse payment. Here, title insurance will be helpful.

There are a couple of matters that are important considerations under the Act. What is the last day work was performed and material was supplied to the property? Who certified completion? What wage rates are paid to the workmen? Have all payments been paid to date? What about WCB payments? Is there a performance bond? If these issues arise, then you will have to see a lawyer. The Act can be tricky and somewhat complicated in parts.

It is also important to note that you can't use any of the holdback moneys for defects or repairs. Those funds are constituted as "trust funds" and may only be used for the purposes of the trust. If you borrowed money from a bank to finance the hot tub, then those funds may be subject to the trust provisions under the Act. It would be better just to arrange a general loan from the bank. It's far less risky! It's bad enough not to get what you paid for, but it's even worse to have to pay twice.

Ultimately, if a homeowner refuses to pay for proper work, services or materials supplied, the Court has authority to order the sale of the property. Before this occurs, the mortgagee will likely have intervened. And, there's an interesting provision contained in the mortgage, they have the right to pay the claim and add it to your mortgage with interest.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Mortgage Rates ~ 9 September 2011



Brian Madigan LL.B.,Broker






Terms Bank Rates Preferred Rates



6 Month 4.45% .....4.40%

1 YEAR 3.50% ......2.64%

2 YEARS 3.85% .....2.99%

3 YEARS 4.35% .....3.09%

4 YEARS 3.99% .....3.09%

5 YEARS 5.39% .....3.39%

7 YEARS 6.35% .....4.49%

10 YEARS 6.75% ....4.79%

Rates are subject to change without notice. *OAC E&OE


Prime Rate is 3.00%

Variable rate mortgages from as low as Prime - .75%

If you require a referral to a mortgage broker then please call me at 905-796-8888

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com