Canadian Mortgage Broker Magazine - Spring 2021

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SPRING 2021 $6.95

THE MAGAZINE FOR PROFESSIONAL MORTGAGE BROKERS

NEW RULES PM No. 41297283

Changes to the regulatory framework for syndicated mortgage transactions p.20

I N S I DcEourses

M B I : o n l i n e b ro ke rs ’ to e l evate ets skill s p .1 0

+

Attitude+Passion: Lessons from life's adventures p.26 Finders, Keepers Who gets to keep found treasure? p.34 Bad break-ups Separation costs when brokers leave p.16

CMBA-ACHC.CA


SHINING THE LIGHT ON NON - BANK LENDING

RESIDENTIAL MORTGAGE LENDING CRITERIA

Loan to Value up to

Loan Amount Range

Interest Rates Starting At

Retail/Office/Industrial

65%

$1 M - $75 M

6.00%

5.50%

Land (urban infill)

65%

$1 M - $65 M

6.00%

6.00%

Apartments

75%

$1 M - $75 M

5.85%

Res. Condo Inventory

65%

$1 M - $65 M

6.15%

Loan to Value up to

Loan Amount Range

Interest Rates Starting At

Single Family

65%

$500 K - $5 M

5.50%

Condo

65%

$500 K - $3.5 M

Vacation

60%

$500 K - $3.5 M

Mortgage Type

COMMERCIAL MORTGAGE LENDING CRITERIA Mortgage Type

Christine Perkins - Residential cperkins@lanyardgroup.com

Sam Fogell - Commercial sfogell@lanyardgroup.com

Phone 604.688.5388

www.lanyardgroup.com


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inside VOLUME 6 ISSUE 2 SPRING 2021

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GORD WINTRUP APPROACHES LIFE AND BUSINESS WITH AN ALL-IN ATTITUDE There’s much to learn from time spent on the water or zooming around the racetrack BY LISA GORDON

features 10 14

STRENGTHEN YOUR ‘A’ GAME New online education courses enable mortgage brokers to broaden their skill set BY LISA GORDON

LEVELLING UP Quebec’s Sylvain Poirier sees exciting changes coming for the mortgage industry, and he’s adapting at full speed BY LISA GORDON

20

CHANGES TO THE REGULATORY FRAMEWORK FOR SYNDICATED MORTGAGE TRANSACTIONS

42

DON’T MISS THE BOAT ON PRIVATE LENDING Alternative financing is emerging as the lifeboat of the mortgage industry after the COVID-19 storm

44

ROCKS FOR A CAUSE East Coast mortgage broker Nikki Carew and her mother, Susan, are rocking a creative fundraising effort to help families dealing with cancer BY LISA GORDON

What is changing and how will it impact market participants?

31

BY JASON BROOKS, DONNA SPAGNOLO, OLIVIER BUSQUE

departments

FEES, COSTS AND PENALTIES

8

Court denies mortgagee’s claim for unproven fees and charges related to overdue mortgage BY JAMES COOK

34

FINDERS, KEEPERS? Buyers find cash and gold hidden in the house they purchased BY NIKOLAUS DEMIANTSCHUK

38

UNDERSTANDING THE ROLE OF LAWYERS IN MORTGAGE TRANSACTIONS

Editorial summary 46 Advertisers Index

columns 16 Legal Ease: When brokers and franchisees break up with brokerages BY RAY BASI 26 Off the Clock: Continuing our series exploring mortgage brokers’ interests outside the office

Independent legal advice vs Independent legal representation BY MALCOLM ECCLES

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VOLUME 6 ISSUE 2 SPRING 2021

One of the fastest growing alternative lenders in Canada Ranked No.179 on Canada’s Top 400 Growing Companies by The Globe and Mail

THE CANADIAN MORTGAGE BROKERS ASSOCIATION DIRECTORS

Sylvain Poirier (CMBA-Quebec) Kim McKenney (CMBA-Ontario) Meg O’Leary (CMBA-Atlantic) Troy Resvick (CMBA-BC) EXECUTIVE DIRECTORS

• Residential •

• Commercial •

www.gentaicapital.com info@gentaicapital.com Tel: 604-396-9866 Toll-Free: 1-855-982-6699

SPECIALISTS IN INNOVATIVE MORTGAGE SOLUTIONS

Samantha Gale Petra Keller CMBA - ONTARIO Independent Mortgage Brokers Association of Ontario 7 - 40 Winges Road, Woodbridge, ON L4L 6B2

CMBA - BC Mortgage Brokers Association of British Columbia 902 - 777 West Broadway, Vancouver, BC V5Z 4J7

CMBA - ATLANTIC Mortgage Brokers Association of Atlantic Canada 12 M - 7095 Chebucto Road, Halifax, NS B3L 0A1

CMBA - QUEBEC L’Association des courtiers en hypothecaires du Quebec

CANADIAN MORTGAGE BROKER magazine is produced by the Canadian Mortgage Brokers Association (CMBA) EDITOR

Samantha Gale STAFF WRITERS

Samantha Gale Ray Basi MANAGING EDITOR

Kathleen Freimond ART DIRECTOR

Scott Laing SALES AND COORDINATION

Lalania Dykstra BILLING

Debra Hiller CONTRIBUTORS

Ray Basi Jason Brooks Olivier Busque James Cook Nikolaus Demiantschuk Malcolm Eccles Samantha Gale Lisa Gordon Donna Spagnolo IMAGES

Adobe Stock Cory Van Ieperen iStock

Email: info@achquebec.org

CANADIAN MORTGAGE BROKER © All rights reserved. The views expressed in CANADIAN MORTGAGE BROKER are those of the respective contributors and are not necessarily those of the publisher or staff. PUBLICATIONS MAIL AGREEMENT 41297283 Please return undeliverable Canadian addresses to 202-338 West 8th Ave, Vancouver, BC V5Y 3X2 Printed in Canada by Transcontinental Publishing.

Web: mandatemortgage.com Email: mandate.national@gmail.com Phone: 604-731-2899

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editorialsummary

WILL THE BUBBLE BURST? Calls to consider ways to calm Canada’s red hot real estate market BY SAMANTHA GALE

E

veryone is now used to the daily news headlines concerning the real estate market across Canada. A typical headline from April 15 reads, “A Vaughan family listed their home for well below market value. After 125 viewings and 14 offers, it sold for $458,000 over asking.” The article describes how the real estate agent cleverly advised the vendors to list it for sale well below the market value at $1,195,000 million in order to “generate interest and lead to a quicker sale.” Within a week of frenzied activity, it sold for 138 per cent of its asking price. As most people are aware, the housing market in Canada continues to set new sales activity records. Statistics from the Canadian Real Estate Association show that the number of sales transactions for March are a whopping 76.2 per cent higher than a year ago. The average selling price for a home across Canada has made an unprecedented jump by 31.6 per cent over the year and is now $716,828.

Canada is certainly not alone in witnessing this historical increase in real estate activity – other countries, such as Australia, England and Ireland, have reported similar market activity. Worldwide COVID-19 conditions have created a demand for more housing space, as workers shift to work-fromhome employment models. As the market continues to show no imminent signs of slowing down, there is now an ensuing debate about whether there will be a housing bubble and how policy-makers should respond to mitigate the effects of a potential burst. The Office of the Superintendent of Financial Institutions (OSFI) is proposing a new benchmark qualifying rate to stress test those applying for uninsured mortgages from federally regulated financial institutions. Potential additional taxes on nonresident owners and speculators continue to be debated, alongside a highly controversial and unpopular proposition of taxing capital gains on owner-occupied properties.

80,000 70,000 60,000

MONTHLY HOME SALES*

50,000 40,000 30,000

10-YEAR MONTHLY MOVING AVERAGE*

20,000

*Canada; seasonally adjusted

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JAN 2021

JAN 2020

JAN 2019

JAN 2018

JAN 2017

JAN 2016

JAN 2015

JAN 2014

JAN 2013

JAN 2012

JAN 2011

JAN 2010

JAN 2009

JAN 2008

JAN 2007

10,000

Mortgage brokers are also weighing in on challenges with suggested policy changes. Mortgage brokers report a frenzied pace for homebuyers, who often try to position themselves to make a competitive bid by spending hundreds of dollars obtaining an appraisal and inspection in advance of submitting an offer – only this is likely not enough in the current market. It can cost downwards of $1,000 just to write a competitive offer! However, if purchasers are about to make their 10th offer on a prospective home, they may very well dispense with the unsuccessful strategy of obtaining costly reports in advance and bid more aggressively on price. With multiple offers submitted on each house listing, the odds are stacked against most prospective purchasers, who often must offer a contract with no conditions at a price hundreds of thousands above the asking price to be successful. This can put the purchaser in a very precarious position. Contracts without any subjects are never preferred by lenders, who prioritize processing financing applications for contracts with subject removal dates. A desperate purchaser, after successfully obtaining a property without financing conditions, will find their application going to the bottom of the lender’s pile. Another challenge in a rapidly escalating market is with the property not appraising at the contract price due to appraisers relying on past sales records that may not reflect the new, escalated contract value of a home. Without an appraisal that supports the contract price, it may be hard to obtain property insurance on the home’s replacement value, which, in turn, will not satisfy the requirements of mortgage lenders.

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editorialsummary

Not surprisingly, mortgage lenders have reported higher instances of mortgage qualification fraud, whereby applicants overstate their income and falsify employment records. A lender recently recounted a story of one anxious mortgage applicant who readily fessed up to possessing two different sets of mortgage documents and naïvely asked the lender which set they wanted to use. For obvious reasons, the applicant was promptly turned down. Mortgage brokers have been busy educating realtors and prospective buyers on what it means to be pre-qualified. One mortgage broker recently recounted a conversation in which she went back and forth with an experienced realtor who wrongly assumed that a pre-qualification provided the purchaser with a green light to write a subjectfree contract. Shaking this view required numerous reaffirmations from the mortgage broker that a pre-approval is nothing more than a shopping guide for the purchaser, and that a firm approval requires a contract to be submitted to a lender, along with an appraisal, and a review of the financial, structural and legal integrity of the strata, condo or building, which is time consuming and not done with pre-approvals. On the policy front, many mortgage brokers and lenders have called on the real estate community to consider implementing mandatory cooling off periods, so that prospective purchasers can do their due diligence with inspections, appraisals and mortgage qualification before being committed to close on an unconditional contract of purchase. Such a model exists in the province of Quebec and various states in Australia. In Quebec, a purchaser can only avoid the mandatory subject removal period by providing evidence of sufficient cash in the bank to close on the prospective deal at the time of submitting an offer. In Australia, most states require the prospective purchaser to pay a fee to the vendor to compensate for any inconvenience. Mandatory subject periods do interfere with the parties’ freedom to contract as they wish, but if there was ever a ripe time for the real estate industry to consider such protocols, it would be now. Criticism has also been levied against closed bidding practices. With closed bidding, prospective purchasers have no way of knowing what their competition may be

... many mortgage brokers and lenders have called on the real estate community to consider implementing mandatory cooling off periods, so that prospective purchasers can do their due diligence ... offering. Two offers might come in, with one buyer at the asking price and the other, more ambitious buyer bidding wildly over asking. The alternative system is open bidding, which is more akin to an auction system and can still lead to competitive bidding with just two eager buyers, but at least open bidding informs bidders on price competition. Some have also expressed concerns about vendors who underlist their property for sale at an asking price far below market value, in order to generate a buyer frenzy, such as the Vaughn family who purposely listed their asking price well below expectations and got 125 viewings, 14 offers and $458,000 above asking.

In Australia, the concept of “underquoting” by listing agents is heavily regulated. An agent must provide a reasonable listing price that takes into account the sale prices of three recent comparable properties, and it is unlawful for an agent to advertise a price that is less than the estimated sale price or the seller’s bottom dollar. The rationale to prohibit underlisting or underquoting has its genesis in the concept of “truth in advertising,” which requires sellers to not mislead buyers – in this case, property vendors mislead prospective purchasers when they invite offers at a price that they have no intention of accepting. If real estate vendors were professional sellers (which they generally are not), such a practice would be clearly prohibited by the various consumer protection statutes in each province, which require sellers to advertise true and not misleading prices. However, perhaps it is time for “truth in advertising” requirements to be considered for licensed sales professionals who guide home sellers on advertised prices. New rules, requirements and standards should never be implemented without a compelling rationale. However, the current, anomalous COVID-19 environment exposes unprecedented risks for house hunters and clearly calls out for some kind of greater intervention in the house buying process.

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continuingeducation

STRENGTHEN YOUR

A GAME

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continuingeducation

New online education courses allow mortgage brokers to broaden their skill set while fitting learning into their busy schedule BY LISA GORDON

M

ortgage brokering in Canada is undergoing a transition. Recent rulemaking across the country is holding brokers to a higher standard, and it’s time for the profession to level up. That’s the message from the Canadian Mortgage Brokers Association (CMBA) and the Mortgage Brokers Institute of British Columbia (MBIBC), which have joined forces to offer a new online continuing education platform developed especially for mortgage brokers. The industry associations say every mortgage broker in the country has a role to play in elevating the profession. The best way to do that is through a commitment to continuous education, a process that builds knowledge and skills to prevent stagnation and complacency. “Never be satisfied with being as smart today as you were yesterday,” said Ray Basi, education director with MBIBC. “You are more valuable to your marketplace and increase your integrity when you really know what you’re talking about and take pride in giving good advice.” As a self-described “perpetual student,” Basi is the architect of many of the new online courses being offered through the new mortgage broker education site, formally launched in February 2021. Until now, there’s been no single source for online education in the mortgage industry. Different regions across the country offer some specialized courses, but this project represents an exciting industry first. “We understand that industry education is vital to a successful, healthy mortgage broker and lending industry,” said Samantha Gale, CEO of CMBA-BC and MBIBC. “This new platform is the direct result of industry collaboration between mortgage industry professionals at CMBA, MBIBC and CMBA-Ontario. The educational opportunities presented here will help mortgage brokers across the country to learn and grow their careers.” Now, mortgage professionals of all experience levels will be able to find

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educational opportunities with a simple click. From introductory concepts to content for more seasoned industry veterans, the offerings are broad in scope. In addition to mortgage math and business and marketing tips, examples of available courses include: Canada Revenue Agency Super Priorities, Tax Risks in Buying from a Non-Resident, Second Mortgage Strategies, Mortgage Application Fraud and Anti-Money Laundering for the Mortgage Industry. “These are all programs that were completed because of live issues,” said Basi, who said enrolment fees are minimal to cover the cost of course development. “We look around to see the need. Has the Supreme Court just said something brokers need to know about?” He added that courses fall into three categories: practical, technical and policy education. Some take as little as 30 minutes to complete, while others require an investment of two to three hours. Currently, there are 24 English courses and nine French programs available on the new website (https://courses.cmba-achc.ca).

STRENGTHENING THE INDUSTRY According to Gale, much of the momentum to create the new mortgage broker education platform came from CMBA Ontario, headed up by president and education chair Kimberlee Freeman and executive director Petra Kellar. The two say the industry is hungry for knowledge and education. “We want to bring strength to the industry,” said Freeman. “When I get new agents, they are lost. Their previous job may not have been in finance. They might have the basic skills, but they don’t know how to put it all together. While it is the brokerage’s responsibility to train, this is a great place to continue with additional training.” Kellar agreed that much of the course content is focused on new mortgage agents, although there is some programming that is universally applicable to all, including ethics and refresher courses. The pair worked with CMBA’s national office and MBIBC to implement an agenda,

overcome hurdles and see the project through to fruition. Freeman is excited about this new resource for CMBA members. She said a commercial has been produced to highlight the benefits of the site, noting that programming will be tailored to compliance variations in different provinces. Loren Hawkins, president of MBIBC and national manager, Broker Relations at ThreePoint Capital in Kelowna, B.C., said all partners in the project are dedicated to increasing the competency level of the industry. As a sister association to CMBA-BC, MBIBC already provides the ongoing education and re-licensing platform for B.C. mortgage brokers. Hawkins said the board was discussing ways to expand the organization’s reach within the industry. “We thought, ‘Why don’t we form a partnership that gives brokers outside B.C. access to our course catalogue?’ It was only fitting to speak with CMBA National.” He worked with Gale to push the idea forward and said that, thanks to many people, the plan has come together in less than a year. “We were able to move fairly quickly because of our existing course catalogue. We had to choose a delivery program and then ensure it was up to the new coding standards. The biggest piece was the translation.” Now that it has officially launched, Hawkins encouraged all CMBA members to visit the continuing education website. “The whole point of CMBA is to help each other,” he concluded. “Our courses can benefit other branches of the association, and we are looking at sharing content from other provinces, too.” CMBA Ontario’s Kellar summed up the project’s raison d’être. “We are trying to provide tools and support,” she said. “This is education that has never been provided before. This is not just about a number of courses. It puts everything together that you need to know. If you want to level up, there are advanced courses, lead generation, compliance – a huge library for you as your career advances.” CMB MAGAZINE

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achqchair

Quebec’s Sylvain Poirier sees exciting changes coming for the mortgage industry, and he’s adapting at full speed. His future plan combines 25 years of valuable experience with a wealth of new knowledge and a global perspective that informs tomorrow’s business models. BY LISA GORDON

LEVELLING B

y age 55, many people are eagerly anticipating retirement, looking forward to the day when they can leave the rat race behind. Not Sylvain Poirier. After 25 years in the mortgage industry, he’s just reaching full speed. Poirier is president of PrêtsHypothèque.ca, a Dominion Lending franchise with 20 brokers in Brossard, Que., as well as the administrator of Socium Solutions, a private lending portfolio with a focus on construction financing. As chair of CMBA’s Quebec chapter, l’Association des courtiers hypothécaires du Québec (ACHQ), Poirier is no stranger to juggling a full slate of professional commitments with a busy family life and multiple hobbies. That’s why some people were surprised last year, when he decided to enrol in a demanding MBA program at the University of Quebec in Montreal. “People were surprised that I was thinking about going back to school at age 55,” he says. “But the mortgage business is changing. We’re into new models, and we can’t do business the same way.”

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“I don’t believe in being young at heart. My heart is old; but my brain, it is 25 – it wants to learn.” Sylvain Poirier, President of PrêtsHypothèque.ca

Now, a little more than halfway through his MBA program, Poirier said the experience – which he likened to an “extreme sport” – has been invaluable. “I had a view of my business and my market in Quebec, and had been on several boards, but this MBA is giving me a global view. It’s taken me onto the space shuttle and is showing me the planet!” As the oldest student in his class, Poirier has rolled up his sleeves and jumped into the program with gusto, devoting his down time to learning about new technologies, updated accounting and economics models, and IT applications for business. “The MBA was on my bucket list,” he explained. “It’s very useful for my business and for ACHQ as well. I started it for myself, for my business partners and for the association. They deserve to have a good administrator, someone who knows the new business models. At the end of the day, I am a better administrator, a better chair and a better person.” Pursuing his dream hasn’t come without sacrifice. Poirier said the program is demanding, but worth every moment.

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UP

“I spend 15 to 20 hours per week on the MBA, so I have to manage my work and my family. Sometimes I have to make choices. This year, I didn’t have time to put up Christmas decorations. In summer, I prefer to have longer grass in my backyard while I work on my MBA or spend time with my daughter. I manage my time properly.”

ELEVATING THE PROFESSION Poirier is a passionate promoter of mortgage brokering, noting that it’s about much more than sales. “I want to elevate how the public sees our business,” he said. “That’s the reason why I’m the Quebec chair of ACHQ. Some see us as realtors, but there are two different DNAs here. I want to make this distinction to elevate this business. Education takes us to another level.” Poirier predicts a future where two large firms will control mortgage brokering in Canada. “They will attract clients through the simplicity of their offer. Applications will work with AI (artificial intelligence). You’ll be able to point clients to the best broker for their

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situation. Renewals will be initiated through an automated system that will help agents reach out to clients and close deals.” IT performance will be the cornerstone of success in the future, he believes, as AI employs data to develop and keep customer loyalty. Programs will be able to read a mortgage application, confirm the appraisal and income, and process CMHC auto approvals. “The process has to work for the client,” said Poirier. “Within a couple of years, a mortgage broker will be able to issue a commitment in 30 minutes if there is no appraisal required. That is my opinion. We’ll be able to issue a commitment without an underwriter, with just a credit report and client documents.” He added that, in the future, lenders and brokerages will need people with new degrees and new business knowledge. “That’s one of the reasons I went back to school.” With his MBA finishing this December, Poirier is looking forward to bringing a powerful combination of earned experience and new wisdom to his work. In the meantime, he allocates precious time to his business, his studies, his family and his hobbies. The latter category includes a

huge collection of vinyl LPs, two motorcycles and two sports cars in the garage. “If you look from the outside, you’d say, ‘This guy will die from a heart attack.’ I get up at 5:30 a.m. and go to bed at 9:30 p.m. I never work on the weekends, although I do MBA work then.” While he admitted it “takes an effort to concentrate as a student” and cracking the books “brings him out of his comfort zone,” Poirier has the respect of his fellow classmates, who chose him to lead a company they are creating as part of an assignment. The work is worthwhile to the well-known Quebec mortgage professional, who pursues personal improvement with a singular determination. “I don’t believe in being young at heart. My heart is old; but my brain, it is 25 – it wants to learn.” Being coachable is the single most important factor to self-improvement, believes Poirier. “I still have years to work and there are a lot of exciting changes coming,” he concludes. “I don’t want to miss this train! For me, retirement will be the day I die, because I love what I’m doing.” CMB MAGAZINE

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legalease

SEPARATION COSTS

Establishing the right agreement from the outset can be cheaper and easier than resolving later differences BY RAY BASI, J.D., LL.B., STAFF EDUCATION AND POLICY REVIEW

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THE PROBLEM What happens when a broker leaves a brokerage, or a franchisee a franchisor, before the end date provided in a contract? Is the broker or franchisee liable to pay the departure fee provided in the contract? Are there circumstances where the fee is not payable or a lesser-than-provided fee is payable? Carefully addressing this matter at the contracting stage rather than at the exiting stage can avoid surprising, and sometimes shocking, outcomes.

THE PRINCIPLES Courts start with the principle of freedom of contract, parties are entitled to determine the terms of their relationship. However, the Supreme Court of Canada has confirmed the courts’ equitable jurisdiction to intervene to set aside oppressive or unconscionable contracts: Elsley v. J. G. Collins Insurance Agency Inc. [1978] 2 S.C.R. 916. This really is nothing more than the Court recognizing that sometimes more powerful parties will impose rather than negotiate their relationships with others. This can sometimes result in extremely unfair arrangements. The courts will use their jurisdiction to do fairness and justice to provide balance to the arrangement. As an extreme example to demonstrate the point, the courts are unlikely to enforce a term where a salaried broker agrees to a 30-year term and to never ask for a raise. The courts’ ability to do fairness extends to reviewing the amount of damages a contract provides as payable if the broker or franchisee leaves an agreement before the end date specified in the contract. The Supreme Court of Canada confirmed courts have an equitable jurisdiction to intervene to set aside agreements fixing damages at excessive and objectively unreasonable amounts: Thermidaire Corp. v. H.F. Clarke Ltd., [1976] 1 S.C.R. 319. This really is nothing more than the Court recognizing that a stronger party should not be permitted to tie a weaker party to an unfavourable contract by making it unreasonably expensive to leave. Again, the Court will use its equitable jurisdiction, the

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legalease

jurisdiction to do fairness and justice, to provide balance. As an extreme example to demonstrate the point, the courts are unlikely to enforce a clause where an employee is paid $50,000 a year for four years and has to pay $300,000 to leave the contract early. In deciding whether to enforce the amount of damages provided in a contract, the court will consider whether the amount is liquidated damages or a penalty clause; it will enforce the former but not the latter. A liquidated damages clause contains a genuine pre-estimate of the expected loss a party will suffer if there is a breach of contract. The estimate is made on facts at the contracting stage. Accordingly, a liquidated damages clause: n expresses the genuine intention of the parties that the stipulated sum approximates expected losses; and n is reasonable under these circumstances. In contrast, a penalty clause is intended not to compensate the wronged party for their loss but rather to intimidate or threaten a party into performing its contractual obligations. So, when is a damages clause a penalty clause? The primary factor is if it provides excessive, extravagant or unconscionable damages compared to the greatest possible loss that might be suffered. The purposes of damages for breach of contract are to compensate, not reward, the wronged party. While parties are entitled to agree to a preestimate of this loss, a stronger party cannot simply exert its will onto a weaker party. Courts will not enforce a clause where there is little or no evidence of: n a method in arriving at the figure provided in the contract; and n the figure provided in the contract being reasonable. That said, a court that refuses to enforce a damages clause on the basis it is a penalty clause can nevertheless compensate the wronged party for damages suffered and proved.

CASE IN POINT A recent case from the Ontario Small Claims Court provides an excellent

example of these principles being applied to a situation similar to a mortgage broker/ mortgage brokerage relationship. The case is Lamba v Gurung, 2018 CanLII 64439. A real estate brokerage signed a twoyear contract with a newly licensed real estate agent. The brokerage was to provide support and hands-on training to the agent. The brokerage was hoping to benefit from the agent developing a client base.

the parties at the time of contracting. The amount in the contract was not a predetermination of loss but rather a penalty; it did not use expected damages as a reference point. Of note is that the Court also considered the training provided by the brokerage to be not impressive, lacking depth and quality, and not what the agent had bargained to receive.

The tactic of including overly ambitious damages in an agreement to intimidate the other party can backfire where a broker or franchisee pushes the matter to litigation. If the broker or franchisee is successful in court, the order for litigation costs can be sizable. The contract provided that if the agent left before the two-year term ended, all current projects and clients became property of the brokerage. Further, if the agent quit within: n six months of the contract starting, the agent would pay $20,000; n between six months and one year of the contract starting, the agent would pay $15,000; and n between one and two years of the contract starting, the agent would pay $10,000. The agent quit about eight months into the contract. The brokerage claimed the agent was liable to pay the agreed upon $15,000. The agent claimed the damages clause was a penalty clause and accordingly was not enforceable. The Court agreed with the agent and declined to enforce the clause. The purpose of the clause was to penalize the agent if he chose to resign and to keep him bound to the brokerage. The amount of damages provided was extravagant and unconscionable compared to the greatest potential loss that could have reasonably been contemplated by

Although the Court refused to enforce the damages clause, it did award the brokerage the damages it had proved: membership fees, desk fees (overhead), lead generation and office expenses.

TAKEAWAYS Brokers and brokerages, as well as franchisees and franchisors, should provide a genuine, pre-estimate of damages in a damages clause. Perhaps some wording should be provided as to how the amount was determined. An overambitious brokerage or franchisor may find itself deprived of the ability to enforce the damages clause if the clause is determined to be a penalty. The tactic of including overly ambitious damages in an agreement to intimidate the other party can backfire where a broker or franchisee pushes the matter to litigation. If the broker or franchisee is successful in court, the order for litigation costs can be sizable. All parties should read agreements carefully and receive legal advice. Establishing the right agreement from the outset can be cheaper and easier than resolving later differences. CMB MAGAZINE

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syndicatedmortgages

SIGNIFICANT CHANGES TO REGULATORY FRAMEWORK FOR SYNDICATED MORTGAGE TRANSACTIONS

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syndicatedmortgages

BY JASON BROOKS, DONNA SPAGNOLO, OLIVIER BUSQUE

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fter several years of consultation, significant changes to the Canadian regulatory framework applicable to syndicated mortgage transactions became effective on March 1, 2021 in all provinces other than Ontario and Québec. Changes in Ontario and in Québec are expected to become effective on July 1, 2021. The changes are focused on amendments to the registration and prospectus exemptions applicable to the distribution of syndicated mortgages under securities laws that are designed to enhance investor protection for investors in syndicated mortgages and bring significant (but not complete) harmonization to the rules of the Canadian Securities Administrators (CSA) in this area. In Ontario, these amendments are accompanied by a transfer of primary regulatory oversight over certain non-qualified syndicated mortgages from the Financial Services Regulatory Authority of Ontario (FSRA) to the Ontario Securities Commission (OSC). Although the changes will impact all Canadian jurisdictions, they will have the biggest impact in Ontario, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island and the Yukon. The new rules will require parties involved in syndicated mortgage transactions to carefully review their activities and, in some cases, adjust their activities to ensure compliance with available prospectus exemptions and securities law registration requirements, in addition to the requirements under mortgage brokerage and dealer licensing and registration legislation.

BACKGROUND – WHY DO SECURITIES LAWS APPLY TO MORTGAGE TRANSACTIONS? The CSA define a “syndicated mortgage” as a mortgage in which two or more persons participate, directly or indirectly, as lenders

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in the debt obligation that is secured by the mortgage. Although it may come as a surprise to some, a mortgage is a “security” within the meaning of Canadian securities laws. As such, a syndicated mortgage transaction will involve the distribution of a security and must therefore either be qualified for distribution under a prospectus filed with securities regulators or, more typically, be issued pursuant to an exemption from applicable prospectus requirements. In addition, any person or company involved in a syndicated mortgage transaction who is considered to be in the business of trading or dealing in securities must either be registered or exempt from registration as a dealer (or a dealing representative of a registered dealer) in an appropriate category of registration in the jurisdiction in which the syndicated mortgage is issued or traded. The application of the above concepts to a particular syndicated mortgage transaction can be challenging.

Who is the “issuer” of a syndicated mortgage? Under securities laws, the issuer of a security is principally responsible for ensuring compliance with applicable prospectus requirements or exemptions and related reporting requirements. In a typical private placement transaction where a company raises capital through the issuance of its shares, it is clear that the company is the issuer of the shares; however, identifying the “issuer” of a syndicated mortgage can be more complicated. Guidance from the CSA indicates that, where a borrower enters into a mortgage with two or more persons participating as lenders under the debt obligation secured by the mortgage or enters into a mortgage with a view to the subsequent syndication of that mortgage to two or more purchasers, lenders or investors, the borrower is the issuer of the CMB MAGAZINE

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mortgage. However, the CSA also states that there may be circumstances where a person other than the borrower may be an issuer of a syndicated mortgage. For example, where an existing or committed mortgage is syndicated among lenders by a party acting on behalf of the borrower, that party will generally be an issuer of the syndicated mortgage. Accordingly, the determination of the identity of the issuer or issuers of a syndicated mortgage will depend on the facts and circumstances of each transaction.

Do the parties involved require dealer registration (in addition to any required mortgage broker or dealer licensing or registration)? In some cases it may be unclear whether the parties involved in a syndicated mortgage transaction will be considered to be in the business of trading or dealing in securities such that registration or an exemption from dealer registration is required, a determination that is made independent of the application of mortgage brokerage and dealer licensing and registration requirements.

under securities legislation and licensing or registration under mortgage brokerage or dealer legislation may be required.

PRE-IMPLEMENTATION TREATMENT OF SYNDICATED MORTGAGES UNDER CANADIAN SECURITIES LAWS Securities laws in all Canadian jurisdictions contain exemptions from the prospectus requirement and the dealer registration requirement that apply to any transaction involving a trade in a mortgage on real property made by a person or company registered or licensed or exempt from registration or licensing under mortgage brokerage or dealer legislation in the jurisdiction where the mortgaged property is located (the “mortgage exemptions”). While the mortgage exemptions are available in all Canadian jurisdictions, under the rules existing prior to the changes described in this bulletin the availability of the exemptions for syndicated mortgage transactions differed from one jurisdiction to another. In Ontario, Newfoundland and Labrador, the Northwest Territories, Nova Scotia,

In a typical private placement transaction where a company raises capital through the issuance of its shares, it is clear that the company is the issuer of the shares; however, identifying the “issuer” of a syndicated mortgage can be more complicated. The assessment of whether dealer registration is required is a principle-based assessment that some will find difficult to apply in the context of syndicated mortgage transactions, in particular in situations where the parties involved may view themselves simply as “co-lenders” rather than acting in the capacity of a dealer. As a result of the amendments described, certain exemptions previously available in connection with syndicated mortgage transactions have been removed, as described below. In some circumstances, dealer registration 22

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Nunavut, Prince Edward Island and the Yukon (the Group 1 Jurisdictions), the mortgage exemptions existing prior to the changes described in this bulletin apply to the offering of any type of mortgage transaction, whether one lender or multiple lenders are involved. Accordingly, in the Group 1 Jurisdictions prior to these changes, prospectus and registration exemptions are available for any mortgage transaction involving a person or company registered or licensed or exempt from registration or licensing

as a mortgage broker or dealer, regardless of the details of the particular mortgage or purchasers involved. In contrast, in Alberta, British Columbia, Saskatchewan, Manitoba, Québec and New Brunswick (the Group 2 Jurisdictions), the mortgage exemptions are only available to mortgage transactions involving a single lender and are not available for mortgage transactions where two or more persons participate, directly or indirectly, as lenders. As a result, in the Group 2 Jurisdictions, parties involved in a syndicated mortgage transaction may not rely on the mortgage exemptions and must ensure that an alternative prospectus exemption is available and, where applicable, either rely upon an alternative dealer registration exemption or involve a registered dealer. In certain of these jurisdictions, including British Columbia and Alberta, local prospectus exemptions and in some cases, registration exemptions are available for transactions involving certain types of syndicated mortgages or purchasers.

WHAT IS CHANGING AND HOW WILL IT IMPACT MARKET PARTICIPANTS? Effective March 1, 2021 (except in Ontario and in Québec where the changes are expected to become effective on July 1, 2021), the regulatory framework applicable to syndicated mortgage transactions in Canada has changed (or in the case of Ontario and Québec, will change) in the following ways:

1. General mortgage prospectus and dealer registration exemptions no longer available In the Group 1 Jurisdictions, the mortgage exemptions described above will no longer be available for syndicated mortgage transactions. As a result, in these and all other Canadian jurisdictions the parties involved in a syndicated mortgage transaction may not rely on the mortgage exemptions and must ensure that an alternative prospectus exemption is available and, where applicable, either rely upon an alternative dealer registration exemption or involve a registered dealer. Of note, in most cases, the alternative prospectus exemptions relied upon will require the issuer to file with the relevant regulatory authority(ies), a report of exempt


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syndicatedmortgages

distribution disclosing details of the transaction and pay the applicable regulatory filing fees within 10 days of each transaction. Further, the parties involved in facilitating syndicated mortgage transactions in the Group 1 Jurisdictions will need to carefully consider whether their activities will trigger the application of securities law dealer registration requirements. Parties involved in syndicated mortgage transactions as part of their business may be required to apply for and obtain registration as a dealer or engage the services of an appropriately registered dealer. The transition could result in a material increase in costs and trigger the application of the full range of regulatory requirements applicable to registered firms and individuals.

2. “Private issuer” prospectus exemption no longer available In all jurisdictions, the “private issuer” prospectus exemption found in section 2.4 of National Instrument 45-106, which does not require the filing of a report of exempt distribution or payment of applicable regulatory fees, will no longer be available in connection with the distribution of a syndicated mortgage. By prohibiting reliance on the private issuer exemption and therefore requiring reliance on exemptions that include a reporting requirement, the CSA hopes to gather additional information about the syndicated mortgage market to enable them to better monitor and regulate this market going forward.

3. Changes to “offering memorandum” prospectus exemption In all jurisdictions, the “offering memorandum” prospectus exemption found in section 2.9 of National Instrument 45-106 will be amended to introduce a number of additional requirements that apply when the exemption is used to distribute syndicated mortgages. Among other things, these amendments will require the use of a modified form of offering memorandum and the delivery of an appraisal of the current fair market value of the property.

4. Introduction of new (or amendments to existing) local exemptions for certain transactions In conjunction with the above changes, securities regulators in certain jurisdictions will introduce or amend local prospectus and/or dealer registration exemptions applicable to certain syndicated mortgage transactions. Although these local exemptions have been substantially harmonized, the details vary by jurisdiction. In general, they provide prospectus exemptions and in some cases, dealer registration exemptions (a) for syndicated mortgages purchased by certain types of institutional or high net worth investors (generally referred to either as “permitted clients” or “institutional investors”), or (b) for certain types of syndicated mortgages viewed as being lower risk (referred to as “qualified syndicated mortgages”).

The combined effect of these changes is that the FSRA will retain oversight over distributions of “qualified syndicated mortgages” (as defined by OSC Rule 45-501), and of other syndicated mortgages to “permitted clients” (as defined under National Instrument 31103) under the MBLAA regime, and the OSC will assume oversight over other syndicated mortgage transactions under Ontario securities laws. In some circumstances, the OSC and FSRA will share oversight.

KEY TAKEAWAYS All parties participating in syndicated mortgage transactions in Canada should carefully review their practices to ensure compliance with securities laws, in addition to the requirements under mortgage brokerage and dealer licensing and registration legislation. In some cases, the new rules will require material changes to existing business

In some cases, the new rules will require material changes to existing business practices, involve significant additional costs and require compliance with a range of new regulatory requirements.

Participants in syndicated mortgage transactions will need to carefully review and understand these exemptions to confirm their application to their activities. Of note, except in certain limited circumstances, these exemptions will require the filing of a report of exempt distribution and payment of regulatory filing fees. In addition, in certain jurisdictions these local exemptions provide exemptions only from applicable prospectus requirements and securities law dealer registration requirements will continue to apply. In Ontario, implementation of the changes to securities laws described above will be enacted concurrently with changes to the regulations under the Ontario Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA).

practices, involve significant additional costs and require compliance with a range of new regulatory requirements. We expect securities regulators to monitor this market closely moving forward to ensure compliance with the new rules. Borden Ladner Gervais LLP (BLG) is the largest truly full-service Canadian law firm. Jason Brooks (partner) provides counsel on a wide range of registration, regulatory and compliance matters; Donna Spagnolo (partner) practices corporate law, especially as it relates to the highly regulated insurance and investment management industries. Olivier Busque practices in the areas of securities law and corporate and commercial law. More information: blg.com CMB MAGAZINE

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“DRIVE IT

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Mortgage professional Gord Wintrup discusses his passion for boating, flying and fast cars BY LISA GORDON

LIKE YOU STOLE IT”

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n 2021, Gord Wintrup plans to cut his work week to threequarter time, or about 40 hours a week. At age 76, the president of Bayfield Mortgage Professionals says the office is beginning to cut into his boating time – and that just won’t do. Wintrup joined the mortgage industry in 1971 and is fond of saying he pre-dates British Columbia’s Mortgage Brokers Act. He founded Langley-based Bayfield Mortgage Professionals in 1982, a firm that today manages a large mortgage investment corporation as well as several sub-mortgage brokers who originate “A” loans with banks, credit unions and trust companies. Wintrup approaches life – and business – with an all-in attitude. The long-time mortgage professional is dedicated to his work, but that’s certainly not the only thing that makes him tick. As he gradually hands the reins at Bayfield Mortgage Professionals to his partner, Inder Matharu, he’s increasingly focused on his other passions. After his three grandchildren, the list includes boating, fast cars and even the occasional airplane. From June through September, Wintrup can be found cruising aboard My Fair Lady, his 38-foot, diesel-powered, wooden cabin cruiser. He bought the boat in 2008, resurrecting a passion he discovered as a teenager working on private yachts. After an extensive renovation, the cabin cruiser – nicknamed “Papa’s boat” by his grandchildren – was ready for its first Wintrup family adventure. “I took it up to Alaska, and flew my wife and my kids and my grandkids into Ketchikan to meet me,” he recalls. “They came on board and we cruised up to Petersburg. We were in a small fishing

village for my granddaughter’s birthday, and I have a tradition of getting them ice cream every year on their birthdays. Trying to find ice cream in Petersburg, Alaska, was not an easy chore!” My Fair Lady was built in the backyard of its original owners, a West Vancouver couple, between 1959 and 1963. Wintrup adores the craft, spending at least six full weeks on the water each summer. Long before COVID-19, he enthusiastically adopted the principles of remote work. “Boating is my first love, but also cars,” he says. “My boat is not a fast boat; I cruise at nine knots. But I do like cars that bark and go fast. You name it, I’ve owned it.” Wintrup’s garage currently houses a few treasures, including a 525-horsepower Nissan GT-R that he races at least twice a year – although he also drives it to and from work all summer. “When you’re at the starting line of a race, you’re always a little apprehensive or nervous,” he reflects. “But when you get going, your head automatically clears. Everything is gone except for that track.” He is also the proud owner of a 1963 Studebaker Avanti, a rare sportscar built only in 1962 and 1963. Wintrup’s champagnecoloured model is number 142 off the assembly line and carries the signature of legendary designer Raymond Loewy in the glovebox. “I’ve driven the wheels off that car,” recalls Wintrup. “I’ve driven Route 66 two ways in it. I have memories of the Avanti outside the Elvis museum in Tupelo, Mississippi; I drove it to the NASCAR garages in Charlotte, N.C., and then to the track at Charlotte Motor Speedway, where I took Richard Petty driver training. Today, I

Gord Wintrup is always looking for the next adventure and as he gradually hands over the reins at Bayfield Mortgage Professionals he is increasingly focused on his other passions. His grandchildren top the list followed by boating, cars and the occasional airplane.

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don’t drive the Avanti as much any more, but I put 20,000 miles a year on the GT-R.” Wintrup is also rebuilding a 1979 El Camino, which he last had on the road around 2006. “It’s going to be super modified. I have a bunch of parts hanging around, and I’ll probably drop it down to the ground and put it on the car show circuit.”

A card-carrying member of the BC Hot Rod Association, the Studebaker Drivers Club, the Deep Cove Yacht Club, and Past Commodore of the Classic Yacht Association, Canadian Fleet, Wintrup stays connected to his favourite pastimes. There’s much to learn from time spent on the water or zooming around the racetrack.

“We heard three maydays from three different boats. I had my buddy get the survival jackets because I thought we were going to roll it. All I could see was white caps, and the wind was gusting to 70 kilometres per hour. The old gal came through, but there was water everywhere.” While he’s at home on the water or on the racetrack, Wintrup is no stranger to the air. He’s the past president of the Canadian Museum of Flight in Langley, and is currently heading up a fundraising effort to get a 1942 Harvard, a Second World War training aircraft, back into the air. Over the years, Wintrup has put his passions to good use. In 1998, he was part of a group that started a popular car show in downtown Langley to help attract visitors to downtown shops. A survey done in 2000 found the event contributed $4.5 million a year to the local economy and had raised more than a million dollars for local charities.

One of Wintrup’s most memorable lessons came during a 2009 boating excursion from Vancouver to Pender Harbour. “I was with a buddy of mine out there, halfway to Texada Island, when a bad storm came up. Should we turn back or keep going? I elected to keep going; it got very rough. We heard three maydays from three different boats. I had my buddy get the survival jackets because I thought we were going to roll it. All I could see was white caps, and the wind was gusting to 70 kilometres per hour. The old gal came through, but there was water everywhere. “The lesson here was never, ever, push the envelope. I’ve always pushed myself to

my full capacity. But the experiences I’ve had, the lessons I’ve taken, everything came to fruition at that one moment, and I never want to push it again. I have a great deal of respect for the water.” Wintrup loves the mortgage business and says he may never fully retire, although he is dialling back his daily involvement. He’s a big supporter of giving back to the community and helping those who are less fortunate. Bayfield Mortgage Professionals sponsors a family every Christmas, spending several thousand dollars to equip them with food and gifts. It participates in school food hampers and supports other local causes. Wintrup leads a busier life than many people half his age, but he always operates at full throttle. “I still think I have the life of a 46-yearold,” he laughs. “But sometimes my body says, ‘What are we doing?’” Despite his many pastimes, Wintrup is most passionate about sharing memorable experiences with his three grandchildren. “I try to be a cool Papa. About five years ago, I took the grandkids and a couple of their friends and did a survey on who makes the best doughnuts in the Comox Valley. We ended up in a bunch of bakeries. By the time we finished, I had to take them on a hike because they were on a sugar high!” Adventure comes in all shapes and sizes, and Wintrup jumps right in. He’s ridden camels and slept in the Sahara Desert. He’s led a group of B.C. mortgage professionals to Australia for an industry conference, and goes flying with friends when the mood strikes. His approach to fast cars sums up his approach to life: “If you can’t drive it like you stole it, don’t own it!” There’s plenty of track to go, and Wintrup isn’t done driving yet. This interview with Gord Wintrup continues our series Brokers off the Clock. In every issue, we ask a mortgage broker to tell us what they like to do when they’re not behind a desk. Be it driving fast cars, travelling to exotic places or researching your family roots, we want to know how you unwind. Would you like to be profiled in a future edition – or suggest a fellow mortgage broker? Contact info@cmba-achc.ca

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protectingborrowers

FEES, COSTS AND PENALTIES Court denies mortgagee’s claim for unproven fees and charges related to overdue mortgage BY JAMES COOK

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ortgagees suing to recover amounts owing under a mortgage in default should not expect a court to rubber stamp the amounts claimed for fees, costs and penalties that are alleged to be owing on top of the principal and agreed-upon interest. In BMMB Investments Limited v. Naimian, 2020 ONSC 7999 (CanLII), Justice F.L. Myers of the Ontario Superior Court of Justice took the opportunity in a summary judgment decision

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brought by a mortgagee to assess the evidence (or lack thereof) filed in support of the fees, costs and penalties claimed. The facts of the case were straightforward. The defendant had entered into a mortgage with the plaintiff mortgagee for a principal amount of $1.6 million. The defendant defaulted and the mortgagee brought a motion for summary judgment, which was heard in December 2020. There was no serious issue raised as to the defendant’s liability for the mortgage debt and interest at the

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rate set out in the mortgage documents. The legal fees claimed by the mortgagee’s lawyer were found to be reasonable, due and owing under the mortgage. However, Justice Myers found several issues with regard to the fees, costs and penalties claimed by the mortgagee. Firstly, the mortgagee claimed reimbursement from the defendant for a number of disbursements that were allegedly incurred in enforcing the mortgage, including “property maintenance and management” fees, two appraisals, a corporate search, PPSA renewal and HST on fees. However, none of the alleged disbursements were supported by invoices filed by the mortgagee, and there was no basis to assess whether the costs were incurred in the amounts claimed, let alone whether the alleged expenditures were reasonable. Justice Myers was concerned about the lack of evidence in such circumstances and reasoned as follows: I have no basis to form any conclusion about the expenditures for which reimbursement is claimed in this case. Claims for costs reimbursement in mortgage enforcement are susceptible of abuse. Service providers who know that their lender clients will pass on their invoices to their borrowers may be incentivized to charge above-market rates. It does no injustice to any plaintiff to require it to adduce evidence to support disbursements for which it claims reimbursement. 32

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As no evidence is adduced by the plaintiff to support any of the costs for which it claims reimbursement, none is allowed. Secondly, the mortgagee claimed fees for “stopped payment processing,” “default processing,” “discharge fees” and “late fees.” Justice Myers outlined several concerns with the fees claimed: n As a matter of contract, there should be evidence of the occurrence of the event for which the contract allows a fee to be charged. n Fees charged may be unrelated to a genuine pre-estimate of damages to be incurred by the lender on the occurrence of the specified event, in which case, the fee may be an unenforceable “penalty” at common law. n Excessive fees can mask increased interest charged on a mortgage default in violation of the prohibition in section 8 of the Interest Act, which provides that no fine, penalty or rate of interest shall be required on any arrears of principal or interest secured by mortgage that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears. Similar to the issues with the disbursements claimed, Justice Myers was concerned with the lack of evidence filed by the mortgagee in support of the fees. While there may often be good business reasons for costs to be estimated in advance and fixed in a contract, the fees and charges levied

on a mortgage default must be genuine pre-estimates of costs actually incurred by a lender rather than penalties. Otherwise such charges may violate section 8(1) of the Interest Act, which provides as follows: 8 (1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property or hypothec on immovables that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears. Courts will generally disallow charges that violate this section: P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331 (CanLII) at para 96. In the motion at hand, the fees claimed by the mortgagee were disallowed due to the absence of evidence that the fees were either a genuine pre-estimate of damages suffered by the lender or that the charges reflected real costs legitimately incurred by the mortgagee for the recovery of the debt, in the form of actual administrative costs or otherwise. The decision reflects an overriding concern with protecting borrowers from being faced with unproven claims for fees and charges allegedly owing under a mortgage in default. Justice Myers described the balancing of interests between lenders and borrowers that ought to be considered in such cases: An approach that regards mortgage fees

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protectingborrowers

with suspicion works no hardship on lenders. The common law has done so for centuries to protect the weaker party from fees that over-compensate the stronger party on a claim of breach of contract. Should it not be assumed that in setting its interest rate and other terms under the mortgage, the lender has included in its calculus its cost of doing business? A lender’s ability to hive off from the daily work of its account clerks the specific increased burden caused by an individual mortgagor’s default is a dubious proposition at best. I can understand that a lender who wishes to compete may want to reduce its interest rate by excluding some of its extraordinary costs and then charge those costs specifically only to those borrowers whose defaults cause those costs to be incurred. That is perfectly legitimate. But in that case, it behooves the lender to be able to prove with evidence that it incurred the costs that it seeks to charge to the individual borrowers. Absent proof of specific costs being incurred, the costs are rightly subsumed in its ordinary costs of doing business. Lastly, Justice Myers assessed the claim for a charge of three months’ interest owing (which amounted to $41,000), which the mortgagee attempted to levy because payment of the mortgage was not made on the due date. Section 17 of the Ontario Mortgages Act expressly allows a borrower who

is in default to repay the principal of the mortgage on giving three months’ notice to the lender or paying three months’ interest in lieu of notice, despite any terms of a mortgage that may provide otherwise.

had any relationship to any costs incurred by the mortgagee. Mortgagees seeking to collect on an overdue mortgage would do well to carefully review the decision and determine

Mortgagees seeking to collect on an overdue mortgage would do well to carefully review the decision and determine which fees, costs and penalties they wish to claim, and to ensure that the requisite evidence is filed in support. The purpose of this term is to allow a borrower who is in default to pay off the mortgage and provide a reasonable period of time for the lender to look for alternative investments. However, the three-month repayment right does not mean that a mortgagee is entitled to charge a borrower an extra three months’ interest when collecting on an overdue mortgage. In such circumstances, imposing the charge amounts to a disguised form of penalty violation of section 8 of the Interest Act. Justice Myers denied the three months’ interest charge on the basis that there was no evidence that it

which fees, costs and penalties they wish to claim, and to ensure that the requisite evidence is filed in support. In some cases, it may not be worth incurring the expense of attempting to prove each and every amount claimed. James Cook is a partner at Gardiner Roberts and has been with the firm since 2002. As a litigator in the firm’s Dispute Resolution Group, he has experience in a broad range of commercial, real estate and professional liability litigation. Information: grllp.com CMB MAGAZINE

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personalpropertyrights

Finding a stash of hidden cash in a newly acquired home might be the ultimate mortgage helper for financially stretched new home purchasers! Anti-money laundering rules will of course snag those who try to deposit large bundles of cash in their bank account. Read the case below to see how the law treats the discovery of hidden treasure in formerly occupied homes.

FINDERS, KEEPERS? Buyers find cash and gold hidden in the house they purchased BY NIKOLAUS DEMIANTSCHUK

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n a recent decision, an Alberta court was presented with a case in which the buyers of a home had found $500,000 in cash and gold hidden around the property. At issue was whether they were entitled to keep it. In 1972, a couple purchased a house in Edmonton. They were the first and only occupants until the house was sold to the buyers in September of 2017. The husband predeceased the wife, who passed away on September 30, 2016. Their nephew was appointed the personal representative of the wife’s estate on June 14, 2017.

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It took the nephew, the couple’s youngest daughter and other family members many months to sort and empty out all the items in the house after the wife passed away. The nephew also hired cleaners who spent over 18 hours cleaning the house. The buyers then took possession of the house on October 16, 2017. They had planned some renovations and painting before moving into the house. Two days later, the buyers’ found some tins in a small shoe cubby in the house; the tins had $100,000 hidden in them.

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personalpropertyrights

The next week, the buyers began cleaning the basement kitchen and discovered more tins of money. The tins contained cash and a number of gold wafers and coins. In all, the cash and gold had a value of approximately $500,000. The buyers did not contact the realtor, the police, or the nephew to advise them that the cash and gold had been found. Instead, they took $100,000 of the money and tried to deposit it at their bank; however, the bank contacted the police, who seized the money. The nephew maintained that the assets belonged to the deceased wife. The daughter said she recalled her mother telling her that if anything should happen to them they had “hid money in the long cupboard under the stairs”. However, the nephew also stated that, while the deceased wife had alluded to there being money in the house, he had not known whether or not to believe it because of her mental condition. Additionally, the wife had never given the nephew any indication at any time prior to her death that there were valuables hidden in the house. The buyers did not dispute that the cash and gold belonged to the wife at the time of her death; however, they claimed that the real estate purchase contract included the sale of the cash and gold. The nephew applied to the court for a summary judgment to determine who was entitled to the cash and gold. In his opinion, the cash and gold belonged to the wife’s estate.

COURT EXPLAINS LAW ON FINDERS The court began by explaining that the ownership of the personal property would be determined under the law on finders: a finder acquires title to the personal property subject to others with antecedent rights (usually the true owner) provided they are not found to have abandoned those rights. The court further stated that the law on finders could be characterized as follows: “Orthodoxy has it that the finder of a chattel acquires a title that is good against the entire world except for the true owner. That oft-cited proposition is a little misleading.

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Not all found property is necessarily presently owned. A recovered item may have been abandoned by a previous owner. It is selfevident that a finder of ownerless property can face no superior claim. It is not only the true owner who may assert a prior right, but anyone with a valid and subsisting entitlement, including, theoretically, some previous

cleaning and sorting personal property are factors to consider, as is his decision to sell the property after that exercise. Ultimately, his state of mind at that point in time must be determined.” While the buyers raised abandonment as a defence, the nephew argued that there was no abandonment.

Orthodoxy has it that the finder of a chattel acquires a title that is good against the entire world except for the true owner. That oft-cited proposition is a little misleading. Not all found property is necessarily presently owned. A recovered item may have been abandoned by a previous owner. finder. Therefore, a more accurate general proposition is that a finder acquires title that is good against the world, except for those with a continuing antecedent claim. This is a general statement about the relative rights of owners.” The court then stated that, under the circumstances, the question hinged on whether there was intent to abandon the property. The court explained that an intent to abandon requires knowledge but that there was uncertainty as to what the nephew knew about the hidden assets. The court stated: “The extent of [the nephew]’s knowledge that there was money and gold hidden in the House at the time of the sale is a significant factor in the factual analysis in ascertaining the intention to abandon. The time and effort

Because the court found that the evidence was unclear, the case did not qualify for summary judgment. As a result, the nephew’s application for summary judgment was dismissed. However, the court noted that whether further affidavits would be sufficient to clarify the evidence or whether a trial would be necessary remained to be seen. Nikolaus Demiantschuk is a partner at DBH Law, a Calgary-based firm that provides legal services for businesses and individuals in Calgary. The firm’s real estate lawyers have more than 25 years of combined experience acting for purchasers, lenders and developers through all stages of real estate transactions. More information: https://dbhllp.com

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legaladvice

INDEPENDENT LEGAL INDEPENDENT LEGAL ADVICE VS REPRESENTATION

Legal representation is important as mortgage documents become more complex, and major institutional lenders add restrictions to their standard charge terms BY MALCOLM ECCLES

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hen a person or persons are investing or borrowing monies by way of mortgages, they should understand the roles that lawyers play in the transaction. Contrary to popular belief, you don’t necessarily need a lawyer to draw up and register a mortgage – you can do it yourself if you have a willing borrower and a willing lender. You can both agree on the terms, interest rate, payment and other factors, obtain a blank mortgage document, draw up the agreement, sign and take it

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to the registry office. Obviously, it’s not quite as simple as that, but you get the idea. Of course, as borrower or lender, in that arrangement it is just about as dangerous as walking through a minefield blindfolded. Because of the complications, pitfalls and legal implications involved in mortgaging, the wise investor or borrower uses a lawyer to complete the transaction to his or her satisfaction. As in a real estate transaction where it is sensible to use separate lawyers to represent each party, in mortgaging it

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legaladvice

is also prudent for each party to use their own legal representative to represent them and protect their interests. A rule brought in a few years ago by the Law Society of Ontario is that in mortgage transactions where a person(s) is borrowing monies from a private lender – in other words, a non-institutional lender – by way of a mortgage against property, which is often their home, then, at the minimum, they must receive independent legal advice (ILA) if the transaction is above $50,000.00. Let’s consider what constitutes independent legal advice. An excerpt from the Law Society of Ontario website states: “Independent legal advice” means a retainer where, (b) the client's transaction involves doing business with: (i) another lawyer, (ii) a corporation or other entity in which the other lawyer has an interest other than a corporation or other entity whose securities are publicly traded, or (iii) a client of the other lawyer, The role of this outside lawyer is to provide legal advice that is objective and unbiased regarding a decision the individual is facing. The outside lawyer is only retained for the limited purpose of providing independent legal advice so that the individual appreciates the nature and consequences of the decision to be made. Whereas independent legal representation (ILR) means a retainer where: (a) the retained lawyer, who may be a lawyer employed as in-house counsel for the client, has no conflicting interest with respect to the client's transaction, and (b) the retained lawyer will act as the client's lawyer in relation to the matter; Independent legal representation is a retainer in which a lawyer has no conflict of interest with respect to the matter and acts as the legal representative in the matter. So, one may ask, “What is the difference?” ILA is where the lawyer is discussing and confirming that, in the case of obtaining mortgage financing, the borrower has a clear understanding of the terms, conditions and implications of the documents that they are being asked to sign. But with ILR, the retained lawyer is acting in the capacity of representing the client in the role of a solicitor-client relationship. The retained lawyer will then assume the role of adviser on the implications of the documents being signed, in accordance with best practices and their obligations under the Rules of Professional Conduct. What often happens is a broker or private lender will engage a lawyer to represent him/her in the mortgage transaction. That lawyer will draw up the necessary mortgage documents, conduct title searches and perform the registrations of the mortgage. The lawyer will also address obtaining title insurance and paying off any and all obligations such as property tax arrears, condo arrears, judgments, prior mortgages or any arrears, liens and any other loans or indebtedness that is agreed upon. He or she will also confirm property insurance is in place. As mentioned, the lawyer conducting the ILA will meet with the clients (borrowers) and review the documents with them,

clearly explaining the terms and conditions of the mortgage, and assuring themselves that the clients are of sound mind and understand the responsibilities that they are assuming. Other parties that may also require ILA on the transaction could be guarantors, co-signers, co-borrowers, etc. Non-registered spouses must sign spousal consent. The costs of both lawyers are paid for by the borrowers, even though the stipulated lawyer is acting on behalf of the lender. As mortgage documents are becoming more and more complex, and major institutional lenders are putting many more restrictions into their standard charge terms, greater clarification of the terms and restrictions of the mortgage documents should be made to the borrowers. Often full disclosure of these restrictions is not being made to the borrowers, not by the lenders representatives nor by the lawyers being appointed. Borrowers could be signing documents that contain financial confinements that may hamper their financial activities in the future. If the borrower is not conversant on the clauses in the standard charge terms document, they should ask or retain their own legal representative. Malcolm Eccles is a mortgage lender, broker and expert witness. He has been in practice for more than 40 years in both Ontario and Alberta, and supports the industry by writing, teaching and serving on industry association boards.

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real-worldsituations

Alternative financing is emerging as the lifeboat of the mortgage industry after the COVID-19 storm

DON’T MISS THE BOAT ON PRIVATE LENDING

Submitted by Canadian Mortgages Inc.

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hile the alternative lending space has been steadily expanding over the years, the COVID-19 pandemic has intensified its growth to unimaginable heights. Alternative lending surged in the third quarter of 2020 with non-bank lenders providing 40.7 per cent more mortgage loans compared to Q3 2019, according to Statistics Canada. The total value of non-bank mortgage lending also rose by 17.2 per cent to $56.2 billion in the same quarter. This eruption in the alternative space has been boiling below the surface for years. While non-bank financial intermediaries have been a small share of the total market, overall growth from 2007 to 2018 has outpaced every other traditional lending sector with an average year-over-year increase of 11 per cent. This growth stemmed from several factors, including the steady tightening in the mortgage regulatory system following the Great Recession. Restrictions like the stress test and stricter qualifications from traditional lenders pushed more borrowers to consider private lending solutions. Fast forward to today, the pool of borrowers that traditional lenders are willing to serve continues to shrink, especially as the economic impact of the pandemic stretches on. Alternative lending, once the last resort, is now an important option for brokers to offer their clients. Private lenders can offer

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fast closings and with minimal paperwork to allow borrowers to secure the home of their dreams while they get their affairs in order, or as a bridge until they can take out a traditional mortgage. Private lenders will also often accommodate short-term loans and unconventional properties that traditional lenders are unwilling to finance, as well as solutions for needs ranging from debt consolidation and insolvency payouts to working capital for small businesses. The job market is also changing; Canadians are getting creative, and more borrowers are earning a living in ways that traditional lenders may not recognize. In addition, the housing market in the first quarter of 2021 boasts record-breaking sales and an unprecedented imbalance of supply and demand, with the lowest level of inventory in history. This, combined with sky-rocketing home prices across the country, has pushed brokers and their clients into uncharted waters, and in many cases, private lenders can offer a lifeboat. These factors have a growing number of Canadians looking to mortgage brokers for guidance. This is an opportunity for brokers to gain a competitive advantage by offering alternative and private financing, which their bank competitors cannot offer, and providing clients with new routes to achieving their goals. Brokers need to capitalize on the explosive growth in non-bank lending in order to

succeed in this new environment. Here are five important points brokers should know about the booming private lending space.

Provincially regulated doesn’t mean untrustworthy Growth and competition in the private lending space have driven increased accountability and transparency throughout the industry. Historically, private lenders gained a bad rap due to individual investors being a primary source of non-bank capital. These lenders charged exorbitant rates and fees, with little accountability and transparency. More experienced lenders have since been paving the way to improving the reputation of the private lending space and helping brokers and their clients understand the value of private mortgages. Top private lenders pride themselves on building strong broker relationships, promoting education, and building a team of dedicated business development managers and underwriters who are always there to support brokers and clients. Private lenders also follow provincial guidelines and industry best practices. Brokers should prioritize private lending partners who have a proven track record of helping find solutions to tough client situations.

Greater flexibility Mortgage brokers should partner with a private lender to help clients who don’t meet certain requirements. Private lenders are

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filling a growing gap as borrowers increasingly cannot qualify for a traditional mortgage. Currently, there are borrowers with healthy credit, high income and net worth who are still struggling to qualify for a traditional mortgage due to strict lending criteria around debt ratios. These borrowers, along with others who have non-traditional income or are selfemployed, are embracing private mortgages as an attractive alternative to meet their goals. While banks extend mortgage loans based on specific criteria (for borrower and property), private lenders have the discretion to set their own terms, which gives brokers and their clients greater flexibility with respect to the loan to value, debt ratio, location and terms.

Versatility Brokers can also turn to private lenders for shorter-term loans, or to bridge a client’s financing until they can improve their credit to qualify for a traditional mortgage. Good private lenders tend to be common-sense lenders and work with brokers to help clients find solutions in tough situations. With interest rates at historical lows, refinancing has

been at an all-time high. However, the penalty for breaking an existing mortgage can leave borrowers on the hook for tens of thousands of dollars. Private lenders can offer creative solutions, whether it’s a second mortgage or debt consolidation to help borrowers avoid these penalties.

Speed and convenience Private lenders are better equipped to deal with real-world situations and other circumstances that traditional banks are simply not agile enough to handle. In addition, getting a deal done as quickly as possible can be the ‘make or break’ in the most competitive housing market in Canadian history. Banks can take up to 10 days to get back to a broker with an approval, but private lenders are poised to operate more nimbly and can often approve a deal within hours. Private lenders also require less paperwork and documentation, and by streamlining the mortgage application process, they not only provide a more seamless experience but they are also able to fund deals in a matter of days rather than weeks or months.

Not all private lenders are created equal In the past couple of years, larger, more mature private lenders have risen to the top, as barriers to entry for independent lenders have grown. Credit bureaus have tightened their requirements, and technology and infrastructure costs have increased. Two major tech-driven regulatory changes in 2020 helped push the private lending space into the limelight: the Filogix platform opened to private lenders and mortgage investment corporations (MICs), and Equifax required all lenders (including private and alternative lenders) to be credentialed. Partnering with mature, trustworthy lenders is also important because they openly disclose all fees upfront and pride themselves on a transparent process. The private lending space has evolved tremendously over the years, and brokers who can exercise their expertise in private lending will pull away from the competition. As brokers develop the ability to recognize strong private lending partners and sharpen their knowledge of the space, they will be able to better serve and protect a growing cohort of borrowers.

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creativefundraising

ROCKS FOR A CAUSE

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creativefundraising

East Coast mortgage broker Nikki Carew and her mother, Susan, are rocking a creative fundraising effort to help families dealing with cancer BY LISA GORDON

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hen Nikki Carew was diagnosed with breast cancer in 2019, life slowed down. She had been a busy mortgage broker with East Coast Mortgage Brokers in St. John’s, Nfld., with an annual volume of more than $30 million in deals. Cancer put all of that on hold. But while Carew was concentrating on the road to recovery, she wasn’t one to sit idle. “When I was going through chemo, my mom and I were looking for an outlet,” she told Canadian Mortgage Broker. “I’m not one to sit around and do nothing. First, we tried crocheting, and that lasted about 30 minutes. It wasn’t for me. Then we tried painting some rocks. I painted one. But my mom really found a niche. She had never painted before in her life, but she found a passion for it.” Carew, now 38, comes from a family that has always given back to the community. The former Newfoundland director of CMBA Atlantic has helped with numerous causes over the years, including chairing the Brokering Wishes Newfoundland gala, attended by mortgage industry professionals raising money for Make-aWish Atlantic Provinces. “People started asking my mom to sell her painted rocks, but she wasn’t looking to make a profit. Then I suggested we try to do something positive and help other families going through similar challenges with cancer,” recounted Carew. Together, the mother and daughter team launched Rocks for a Cause in July of 2019. They started a Facebook group and added some people they knew, with the idea of auctioning off Susan Carew’s rocks to raise money for a local family struggling with cancer.

Susan, 65, worked to create an initial inventory of 25 painted rocks, and each one was auctioned off via the Facebook page. Bids ran for about a month, with individual rocks open for 24 hours before they were closed off and the next one posted.

one taking about eight hours to create. Today, the Facebook group has nearly 700 members. “My mom was always crafty. She can create a lot of things, especially different types of knitting. She had seen other people painting rocks, and once she started doing it, she realized she is quite talented and it is relaxing for her. I think it really helped when I was going through what I was going through.” So far, buyers have been local. Carew said the rocks are not small, with most having a circumference of 14 inches or more. “A lot of people want to help other people, but they don’t know how,” she concluded. “With Rocks for a Cause, they like the idea that they’re getting a keepsake

“We wondered if it would work, but realized we wouldn’t know until we tried. When we first started, we hoped to raise $1,000 for our first family. Within three weeks, we had raised $3,000.” “We wondered if it would work, but realized we wouldn’t know until we tried,” said Carew. “When we first started, we hoped to raise $1,000 for our first family. Within three weeks, we had raised $3,000.” Through word of mouth, she and her mother selected another family enduring illness and financial hardship. This time, Rocks for a Cause raised $5,500 to help them. Since they began, Carew estimates they’ve sold close to 100 rocks in total, with each

to help a family. One of our rocks went for almost $300. People realize that cancer can affect anyone. “I think you get true satisfaction out of life when you help other people. After being through cancer myself, my family had quite a few challenges. I always said that if I had to add financial burden on top of everything else we went through, it would have been impossible. So we are trying to help others in those shoes.” CMB MAGAZINE

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CMBA advertisers index

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