Can You Witness a Document if You’re not there ?

By Brian Madigan LL.B.

(Ontario Real Estate Source)

A problem frequently arises in real estate transactions when people say they witness signatures, but they don't.
In Ontario, there are only three legal documents which require witnesses:

1)     Domestic Agreements,

2)     Powers of Attorney, and

3)     Wills.

Other documents are still valid without a “witness”, but on the basis of “best practices”, there should be a witness to the signature. That’s the case with real estate transactions. Any enforceable agreement to convey real property must be in writing. That is set out in the Statute of Frauds. Domestic agreements and powers of attorney can in fact serve as companion documents, even without a witness. A holograph Will, if completed properly can

Here's a quick scenario. Bob wants to sell his house, so he hires Jack, a realtor. An offer is faxed into Jack's office. Bob is on vacation out of the country. Jack e-mails Bob, and Bob gives him the fax number where he is staying. Jack faxes it over, and discusses the offer with Bob by phone. Then, Bob faxes it back to Jack's office.

It's not witnessed! So, Jack decides to witness the document, and signs his own name just above the line where it says "witness".

What's wrong with this scenario?

Jack said he witnessed the document but he didn't. That's the problem!

Now, you can appreciate that Jack's involvement was helpful. The correct and proper procedure would be to properly document Jack's involvement.

So, what should Jack have done?

Jack should "authenticate" the document. He really can't witness it, because he wasn't there. He should strike out the word "witnessed" and insert ‘authenticated not witnessed".

What's the difference? A witness needs to be personally present, and see the person sign the document in front of them. They become a compellable witness in any legal proceedings. They would be expected to comment on several aspects concerning the signing of the document. They should be able to say that the person appeared to have capacity to sign. They knew they were signing a legal document. The person did not appear to be under the influence of alcohol, drugs, medication or fatigue. In all respects, they appeared to be knowledgeable and execute the document without duress or coercion from any other party.

Authentication is somewhat different. The person was not personally present, but can state with a reasonable degree of certainty that the signature is that of a specific individual. They know the signature. They have the signature on file. The signature compares favourably with the signature on file, or they "recognize" the signature. Banks will undertake this task regularly.

You will appreciate that just because the signature looks similar that there is no real guarantee. It's just a best guess, but it's a best guess by someone who has certain business records on file, or a certain professional (or otherwise competent) recognition of the signature.

There is obviously one further step. The signature could be "guaranteed". This means that the authenticating party is absolutely certain, and offers a contractual invitation to a third party to rely upon the truth of the statement.

In the case of the Bank manager: "Authenticate" could lead to a tort liability, a "Guarantee" could lead to a contractual liability.

In Jack's circumstances, he could raise his involvement and "certification" to the next level. He could state "authenticated and guaranteed". That would be as close to actually witnessing as possible. But, you will appreciate that it still falls slightly short. He wasn't physically present, so he truly cannot say anything about intoxification or other factors that might have been an impediment to Bob's signing of the document.

In real life, all too often someone in Jack's position will simply sign above the witness line. That's risky!

 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 RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

The Use of Seals for Real Estate Deals

History of Signing Documents under Seal

Ontario Real Estate Source

By Brian Madigan LL.B.

A common question that arises in respect to real estate transactions, is the use of the seal.

Here is a little bit of history about the use of the seal in the first place. It did not arise out of contract law, so that is one reason why some people have difficulty understanding its use.

"Why are some contracts “sealed” and others are not?

In order to have a contract, you need to have an “agreement” that the Courts will enforce. Not all statements that are made, result in enforceable promises. Remember, all the promises made at election time!

Sometimes, it is necessary to determine which promises should be enforced. Really, there are basically three types of contracts:

• Those that have consideration (something offered, something given up)
• Those under seal (without consideration)
• Those that have consideration and are under seal (the most common type)

The legal seal is evidence that a promise is intended to be a legally enforceable promise. A promise might otherwise simply be a gift. A promise together with consideration is a legally enforceable contract. That premise arose out of the modern law of contracts. When I say “modern” I mean the last 700 to 800 years.

The concept of documents being executed under “seal” preceded modern contract law. Documents executed under seal were considered to be legally binding and enforceable promises.

Seals were used in Babylonia in 3200 BC to identify and authenticate the author and the agreement. Seals were commonly used by nations to settle disputes following war. The red wax seal (symbolizing blood) was used by Caesar. The first usage of seals in modern times was the period immediately following the Norman Conquest in 1066. From that time until 1215, seals were all the rage. They were the equivalent of cellphones. Everyone had a seal. This was your identification and served to indicate that you had the legal capacity to enter into a promise that was legally enforceable. It didn’t have to be a contract. You would be taken as a “man of your word” because you had a seal.

The poorer class, of course, didn’t have seals. They would “prick their right thumbs” with a sharp object to draw blood and impress a document with their thumbprints. Later, Courts would recognize this activity as being the equivalent of executing a document under seal.

By 1215, the modern day usage of seals was introduced to England by the signing of the Magna Charta, often viewed by historians as the first bill of rights, the first constitution and the birth of the common law.

There continues to be a special class of documents executed under seal. A promissory note is enforceable for 6 years, but a promissory note executed under seal is enforceable for 20 years. In essence, the practice grew out of an ancient system of authenticating documents rather than contract law. So, naturally there are some differences with the rules.

The limitation is usually longer. Basically, why get a promissory note that will only last 6 years, when one under seal will last 20? And, don’t forget that a mortgage is a promissory note.

It became commonplace for everyone to want just about everything executed under seal. All important documents were under seal. That was the way Kings and Queens did business. All deeds were executed under seal. That, of course, is no longer the case, but it was until 1985 in Ontario.

More recently, Courts have begun to erode the special status of documents under seal, by holding many other contracts to this higher standard.

Most standard form legal contracts include the words "signed, sealed and delivered" just above signatory line. You will find that in the standard form agreement of purchase and sale. The black dot is the location for the seal to be affixed. Seals today are small red circular dots with glue on the back. They should be affixed. However, any indication of an intention to execute the document under seal is sufficient. So, if you circle the black dot in ink,  that will work and be just as good.

The custom at the present time is that just about all formal agreements documenting business transactions are executed under seal."

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 RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

Negotiating Real Estate Transactions over the Internet

Electronic Negotiating

Ontario Real Estate Source
By Brian Madigan LL.B.

It certainly seems that everyone would like to negotiate real estate transactions by email.

The only problem is that it doesn’t appear to be allowed.

There is a current difference in approach by OREA which drafted the new standard form Agreement of Purchase and Sale effective January 2012, and RECO.

The new standard form has incorporated emails into the “Notices” provision. They are given the same status as faxes.

The new clause permits Offers, Counter-offers, and Notices of Acceptance to be communicated by email. The provision goes on to include various notices and other documents.

The concern arises with the “negotiating of the agreement. Notices and other documents suitably can be exchanged through email. RECO accepts the latter but is concerned about the former and recommends that legal advice be obtained in a Registrar’s Bulletin.

Here’s the issue. The Statute of Frauds requires any agreement for the sale of land to be in writing. The Electronic Commerce Act enabled and permitted certain contracts to take place over the internet.

But, the problem is in the Act:

Section 31 (1) 4 of the ECA reads:

This Act does not apply to the following documents:

4. Documents, including agreements of purchase and sale, that create or transfer interest in land and require registration to be effective against third parties.

Clearly, it applies to Transfer/Deeds which are registered. Does it also apply to Agreements which are generally not registered. The wording in the Act certainly could have been better.

No changes have been made to the Act since it came into force in October 2000, so why adopt the OREA approach now. It’s risky and flies in the face of the RECO Bulletin.

I would recommend that you be cautious and follow the RECO approach until this matter is resolved. Let someone else take this to Court, or have the Legislature pass an amendment to the Act.

Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com

Who are CLIENTS in Real Estate Transactions?

Clients ~ An Easy to Understand Concept

Ontario Real Estate Source

By Brian Madigan LL.B.

While it may be difficult to understand the “customer” status relationship, no one seems to have difficulty with “clients”.

The concept of a client is simple and straightforward. It is the usual name of the principal in an agency relationship.

Many professionals deal with agency and represent clients, including lawyers, doctors, engineers, architects, barristers, solicitors, notaries public, conveyancers, paralegals, attorneys, accountants, consultants etc.

In just about all cases, the principal is referred to as the “client”. There is one notable exception, and that is doctors, whose principals are known as “patients”.

It is also easy to figure out that the highest duties are owed to the client or patient. You don’t have to know specifically what they are, but just about everyone knows inherently that clients stand in first place. That’s as good as you get. It is very basic and very fundamental.

And, of course, it’s the common law.

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

Customer Disclosure Duties under REBBA 2002

What is the Disclosure Obligation to Customers in Ontario?

Ontario Real Estate Source

By Brian Madigan LL.B.

Under the Real Estate and Business Brokers Act, 2002, a registrant is charged with certain responsibilities.

Customers are entitled to ”services” and their agents must act with competency, knowledge, skill and judgment.

This is the obligation to clients under the Code of Ethics:

Material facts

21. (2)  A broker or salesperson who has a customer in respect of the acquisition or disposition of a particular interest in real estate shall, at the earliest practicable opportunity, disclose to the customer the material facts relating to the acquisition or disposition that are known by or ought to be known by the broker or salesperson.  

         

Material Facts are actually a defined term under the Code:

“material fact” means, with respect to the acquisition or disposition of an interest in real estate, a fact that would affect a reasonable person’s decision to acquire or dispose of the interest;       

It is difficult to appreciate the context without appreciating the definition of a trade in real estate in the Act:

trade” includes a disposition or acquisition of or transaction in real estate by sale, purchase, agreement for purchase and sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real estate for the purpose of such a disposition, acquisition or transaction, and any act, advertisement, conduct or negotiation, directly or indirectly, in furtherance of any disposition, acquisition, transaction, offer or attempt, and the verb “trade” has a corresponding meaning;

So, this basically means that the agent must:

1)     at the earliest practicable opportunity,

2)     disclose to the customer,

3)     the known material facts, and

4)     the material facts which are unknown, but ought to be known.

Naturally, it would be wise from a risk management perspective that the agent recorded this information in some way, and was able to retrieve it later if required.

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

Distributing the Proceeds of Sale

Priorities Upon Sale (Mortgage, Lien, Execution)

Ontario Real Estate Source

By Brian Madigan LL.B.

What happens when there is a mortgage, construction lien and execution against the property? How does the money get distributed?

Let’s consider the simple straightforward case.

Here, the property is worth $300,000, and the buyer secures a first mortgage of $250,000.

The deal closes and the money is advanced.

Subsequently, the buyer defaults upon his credit card to the extent of $10,000 and a judgment is obtained.

The homeowner decides to sell and hires a contractor for $25,000 to effect some improvements, repairs and renovations to the property. The work is completed but the homeowner never pays.

So, the basic question is “who gets the money”. Basically, to some extent “priority of registration prevails”:

1)     the first mortgage was fully advanced, and it secures the number #1 position for the principal plus the interest to the date it is paid. 

2)     The construction lien comes in second. The proceeds upon the sale are considered in part to be repayment on account of the work done and the corresponding increase in value.

3)     The Judgment assuming it was registered as an execution comes in third position.

That is what happens 99% of the time, since that is the usual scenario.

If all the money was not advanced under the mortgage, then that would affect the mortgagee’s priority. Assuming only $200,000 was advanced, then it would have priority only for the $200,000 and not the other $50,000. It still has that money.

There may be more than one lien. Some of the liens fall under the general contractor. It works like a pyramid here, with the lien claimant at the bottom having priority over the General contractor.

Executions creditors share on a pro rata basis in respect to the amount of their claims. So, if there was one execution for $10,000 and another for $20,000, they would share 1/3, 2/3 out of the amount leftover.

If there is a shortfall they would share in the shortfall based upon the same ratio.

Any excess would be paid to the homeowner. And, any deficiency would remain the obligation of the homeowner.

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 905-796-8888www.OntarioRealEstateSource.com