WINTER 2021 $6.95
THE MAGAZINE FOR PROFESSIONAL MORTGAGE BROKERS
I N S I D Ertg a g e
o S e n i o rs ’ mcy rate s delinquen .39 rise p
PRIVATE VS. PROFESSIONAL PM No. 41297283
What you say and do can be subject to disciplinary action p.37
+
LIVING THE DREAM Broker and builder create a forever home p.26
INSPIRING CHANGE Support racial equality and justice p.16 CMBA-ACHC.CA
EXPERIENCE DIFFERENCE THE
MORE EXPERTISE MORE OPTIONS MORE... RESIDENTIAL MORTGAGE LENDING CRITERIA Mortgage Type
Loan to Value (up to)
Loan Amount Range
Interest Rates Starting at
Single Family + Condo
65%
$500 K - $5 m
5.50%
Luxury Condos
60%
$500 K - $3.5 m
5.50%
Rentals/Vacation
60%
$500 K - $3.5 m
6.00%
COMMERCIAL MORTGAGE LENDING CRITERIA Mortgage Type
Loan to Value (up to)
Loan Amount Range
Interest Rates Starting at
75%
$1 m - $65 m
6.00%
65%
$1 m - $75 m
6.00%
Apartments
75%
$1 m - $50 m
5.85%
Res. Condo Inventory
65%
$1 m - $35 m
6.15%
Lanyard specializes in providing mortgage brokers and their clients with More options for short to medium term financing solutions. More … money (up to $75m). More … loan payment options (including interest reserves). More … flexible repayment provisions. More … extension privileges. More … happy clients!
Christine Perkins - Residential cperkins@lanyardgroup.com
Sam Fogell - Commercial sfogell@lanyardgroup.com
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inside VOLUME 6 ISSUE 1 WINTER 2021
cover
26
Mortgage broker Karla Harris and her husband, Mike Davies, have spent the last six years building the custom home of their dreams. But despite the fact that her own work hinges on the buying and selling of houses, Harris says this home will never go on the market. BY LISA GORDON
features 12
HOW TO READ AND INTERPRET A CREDIT BUREAU REPORT
37
Credit reports are a powerful tool that lenders use to evaluate their clients
16
INSPIRING CHANGE
20
CHARTING THE COURSE TOWARD SUCCESSFUL DIGITAL ADOPTION
Stephen Thomas is leveraging his professional platform to help make a difference BY LISA GORDON
How to ensure any acquired technology will streamline the mortgage process BY RYAN SPENCE
23
CLARIFYING LEGAL RULES FOR WHEN HIGHER COURTS CAN STEP IN Supreme Court rules Hydro-Québec can build a new transmission line on people’s land, based on decades-old permissions
28
TEE TIME
34
CMBA’S FEEDBACK FOR A NATIONAL CODE OF CONDUCT
CMBA Ontario’s 2020 Autumn Classic golf tournament
The Code will reflect regulatory standards in Canada’s mortgage brokering industry BY SAMANTHA GALE
A CAUTION FOR REGULATED PROFESSIONALS What members of professional organizations do and say in their private lives can be the subject of disciplinary action BY BRAD KIELMANN
39
POST-DISCHARGE OBLIGATIONS FOR A BORROWER’S HST/GST DEBT Potential options for secured lenders to manage the risk posed by deemed trusts BY MATTHEW WILSON
42
DEMAND AND SUPPLY IN MARKET HOUSING Call for a paradigm shift to enable providers to better respond to communities’ needs BY HESAM DEIHIMI
departments 8 Editorial summary 46 Advertisers Index
columns 26 Off the Clock: Building an heirloom home BY LISA GORDON 32 Legal Ease: 60 per cent interest rate sometimes justified BY RAY BASI
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VOLUME 6 ISSUE 1 WINTER 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
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 Hesam Deihimi Samantha Gale Lisa Gordon Brad Kielmann Ryan Spence Matthew Wilson IMAGES
Adobe Stock Cory Van Ieperen Event Imaging iStock Kirkbride Photography
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.
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editorialsummary
THE HARDEST HIT
The mortgage delinquency rate for Canadian seniors is on the rise and reaching some concerning levels BY SAMANTHA GALE
R
ecently, a distressed British Columbian senior called the CMBA-BC office looking for information about how to assess a mortgage refinancing arrangement she made through a collection agent, who then referred her on to an Ontario lender. She felt desperate for financial assistance after losing her long-held, well-paid employment during the COVID-19 pandemic, and then losing the Canada Emergency Response Benefit (CERB) assistance. She had a first and second mortgage on a West Vancouver home with about 50 per cent loan-to-value (LTV), but could not afford the mortgage payments without any kind of income and was in default on both mortgages. She wasn’t sure about proceeding with the Ontario mortgage, which included a myriad of advance fees, default fees and service fees, which did not comply with B.C. or federal regulations. Fortunately, she was able to find satisfactory alternative financing through a CMBA member mortgage broker, which gave her time to put her property on the market and find new rental accommodation.
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The plight of this senior exemplifies some of the trends seen in mortgage default statistics. Data from Canada Mortgage and Housing Corporation (CMHC) for the third quarter of 2020 shows that the mortgage delinquency rate for Canadian seniors is on the rise and reaching some concerning levels. Mortgage delinquencies for seniors in Q3 2020 were 2.78 per cent higher than Q2 2020 and 5.71 per cent higher than Q3 2019. In contrast, the mortgage delinquency rate for millennials, aged between 25 and 35, fell
significantly – the Q3 2020 rate was actually 7.14 per cent lower than Q3 2019. Borrowers between 34 and 55 saw no change in their delinquency rate, while those in the 44 to 45 range saw a significant decline of 3.5 per cent, and mortgage delinquencies for those 55 to 64 also fell – by 2.5 per cent. The net effect being that the mortgage delinquency rate overall has not changed during the COVID-19 pandemic, which, of course, masks the profound change with the overwhelming increase in the delinquency rate of seniors.
CANADIAN MORTGAGE DELINQUENCY CHANGES BY AGE THE 12-MONTH CHANGE IN THE RATE OF MORTGAGE DELINQUENCIES BY AGE OF HOLDER IN Q3 2020. 6
5.71
4 2
2.5
0
3.5
0
-2 -4 -6
-7.4
-8 OVER 65
55-64
45-54
35-44
25-34
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editorialsummary
According to a recent study, Mortgage and Consumer Credit Patterns, by CMHC, "there is a proportion of consumers over 65 with a mortgage loan that may be more financially strained and vulnerable." While delinquency rates in Canada (the number of mortgage accounts due 90 days or more) were still contained and stable in 2018 at 0.3 per cent, CMHC found that seniors reported the highest rate of mortgage delinquencies across the age spectrum, and have steadily done so since 2015. The increased mortgage delinquency rate for seniors may simply be a reflection of the high living costs and taxes that we all face in today’s inflationary cost environment. Homeowners, in particular, have been impacted by an onslaught of increased property taxes, including in B.C. a relatively hard-hitting new school tax on properties assessed at over $3 million. Seniors are also acquiring new debt from assisting children with home purchases and unprecedentedly high tuition fees for university education. For most of us, financial independence at 55 is a steadily disappearing illusion, as
Canadian seniors are having to continue working to make ends meet. While seniors may be living longer and choosing or needing to spend more years in the workforce, they also appear to be keeping their debts long into retirement – which includes mortgage debt. It is true that Canadian seniors with homes have witnessed a profound escalation of real estate prices – in some cases, their homes have tripled or even quadrupled in value over the past couple of decades. However, seniors still have to live somewhere, and escalated home prices rarely equate to increased incomes from real estate investments or rented portions of their homes. The author of Retiring Wealthy in the 21st Century, Gordon Pape, said he found no evidence that older Canadians are benefiting from investments in rental property. COVID-19 has put concerns about financial stability at the forefront of the minds of many seniors. A combination of high house prices and record low interest rates actually hurt those seniors who rely on investment returns to supplement modest pension payments. Also, many Canadians now no longer retire with defined benefit plans that dole
out guaranteed benefit payments. Investment returns are further whittled down by grinding new income tax rules that aggressively tax passive income. For a prolonged and uncertain period of time, seniors with RRIFs are worried about their retirement savings triggered by declining markets and expected losses. This problem is exacerbated by the fact that older people live longer than ever before, and many depend on their RRIF to provide sustained income over the years to come. Many tax scenarios are especially detrimental to older women because they affect those over the age of 65 who are single or widowed, a category with a far higher number of women than men. For many seniors, unpaid mortgages reflect a new standard, with some retirees also adding new mortgage debt. Many mortgage brokers and lenders worry about whether these borrowers will repay their debts because of the pattern. Fortunately, mortgage brokers are well equipped to assist seniors, like the one who contacted CMBA-BC, navigate mortgage options, and make informed decisions impacting their debt and living circumstances.
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financialhealth
HOW TO READ AND INTERPRET
A CREDIT BUREAU
REPORT
Credit reports are a powerful tool that lenders use to evaluate their clients
Submitted by Canadian Mortgages Inc.
W
hen it comes to evaluating the financial health of your clients, few documents matter more than the credit report. Although credit reports appear straightforward at first glance, there’s a lot more that goes into the rating system than meets the eye. A credit bureau is a company that collects information regarding an individual’s credit history and uses that information to tabulate whether they are a high-risk, moderate-risk or low-risk borrower. The credit bureau’s main task is to keep tabs on an individual’s credit rating and to help lenders assess their clients’ creditworthiness.
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In Canada, there are two main gatekeepers of the credit-rating business: Equifax and TransUnion. These two credit bureaus pervade every major financial institution in the country. Whether an individual is applying for a credit card, car loan or mortgage, lenders usually tap either Equifax or TransUnion to run the credit report. It’s important to point out that lenders are not obliged to report account information to either of the credit bureaus. They do so voluntarily, which suggests they rely on the credit rating system to evaluate their clients. Ultimately, it is the lender who decides whether to lend money based on their own guidelines.
WHAT’S INCLUDED IN A CREDIT REPORT? A credit report is not merely the collection of an individual’s credit history; rather, it provides detailed information that allows lenders to form a judgment about a borrower’s creditworthiness. A credit report includes the following information about a borrower: n Personal information (name, address, date of birth, social insurance number) n Credit history (types of credit obtained, loan amounts and outstanding balances) n Inquiries (how many times lenders have asked about an individual’s credit history) n Public records of collections, judgments, bankruptcies and consumer information
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Equifax and TransUnion also integrate FICO scores, also known as Beacon scores, from U.S. analytics company Fair Isaac Corporation. According to Fair Isaac Corporation, 90 per cent of Canadian lenders use their score to evaluate customers. Lenders, however, are contractually obligated not to share their Beacon scores with the customer. A Beacon score can only be accessed with a “hard” credit check. Because “hard” checks are considered inquiries, they can have a negative impact on an individual’s credit score. All this information is leveraged by lenders to determine how much credit an individual qualifies for based on their ability to pay. In other words, it’s a credit risk assessment that allows financial institutions to assign appropriate interest rates and fees on their loans. The credit report is also used by banks and insurance companies to identify consumers who are more likely to buy their products and services. Although most credit reports provide accurate information, they often contain faulty or incomplete data. This information should be cleared up with the credit bureau as soon
as possible to ensure that it doesn’t negatively impact an individual’s ability to obtain credit.
HOW ARE CREDIT SCORES TABULATED? One of the ways credit bureaus have become indispensable to traditional lenders is through the credit scoring system. A credit score is a three-digit number that provides a static
In Canada, credit scores typically range from 300 to 900. While the credit bureaus do not disclose their scoring methodology, the score is based on a weighting of various criteria, including payment history (35 per cent), amount owed versus available credit (30 per cent), length of history (15 per cent), public records (10 per cent), and inquiries (10 per cent). This means
The scoring methodology used to generate consumer credit reports is different from the one used by lenders. Brokers who advise their clients based on personal credit reports are working with incomplete information. snapshot of an individual’s creditworthiness. The higher the score, the more favourable the borrower appears to lenders. It is up to the lender to determine what minimum score is needed to borrow from them.
payment history has the largest impact in how a credit score is tabulated (changes in this category have three times the impact on a credit score than an individual inquiry, for example).
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financialhealth
In practice, an individual’s credit score is impacted by whether they pay their bills on time, how many new credit accounts they opened, how much is currently owed on revolving accounts like credit cards, the length of the accounts, and whether judgments, collections, bankruptcies or consumer proposals have been initiated. The payment history category, which has the biggest impact on credit scores, is reported every month. Lenders assign borrowers a score of 0 to 9 based on the type of credit being used:
R Revolving credit (payments
contingent on the borrower’s account balance)
O Open (this includes opened credit, such as student loans or lines of credit)
I Instalments (the loan is being repaid over a certain period)
L Lease account M Mortgage The ratings are used to indicate the nature in which a borrower repays their debt. The following chart highlights the R rating system and how it’s interpreted by lenders.
R0 Too little credit history or credit unused. R1 Account is paid back in full within 30 days. R2 Account is paid more than 30 days past the due date, but not more than 60 days late. R3 Account is paid more than 60 days past the due date, but not more than 90 days late. R4 Account is paid more than 90 days past the due date, but not more than 120 days late. R5 Account is paid more than 120 days past the due date, but has yet to receive an R9. R6 N/A R7 Account holder enters debt relief and makes agreed upon payments. R8 Repossession. R9 Account in collections or bankruptcy. SOURCE: ADAPTED FROM LOANSCANADA.CA
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The following chart provides a breakdown of the I ratings. I 0 Too little credit history or credit unused. I 1 Considered a one-time payment. I 2 Payment was late by 30 days. I 3 Payment was late 60 days. I 4 Payment was late 90 days. I 5 120+ days of late reporting. I 6 N/A I 7 Account holder is making a consolidated debt payment. I 8 Repossession. I 9 Account either in collections, bankruptcy or is considered uncollectible. SOURCE: ADAPTED FROM JRWTOPBEACON.COM
Late payments are especially damaging because they can stay on a credit report for up to six years. This is also known as a “previous high rate” and can remain on a credit report even if the borrower pays the past-due balance. Although credit scores can fluctuate on a monthly basis, there are no quick fixes, especially if the borrower is in collections, behind in payments or is facing judgments. In any of these scenarios, the borrower must pay their accounts in full to be brought up to date.
Credit score ranges Using Equifax’s Risk 2.0 scoring model, credit scores in Canada are typically broken down into five risk designations: EXCELLENT (741-900): Borrowers with excellent credit likely have very few late payments on their credit report. They regularly pay down their balances in full and have a low credit utilization rate across all credit lines. GOOD (690-740): Borrowers with good credit scores rarely make late payments. Their credit utilization is likely low. AVERAGE (660-690): Mid-range credit scores are characteristic of borrowers who’ve made several late payments and who carry a higher debt load. They may have defaulted on a loan in the past. BELOW AVERAGE (575-659): Borrowers with a below average credit score likely ran into serious credit trouble in the past. They may have defaulted on multiple loans and have a high credit utilization. POOR (300-574): Poor credit scores are usually characteristic of borrowers who may
have defaulted on multiple loans, carry a high debt load or may have declared bankruptcy.
How to read the credit report An Equifax credit report contains the following sections: Consumer Credit File; Subject 1 (sections of the file that are populated and displayed); Consumer Alert; Identification; Inquiries; Employment Information; Summary of Credit; Financial Statement; Trade Information; Banking Information. While all of this information should be reviewed carefully, the Consumer Alert, Inquiries and Summary of Credit sections are especially important. The Consumer Alert section contains the credit score and Bankruptcy Navigator Index (BNI), which helps lenders identify the likelihood that the borrower declares bankruptcy over the next 12 to 24 months. The BNI ranges between 1 and 600, with higher scores associated with lower levels of risk. The Consumer Alert section also includes up to three reason codes, which explain the type of information that had a negative impact on the borrower’s credit score. The Inquiries section of the credit report will receive alerts if there have been three or more inquiries within the past 90 days. This section also includes the total number of inquiries since the file was established.
Different types of credit reports Although personal credit reports can be purchased online through Equifax or TransUnion, these documents are different from the reports pulled by lenders. The personal credit report does not disclose any judgments, collections or bankruptcies – information that is readily available on lender reports. The scoring methodology used to generate consumer credit reports is also different from the one used by lenders. Brokers who advise their clients based on personal credit reports are working with incomplete information.
Conclusion Credit reports are a powerful tool that lenders use to evaluate their clients. They are intended to scrutinize borrowers based on their perceived ability to repay. Ultimately, it is the lender who decides how they apply that information and whether to lend based on specific credit scores.
Email lender notes, application, and credit bureaus to:
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brokerprofile
Commercial mortgage professional Stephen Thomas helps businesses succeed by arranging financing for new offices, shopping plazas and apartment buildings. He’s also in the business of building a better world, leveraging his professional platform to help make a difference. BY LISA GORDON
INSPIRING I
f you have a platform to inspire change, use it. That’s the message from Stephen Thomas, the CEO and founder of Halo Advisory and a commercial mortgage agent at Mortgage Alliance. Thomas may only be in his fourth year in the mortgage business, but he’s hit the ground at full stride. Following a decade of commercial banking experience, he launched Toronto-based Halo Advisory, a team of financial professionals who specialize in arranging commercial mortgages as well as providing a suite of business advisory services to start-ups and small-to-mediumsized enterprises. “Halo is a pure commercial company for commercial lending services. We do real estate or non-real estate lending – anything from a simple operation like a restaurant or daycare, to a large retail plaza, or to low-rise, mid-rise or high-rise commercial construction,” explained Thomas, who said he likes the flexibility of owning his own company. “I can work with all the banks, not just one. Now, there are no volume quotas or incentives to choose one lender or another. I
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“We have a platform as individuals. I think from a mortgage industry perspective, there is no one stopping you from supporting a charity or a cause.
Stephen Thomas, CEO and founder of Halo Advisory and a commercial mortgage agent at Mortgage Alliance
can truly choose the best solution for my client, with the best terms and conditions. That’s the power of the brokerage industry.” While Thomas has received widespread industry recognition for excellence in commercial lending, he’s also used these last four years to publicly support a number of important causes, including the Black North Initiative founded this past June. With the support of more than 300 major Canadian companies, the organization “is on a mission to end anti-Black systemic racism throughout all aspects of our lives by utilizing a business first mindset.” Sparked by recent events surrounding racial equality and justice, Thomas explained that a group of influential business executives “took an inventory” and saw that corporate Canada has had significant success “removing the glass ceiling” to facilitate more women in the C Suite. “It’s still an issue, but compared to where we were five years ago, there’s been a huge improvement,” said Thomas. “But, with events bringing the Black initiative to the forefront, they made a CEO pledge. If you support this initiative, you will be recognized
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CHANGE and we’ll hold you accountable to see what you’ve done to advance people of colour.” Thomas, who signed the pledge for Halo Advisory, has applied to be on Black North’s board of directors and sub-committees. He said mortgage professionals are in a unique position to help further social causes because many of them are self-employed and free of corporate conduct restrictions. “We have a platform as individuals. I think from a mortgage industry perspective, there is no one stopping you from supporting a charity or a cause. There are so many areas that need help in this world.” In addition to Black North, Thomas has been involved with Brands for Canada for the last seven years. A national charity, the organization donates new clothing and other basic items to communities across the country. “We have large retailers that have stock that doesn’t sell – and after an extended shelf life, normally, they’d landfill it,” said Thomas. “We’ve redirected 8.8 million pounds of clothing from our landfills to people in need; our brand partners would much rather do good in local communities.
To date, we’ve given away over $420 million of new goods to those in need. “We have an EDGE employment program for persons living with disabilities,” he continued. “We provide job training, which includes how to dress for an interview, question prep, etc., and help them with placements. Ninety-seven per cent of program graduates reported feeling more optimistic about the future after going through the program. There is a lot of great things happening at Brands for Canada and the staff does a tremendous job. For me, it’s been really humbling.” Thomas, who has three children with his wife, Vanessa, said his charitable involvement reinforces what is truly important. Family time helps him decompress, as does a game of neighbourhood basketball played around a hoop at the end of his street. He takes great satisfaction from knowing that his commercial mortgage transactions impact the lives of many people. He is helping to create workplaces, leisure facilities, childcare centres and shopping plazas, although Thomas said commercial lending has certainly taken a hit from the global pandemic. Before, about 20 per cent of his business
was prompted by restructuring. Now, that number is closer to 60 per cent. “Not only are the clients suffering, but a lot of lenders are not lending (right now),” said Thomas. However, commercial lending is a cyclical business, and Thomas said good times will return once more. In the meantime, he remains focused on building his business, following a well-defined regimen to which he credits his success. That routine includes a healthy dose of community involvement, and Thomas is determined to use his place in the business community to advance important causes. “I’ve spent a lot of time figuring out how to be the best version of myself. As someone who has a platform to inspire change, I think it’s important we use it.” Lisa Gordon is a freelance writer and editor based in St. George, Ontario. She operates Mustang Media Writing & Editorial Services, delivering informative and engaging articles for trade and association magazines in a variety of industries. More information: mustangmediaservices.ca. CMB MAGAZINE
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technologyadoption
CHARTING THE COURSE TOWARD SUCCESSFUL DIGITAL ADOPTION How to ensure any acquired technology will streamline the mortgage process BY RYAN SPENCE
W
ith housing activity anticipated to remain high for much of 2021, the pressure is on Canadian mortgage brokerages and agents to create a fast and seamless customer experience. Adding to the challenge is the fact that consumers increasingly expect their encounters across the mortgage process to be custom-tailored to their own preferences. Digital tools and capabilities can help agents and brokerages meet consumer expectations, but without a systematic approach to technology adoption, can deliver additional challenges instead of a customer-pleasing experience. To ensure that any acquired technology will actually streamline the mortgage process and meet evolving consumer standards, brokerages and agents should consider three overarching themes.
TECHNOLOGY SHOULD SUPPORT THE WAY YOU WORK Digital is the overwhelming consumer choice when it comes to obtaining a mortgage. According to a survey conducted by KPMG, 90 per cent of consumers want to research mortgage rates and agents online. Fifty-eight per cent want to continue the process in the same way, by applying for a mortgage through digital channels. However, even within these broad statements, we see several variabilities. For instance, 51 per cent of respondents use a desktop or laptop to complete an online mortgage application, while seven per cent will use a mobile device or tablet. Thirty per cent will visit with the agent or brokerage directly. Digging a little further beneath the surface reveals additional variances in consumer preferences that will have an impact on the digital technologies an agent adopts. For instance, age demographics will play a significant role in determining how customers want to interact. Younger generations prefer digital transactions, while older generations are more likely to want an old-fashioned paper trail.
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technologyadoption
Too often, agents approach digital adoption without understanding whether the technology will meet the needs of their customers or their business. Sometimes, they start a free trial, only to realize months down the line that the solution doesn’t support their operating environment. By that point, extracting data becomes a significant undertaking, so the agent or brokerage continues with the inadequate solution, adapting processes to fit the technology flow. Meeting consumer experience standards is better achieved by taking the opposite approach and finding a tool to fit the agent’s way of working. Understanding target customer market preferences before adopting technology will help agents to identify the digital solutions that streamline internal workflows, resulting in more effortless customer interactions as well.
THINK ABOUT DATA USAGE AND CONTROL To streamline the mortgage process and customize individual encounters, brokerages and agents need a single source of truth.
strategies. Without an understanding of a provider’s data usage policy, brokerages could be giving away insights without gaining any benefit. Ultimately, the brokerage is responsible for the security of customer data, so it is important to understand what access solution providers have and how they will use it. Ownership and control of data is also vital to maintaining regulatory compliance. Brokerages need to understand where the data is and how it is being used in order to meet regulatory mandates and ensure customer information security.
ADDRESSING THE IMPACT OF COMPLIANCE ON CUSTOMERS AND AGENTS While compliance concerns naturally come into play when thinking about data handling and security, many brokerages don’t realize the impact of compliance policies and procedures on agents and consumers. Too often, these mandates result in significant manual work that interrupts agent productivity and results in customer dissatisfaction.
According to a survey conducted by KPMG, 90 per cent of consumers want to research mortgage rates and agents online. Fifty-eight per cent want to continue the process in the same way, by applying for a mortgage through digital channels. As a result, they should be seeking digital solutions that unite technology siloes and provide centralized access to data sources. This is particularly important for brokerages and agents that may have fragmented their data through random technology adoption. Portability is another concern, particularly for brokerages. Technology and consumer preferences are two things that change rapidly. Should a technology solution stop meeting the needs of the brokerage, it’s important to have access to the data and the ability to move it if necessary. It is also important to understand how solution providers may use the data that the brokerage owns. Consider how valuable consumer information is to marketing
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As brokerages approach technology adoption, it’s important to consider the regulatory environment and the actions consumers and agents must take to ensure compliance. If the digital solution under consideration can’t streamline this environment, or worse, creates added complexity, it’s time to look at other options. In the end, technology adoption should support how the brokerage or agent works with customers; ensure data security, compliance and control; and be easy to use with efficient processes that save time and facilitate growth. Ryan Spence is principal broker Channel Development, Filogix. CMB MAGAZINE
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rightofway
CLARIFYING LEGAL RULES FOR WHEN HIGHER COURTS CAN STEP IN
Supreme Court rules Hydro-Québec can build a new transmission line on people’s land, based on decades-old permissions
PROPERTY OWNERS AND MORTGAGE LENDERS MAY WANT TO TAKE NOTE. The Supreme Court of Canada recently ruled that utility companies with old rights of way can construct wholly new projects along the original right of way, despite the objections of property owners. These new projects may be significantly more intrusive and fundamentally different than what was originally contemplated in the original right of way.
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n recent years, Hydro-Québec worked to modernize its electricity system. In particular, it wanted to make Montreal’s access to power more reliable. It also wanted to make sure there was enough electricity to meet people’s needs in Terrebonne. To do this, it needed to build a new transmission line. Transmission lines move high-voltage electricity over long distances. (The voltage gets lowered before it moves to regular power lines closer to where it will be used.) These kinds of lines have thicker cables and are held up by tall metal towers. Building the transmission line would mean crossing parts of people’s property. Hydro-Québec realized it would be easiest to put the transmission line somewhere it already had permission to. Under Quebec’s civil law rules, a “servitude” is a kind of permission to use someone else’s property for a specific purpose. It’s like an “easement” in the common law rules found in other provinces. Both servitudes and easements are recorded in the land registration system. Hydro-Québec had close to 40,000 different servitudes on people’s property. Many of these servitudes were very old. The servitudes that Hydro-Québec wanted to use to build
the transmission line were from the 1970s. It originally got them through “expropriation” to build another transmission line. Expropriation is when government takes property, or some kind of right in that property, from owners. Owners usually get compensation when this happens. After the expropriation, Hydro-Québec came to agreements with the people who owned the land at the time. The agreements set out exactly what the permission was for, and how much Hydro-Québec would pay the owners. A first transmission line was built afterward. In 2016, Hydro-Québec started working on its new project. Workers went to the properties that the transmission line would cross. They wanted to take measurements and get the land ready to build. Ms. Matta and the other property owners didn’t let them do this. The property owners said the servitudes HydroQuébec was relying on were only for the transmission line that was built in the 1970s. They said Hydro-Québec wasn’t allowed to use those servitudes to build a new line. The trial judge said Hydro-Québec could go ahead. The Court of Appeal said it couldn’t, unless it got new servitudes. To get those, it could make new agreements with the owners or follow the usual process for expropriation.
All the judges at the Supreme Court said Hydro-Québec could go ahead. It said the Court of Appeal made a few mistakes. The Court of Appeal relied on evidence the parties didn’t talk about, which it shouldn’t have done. It also made an incorrect statement that affected the outcome of the case. The Court said the agreements between Hydro-Quebec and the property owners likely best captured everyone’s understanding of what the servitudes covered. Servitudes that are gotten through expropriation can be changed by contract if everyone agrees. The agreements between Hydro-Québec and the owners were the documents that should be relied on. The Supreme Court added that higher courts have a limited role. They aren’t allowed to change a lower court’s decision on the nature of an agreement simply because they disagree with it. They can only step in if there is a major and obvious mistake. In this case, there was none. The trial judge was right to say that the agreements reflected the permissions given by the servitudes. He was also right to say that these permissions let Hydro-Québec build its new transmission line on the owners’ land. Therefore, the Court of Appeal should not have interfered with his decision. There are different legal rules for when higher courts can or can’t step in. These are called “standards of appellate review.” Higher courts can step in more easily if the judge makes a mistake that’s only about the law. They can’t easily do this if it’s a mistake about the facts or a combination of the law and the facts.
Reproduced with the permission of the Supreme Court of Canada. Source: https://www.scc-csc.ca/case-dossier/cb/2020/38254-eng.aspx
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If a borrower does not qualify for traditional bank financing due to credit issues or non-traditional sources of income, we’ll find a solution that’s tailored to their unique situation and circumstances. Our remote capabilities allow for application submission, approvals, appraisals, and legal closings – all of which can be done without any in-person interaction.
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FIRST MORTGAGES & SECOND MORTGAGES CMI is your partner in any market condition. Does your client need a quick purchase closing or unable to qualify for bank financing? Are they in need of capital for investment or debt consolidation? With a CMI First or Second Mortgage, you can help your clients access the equity into their home – quickly and hassle-free. • $50,000-$1,000,000+ • No minimum beacon score • Rates and fees subject to credit, income and property conditions
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MORTGAGE BUNDLES Are your clients looking for an 80% or 85% LTV but struggling to qualify? The CMI Bundle Mortgage combines a first and second mortgage on the same property, providing a solution that will give your clients the financing they need. • $50,000-$1,000,000+ • First and Second Mortgages • No minimum Beacon Score
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• Rates and fees subject to credit, income and property conditions • Borrower to provide evidence of reasonable historical income
HOME RENOVATIONS Your client’s home is likely their largest investment, which is why maintaining it and increasing its value is so important. With CMI Home Renovation Financing, you can give your clients the funds they need to transform their home into their dream come true. • $50,000-$500,000+ • No minimum Beacon Score • Rates and fees subject to credit, income and property conditions
• qualify • We lend behind Collateral Charge Mortgages and CHIP Reverse Mortgages
brokersoff-the-clock
Mortgage broker Karla Harris and her husband, Mike Davies, have spent the last six years building the custom home of their dreams. After thousands of hours and a considerable financial investment, their labour of love is finally nearing completion. BY LISA GORDON
BUILDING AN HEIRLOOM
HOME W
hen Karla Harris and Mike Davies played with building blocks in kindergarten 50 years ago, they never suspected that, together, they would one day build the home of their dreams. After taking separate paths in life, the pair reunited in 2011. Harris, a mortgage broker with Canadian Mortgage Experts, a division of Dominion Lending Centres, works from her office in Nanaimo, B.C. She’s an 18-year industry veteran and a top-quality producer who takes pride in helping Canadians find the right deal to finance their homes. Over her lifetime, Harris has purchased five new-build homes. When she got together with Davies, who owns a modular building installation company, the two discussed the idea of designing and building their own custom home. They bought the perfect property in 2011: It was 12 acres of forested paradise, backing up to Crown land that skirts Mount Benson on Vancouver Island, about nine kilometres west of Nanaimo. Even though Davies had a design in mind, they hired a local architect who specializes in custom homes to “put pen to paper and make it happen.” In 2014, they got the building permit. “And we’ve been building for six blooming years,” laughs Harris. “It’s not a complicated design, but Mike is a perfectionist. Everything has to be just right. But it all came together, and we were able to move in just in time for Christmas.” Much of the lumber for the timber-frame home came from their own property and was milled locally, while some of the larger beams were sourced from an area supplier. The single Douglas fir used to construct the home’s ridge beam is a whopping 44 feet
long, eight inches wide and 20 inches deep. It was delivered on two tractor trailers and craned into place. Every piece of wood used to build the one-of-a-kind home shines with no fewer than five coats of Varathane. Before construction could begin, Davies’s first task was to build a three-bay workshop on the property. It has bustled with activity as the home has taken shape. “All the final milling was done at the shop on the property,” he explained. “Virtually everything in the house was made on the property except for the windows and doors.” Thousands of man-hours have gone into creating their home. It is a 2,150-square-foot showplace, with 22-foot ceilings overlooking the open concept main floor living room, kitchen and dining room. Wood is everywhere, but other natural materials are in evidence, including the massive quarry rock fireplace with its 10-foot-tall mantle. Harris explained it is an indoor/outdoor fireplace, so it’s possible to sit on the covered deck outside and look right through the hearth into the house. Davies said it was challenging to find master carpenters who could take on this kind of project. “Very few would be able to build this house,” he said, adding that he is extremely particular about how it’s come together. “Each piece on the house has been hand-sanded. I have a tool that you run over the wood and it pulls all the soft grains out and raises the hard grains, giving it a weathered look. That was done on all the beams, trim, moulding, everything on the exterior of the house.” While construction has been underway, Harris and Davies have tended to their rural homestead, where they raise ducks, chickens and goats. When the new home is ready, the next project will be a barn for the animals.
Karla Harris (above) and Mike Davies (opposite, centre) have spent years working on their dream home near Nanaimo, British Columbia. 26
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KIRKBRIDE PHOTOGRAPHY; ISTOCK.COM
brokersoff-the-clock
Between the mortgage business, the farm, building the house and helping Davies with the administration of his company, Harris has a full plate. But when she finds herself with a rare bit of free time, she picks up her fiddle. The instrument has been her passion since age 12, and she still plays East Coast Celtic-inspired music regularly with a couple of groups. Harris is happy they were able to celebrate Christmas in their new home. She enjoyed laying out the holiday dinner on the 10-foot fir table that Davies crafted by hand. “This is a dream of Mike’s that we both embraced,” she said. “It’s been a long time coming and it’s well-deserved. He works so hard.” Despite the fact that her own work hinges on the buying and selling of houses, Harris said this particular home will never go on the market.
“When you are building something like this, you’re not building it for resale. It is an heirloom, something we’ll pass on in our estate,” she said. For those who are thinking of building their own custom home, Harris and Davies had some parting advice: “You must have really, really deep pockets! And do lots of upfront planning. Once you’ve set your mind to what you will do, you can’t change it, so plan it all out in advance and be sure.” This interview with Karla Harris 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 working with animals, 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 CMB MAGAZINE
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cmbaevents
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TEE TIME
Pandemic protocols were as important as traditional golfing etiquette at CMBA Ontario’s 2020 Autumn Classic golf tournament at Carrying Place Golf & Country Club in King, Ontario.
The shotgun tournament – golfers all start from different holes at the same time and finish at the same time – is a popular event in Ontario’s mortgage broker community, and 100 enthusiasts signed up to play the 125-acre course. Reflecting the beautiful landscape of the area, Carrying Place’s tree-lined fairways and manicured greens inspired players of all levels to enjoy the event, sponsored this year by many businesses in the sector, including title sponsor CMI. 1. Ready to swing their favourite clubs are Lawrence Schwartz, Ely Rechtsman, Joseph Fooks and Pavel Tchourliaev.
6. Steve Lydon, Melissa Reinhardt, Andrew Spencer and Richard Coleman are ready to enjoy their round of golf.
2. This foursome is all set for the shotgun start: Martin Marshall, Lou Salvino, Kate Arvko and Anthony Quinteri.
7. Birdie? Rose Butera, Anthony Contento, Krista Valadao and Sokrates Testempasis look to record some great shots on the course that plays 6,350 yards from the back tees.
3. Derek Vaillant, Steve Clarke, Trevor Watters and Veronica Love, the team from TMG, won the prize for best masks. 4. Terry Walman and Bogdan Muzychka enjoy some friendly competition on the historic golf course. 5. The Indigoblue duo move to the next hole to line up their tee shots.
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8. Thank you to all the sponsors who supported CMBA Ontario’s Autumn Classic golf tournament. 9. Lining up the golf carts in anticipation of the start of the tournament. 10. This foursome, Travis Allinott, Jason Keller, Daniel Joseph and Jeff Bauer, represented title sponsor CMI.
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legalease
60 PER CENT INTEREST RATE SOMETIMES JUSTIFIED BY RAY BASI, J.D., LL.B., STAFF, EDUCATION AND POLICY REVIEW
In this commercial lending transaction, the parties did not enter into the agreement for an illegal purpose or with evil intention
BACKGROUND Agreeing or arranging to receive, or receiving, payments for advancing credit that exceed 60 per cent of the total value of the credit advanced is a criminal offence (Criminal Code, section 347). This is to accept there are circumstances warranting the rate of 60 per cent. The BC Court of Appeal concluded that the facts in Forjay Management Ltd. v. 625536 B.C. Ltd., 2020 BCCA 70 were such circumstances. The Supreme Court of Canada declined to hear an appeal of that decision. Understanding those circumstances can provide one more item in a broker’s or lender’s toolbox.
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legalease
WHAT HAPPENED? A developer purchased land using a first mortgage of $4.2 million and assuming a second mortgage of $1.8 million. He intended to build a 92-unit tower on the land. The developer later arranged financing to develop the project, with one of the investors in the first mortgage joining with two other parties to lend $10 million. The $10 million mortgage was registered as a second mortgage, the holder of the $1.8 mortgage having granted priority and reducing itself to a third mortgage. The resulting development financing was as follows: n First mortgage of $4.2 million n Second mortgage of $10 million n Third mortgage of $1.8 million The second mortgage, based on the following terms, provided for a rate of interest in excess of 60 per cent, contrary to section 347: n The mortgage secured $10 million, of which $6 million would be advanced to the borrower in the form of draws and the remaining $4 million would be paid to the lenders as fees; n The term was one year; and n The interest rate was 12 per cent, payable monthly in amounts of $100,000. The actuarial evidence established the effective rate of interest as 91.28 per cent. What was the Court to do? Declaring the contract void would mean a very large windfall for the borrower. Allowing for the lender to receive the full amount of the agreed upon interest would be a windfall for the lender and would be in violation of section 347. If an amount was to be chosen between those two extremes, how should it be chosen?
WAS THE 60 PER CENT CHARGEABLE? On determining that a mortgage would otherwise provide for a criminal rate of interest, the Court can make one of three possible orders: 1. The mortgage was void from the outset; 2. Particular terms of the mortgage are struck to leave an effective annual rate of interest less than 60 per cent; or
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3. The terms of the mortgage are left intact, but the interest rate is notionally severed so as to leave an effective annual interest rate of 60 per cent. In choosing between these three outcomes, the question for the Court is, “To what extent does public policy prevent enforcement of this contract?� The answer will vary with the circumstances of each case; the factors are the following: n Would the purpose or policy of the criminal rate of interest section be subverted by severance? n Did the parties enter into the agreement for an illegal purpose or with evil intention? n What is the relative bargaining position of the parties and their conduct in reaching the agreement? n What is the potential for the debtor to enjoy an unjustified windfall? In this case, the policy of the criminal rate of interest section would not be subverted by severing. This was not an exploitative contract. It was not a loansharking agreement and did not have a criminal object. It was a commercial
Each party had independent advice and knew the obligations they were taking on. This was a very risky transaction from the second mortgage lender’s perspective. The first mortgage was already in default. The borrower had exhausted all other means of refinancing the development. The second mortgage lenders were being asked to lend into a construction scenario that they had not initially anticipated; they had no choice but to continue funding to avoid the disastrous consequences of a shutdown of the project. The agreement is not void from the outset as the agreement is not so objectionable that its illegality taints the entire contract. This agreement, as contracts of this nature often do, attracts severance. The Court found these to be appropriate circumstances to leave the original terms of the second mortgage intact, including the 12 per cent interest rate, and cap the effective annual interest rate at 60 per cent.
This was not an exploitative contract. It was not a loansharking agreement and did not have a criminal object. It was a commercial lending transaction. Although the agreement contravenes a statutory enactment, it is otherwise unobjectionable. lending transaction. Although the agreement contravenes a statutory enactment, it is otherwise unobjectionable. The parties did not enter into the agreement for an illegal purpose or with evil intention. The second mortgage lender had been reckless as to the legality of the interest rate. As to the relative bargaining power of the parties, all parties had legal counsel and were experienced developers and lenders. The borrower had few options, but this was a real estate play and the borrower knew how to play that game.
TAKEAWAYS Commercial reasons can sometimes justify an interest rate as high as that permitted by the Criminal Code. This was such a case. The second mortgage lenders were entitled to 60 per cent interest, but not more. A fuller discussion of criminal rates of interest can be found in the Fall 2015 edition of this magazine at page 33 and in the Summer 2017 edition at page 22. The magazine archive can be found at https://www.cmbabc.ca/
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codeofconduct
CMBA’S FEEDBACK FOR NATIONAL CODE OF CONDUCT The Code will reflect regulatory standards in Canada’s mortgage brokering industry BY SAMANTHA GALE
The Mortgage Broker Regulators’ Council of Canada (MBRCC) is working with the Canadian mortgage brokering industry to develop a National Code of Conduct (Code) for mortgage broker professionals.
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n December, CMBA commented on MBRCC’s consultation document titled: MBRCC National Code of Conduct for Mortgage Brokering. CMBA: The licensing legislation in many provincial jurisdictions regulates activities that go well beyond mortgage brokering, such as mortgage lending, mortgage administration and mortgage trading. It may be confusing to licensees if the Code applies to one class of regulated activity but not other permitted regulated activities under the same licensing statute. Perhaps it is worth clarifying whether this proposed Code is only intended to apply to mortgage brokers? You may wish to consider broadening the scope of the document to attach to additional mortgage activities and reflect this by broadening the title.
1.
Compliance/Outcomes: Regulated persons and entities must comply with the letter of legislative/regulatory requirements. They should also ensure their employees and third-party partners comply. Their conduct should reflect industry best practices and achieve the outcomes intended by these requirements. CMBA: The dichotomy between requiring adherence to the “letter of the law” as
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opposed to the “spirit of the law” has been the subject of much historical legal debate. Complying with the strict letter of the law can sometimes lead to absurd results that do not actually enhance consumer protection. For example, a law that requires the harsh punishment of persons “who draw blood on the streets” is intended to prohibit assault, but a strict letter interpretation might stop an onsite medical attendant from administering life-saving measures. As an alternative to a strict, literal compliance standard, the MBRCC may wish to consider adopting compliance standards that are “reasonable” and “prudent,” which is more in keeping with modern jurisprudence. In addition, requiring that mortgage brokers ensure that third parties comply with standards is imposing a level of vicarious liability on them that is unprecedentedly high. We note that the word “ensure” means to make certain, which imparts a standard akin to being a guarantor. Mortgage brokers have no authority or direct control over third parties, and therefore have no way of ensuring their compliance, let alone with a strict letter standard. Vicarious liability for the conduct of others would only be reasonable where the mortgage broker has authority over the other person, such as with an employer/ employee relationship. However, even with the vicarious liability of employees, the civil standard of care is that of a reasonable or prudent employer and not that of a guarantor over all employee conduct. We further note that the expression “third-party partner” is an oxymoron, as partners act with a common legally binding arrangement and cannot therefore be third parties, who will have no legal relationship between them. Finally, the words “must” and “should,” which are both utilized in this section, create separate standards of conduct.
2.
Accountability: Regulated persons and entities must act in a responsible/ accountable manner. They must exercise care, due diligence and sound judgment in providing their products and services. CMBA: We have no concerns with this standard.
3.
Honesty: Regulated persons and entities must conduct their activities in a truthful, clear and transparent manner. They must not mislead, hide or obscure material information. CMBA: We have no concerns with this standard.
4.
Competence: Regulated persons must develop and maintain the skills, knowledge and aptitudes necessary for their business activities. They should decline to act when they are unable to provide products/ services in accordance with this Code. CMBA: The MBRCC may wish to add a reference to the rules that govern mortgage brokers under their licensing statute, so that they should act in accordance with this Code and those rules.
5.
Suitability: Regulated persons and entities must provide options for products/services that are suitable for their client(s). They must have a sound understanding of how the products/services match the circumstances of their client(s). CMBA: The MBRCC may wish to amend this standard to incorporate a reasonable person standard, such as that laid out in various regulations of the Ontario Mortgage Brokerages, Lenders and Administrators Act, 2006. For instance, 24. (1) of the Mortgage Brokerages: Standards of Practice provides that, “A brokerage shall take reasonable steps to ensure that any mortgage or investment in a mortgage that it presents
codeofconduct
for the consideration of a borrower, lender or investor, as the case may be, is suitable for the borrower, lender or investor having regard to the needs and circumstances of the borrower, lender or investor.” In addition, the MBRCC may wish to qualify the phrase “circumstances of their client(s),” as mortgage brokers may not be aware of or may have no ability to accurately ascertain all of the circumstances of their clients. For instance, the Code could require brokers to provide suitable services and products that match the disclosed circumstances of the client. We note that the suitability advice provided to a mortgage client and a broker’s knowledge of their financial circumstances may not be as robust as that of a financial advisor, who would take a more holistic review of a client’s financial circumstances, while a mortgage broker would be focusing on the client’s housing costs, needs and affordability.
6.
Disclosure: Regulated persons and entities must disclose material information to applicable parties in a transaction. Disclosures must be made in an honest and timely manner. Disclosures are required for transactions completed in traditional or digital format. CMBA: You may wish to further clarify that disclosure must be meaningful. For instance, some brokers, in an effort to be thorough and not miss any potential issues, will over disclose, so that pivotal issues are hidden or not readily apparent in the mass of disclosure information. In addition, we note that transaction systems are rapidly evolving, and it is not clear what “traditional” means any more. You may want to amend the language, so it is more embracing of possible future change to anticipate further developments in transaction systems.
7.
Management of Conflicts of Interest: Regulated persons and entities must identify and disclose actual or potential/perceived conflicts of interest to applicable parties in a transaction. They should have documented strategies for managing such conflicts. CMBA: We have no concerns with this standard.
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8.
Security and Confidentiality: Regulated persons and entities must protect their clients’ information. They must use the information only for purposes for which the client has given consent. CMBA: You may wish to clarify that the information that must be protected is the clients’ “personal” information. We note that the phrase “personal information” is not a universal term, as it is defined differently in various privacy statutes. The standard of protection required needs to be indicated, such as that of a reasonable or prudent person. Even privacy statutes do not impose guarantor status on holders of personal information.
9.
Stewardship: Regulated persons and entities should act with integrity and respect. They must not engage in any act or omission that would bring disrepute to or undermine the public’s confidence in the industry. CMBA: You may wish to identify the specific industry referenced in the standard, such as the mortgage industry.
A more meaningful standard for mortgage brokers might therefore be similarly aligned along the concept of self-reporting, where members have a duty to report to authorities their own Code or regulatory breaches of a serious nature involving dishonesty, deception, fraud and money mishandling. This would encourage a culture of compliance, as persons might be treated more harshly or leniently by regulators or other authorities for breaches under investigation depending on whether they made a report concerning their own conduct issue. CMBA appreciates the opportunity to provide feedback to the mortgage broker regulators and welcomes the dialogue on standards and further opportunities to collaborate on adopting combined standards between the MBRCC and CMBA and its provincial associations.
10.
Co-operation with Regulators: Regulated persons and entities must co-operate with mortgage brokering regulators. They should report possible violations of laws, regulations or this Code to the appropriate authority. They must not retaliate against those who make or intend to make such reports. CMBA: A requirement imposed on regulated persons to report others to authorities for Code breaches may cast an exceptionally wide net, where most persons would report transaction scenarios that are vaguely perceived as problematic without a reference to specific Code or regulatory breaches. In our experience, mortgage brokers are likely to report competitors for advertising concerns or completing transactions that are considered impossible or difficult to arrange for a certain rate, and therefore deemed suspicious. We note that other regulated professions, such as lawyers, have self-reporting obligations only for the most serious potential breaches, which involve matters such as trust fund deficiencies, fraud, dishonesty, undertakings and criminal activity. CMB MAGAZINE
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professionalconduct
Yes, but what I do and say in my private life can be the subject of disciplinary action at my workplace.
A CAUTION AND A BEACON
FOR REGULATED PROFESSIONALS BY BRAD KIELMANN
T
he Saskatchewan Court of Appeal recently released a decision that analyzes the tension between professional regulation, the private life of a professional and section 2(b) of the Canadian Charter of Rights and Freedoms (Charter): Strom v. Saskatchewan Registered Nurses’ Association, 2020 SKCA 112. Carolyn Strom is a registered nurse. In 2015, her grandfather died at a long-term care centre. Strom posted comments on her personal Facebook page about the care her grandfather received in his final days at the care centre. In this post, she also linked to a newspaper article concerning end-of-life care. Additionally, she tweeted the posts to Saskatchewan’s Minister of Health and the Saskatchewan Leader of the Opposition. Some employees from the long-term care centre objected to Strom’s posts and reported her to the Saskatchewan Registered Nurses’ Association. She was found guilty of professional misconduct. She
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was reprimanded, fined $1,000, required to submit two self-reflective essays and ordered to pay $25,000 in costs. Strom appealed to the Queen’s Bench. Her appeal was dismissed. The Court of Appeal, however, allowed Strom’s appeal and set aside the decision by the discipline committee that her conduct constituted professional misconduct, and the costs award. In allowing her appeal, the Court of Appeal referred to a number of principles that are noteworthy for other professionals, including: n It is well settled ... that a professional may be exposed to disciplinary proceedings for conduct entirely outside the actual practice of the profession, if the conduct reflects back in a professional way; n Some, but not all, off-duty conduct can give rise to discipline for professional misconduct or conduct unbecoming; n Consideration should be given to whether the conduct evidences direct impairment of the ability to function in the professional capacity or impairment in the wider sense; n Impairment can be inferred.
In assessing the circumstances that give rise to a finding of direct impairment or impairment in the wider sense, the Court will consider: n The nature of the conduct at issue; n The nature of the position; n Where there is evidence of a pattern of conduct; n Evidence of controversy surrounding the conduct; n Evidence that the private conduct has been made public; and n Evidence that the private conduct has been linked by the member to the professional status of the member. The Court of Appeal concluded that the decision as to whether Strom’s conduct amounted to professional misconduct was a discretionary one. In this regard, the standard of review it applied was adopted by the Court in British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71: ... An appellate court may and should intervene where it finds that the trial judge has misdirected himself as CMB MAGAZINE
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to the applicable law or made a palpable error in his assessment of the facts. The Court of Appeal identified that three groups have an interest in fair and effective self-governance: the public, the profession and the members of the profession. The central question in relation to the imposition of professional sanctions for off-duty conduct is whether there is a nexus between the off-duty conduct and the profession that demonstrates a sufficiently negative impact on the profession or the public interest. This question, though, must be balanced against the right of the individual to participate in
Gulp!
Overall, the Court of Appeal said the discipline committee cherry-picked the most critical portions of the posts. Further,
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n Whether the nurse charged identified
themself as a registered nurse; n The extent of the professional connection between the nurse charged and the nurses or institution the nurse charged has criticized; n Whether the speech related to services provided to the nurse charged or their family or friends; n Whether the speech was the result of emotional distress or mental health issues; n The truth or fairness or any criticism levied by the nurse charged; n The extent of the publication and the size and nature of the audience;
The central question in relation to the imposition of professional sanctions for off-duty conduct is whether there is a nexus between the off-duty conduct and the profession that demonstrates a sufficiently negative impact on the profession or the public interest.
social and political discourse, which is an important aspect of personal autonomy and free speech. This right is at the heart of a liberal democracy. The Court of Appeal pointed out a number of omissions of the discipline committee’s decision that collectively constituted an error in principle: n Failure to take adequate account of key factors; n Failure to analyze the tone, content or purpose of the posts as a whole; n Failure to note that the link to the newspaper article was a policy argument about improvements to palliative care in Canada; n Failure to mention that the posts were a brief online conversation with a few participants that occurred in the course of a single day; n Failure to mention the fact that Strom was a grieving granddaughter; and n Failure to acknowledge that Strom’s posts included expressions of gratitude.
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it characterized the discipline committee as having “harshly and simplistically summarized her statements as a generalized public venting.” Importantly, the Court of Appeal emphasized that the discipline committee “failed to refer to personal autonomy, freedom of speech and the potential benefits of public discourse to the public interest, nurses and the profession.” In analyzing freedom of expression, the Court of Appeal drew on comments from Justice Rosalie Silberman Abella in Dore (2012 SCC 12) regarding the importance of
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professional discipline to prevent incivility in the profession, where she found: “But in dealing with the appropriate boundaries of civility, the severity of the conduct must be interpreted in light of the expressive rights guaranteed by the Charter, and, in particular, the public benefit in ensuring the right of lawyers to express themselves about the justice system in general and judges in particular ...” and ... “Proper respect for these expressive rights may involve the disciplinary bodies tolerating a degree of discordant criticism ...” According to the Court of Appeal, an administrative decision that gives effect as fully as possible to the Charter protection at issue will be found to be correct on appeal. That finding must reflect a proportionate balancing of the professional governing body’s statutory objective with the professional’s expressive freedom. In assessing whether speech relating to health care constitutes professional misconduct, the Court of Appeal identified relevant contextual factors, including: n Whether the speech was made while the nurse charged was on duty or was otherwise acting as a nurse;
n Whether the public expression by the nurse
was intended to contribute to social or political discourse about an important issue; and n The nature and scope of the damage to the profession and the public interest. If you are a professional, take note that what you do and say in your private life can be the subject of disciplinary action. Conversely, the Court of Appeal confirmed that, as a professional, your entire life should not be subject to inordinate scrutiny that would lead to a substantial invasion of the privacy rights and fundamental freedoms of professionals. Put succinctly, the Court of Appeal ensured that “the professional bargain does not require that they fall silent.” Brad Kielmann is an associate at McQuarrie Hunter LLP in Surrey, British Columbia. His practice includes defending professionals in disciplinary proceedings and acting for clients involved in business disputes. In relation to professional discipline, he has acted for mortgage brokers, realtors, police officers, architects, accountants and immigration consultants.
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deemedtrusts
Potential options for secured lenders to manage the risk posed by deemed trusts
LENDERS BEWARE: POST-DISCHARGE OBLIGATIONS FOR A BORROWER’S HST/GST DEBT BY MATTHEW WILSON
L
enders, like any businesses, prefer certainty. In many ways the real property lending industry is built around trying to be as certain as possible before a loan is advanced. Does a borrower own their property? How much is that property worth? How much does a borrower make in a year? Can the borrower pay the mortgage, and if they can’t, is there enough value in the property to cover the loan? In 2018 the Federal Court, in a decision involving the Toronto-Dominion Bank (the “Bank”), reminded lenders that, when it comes to amounts owing by a borrower to the Canada Revenue Agency (the “CRA”), sometimes things really aren’t that certain. In this case, a landscaping business (the “Borrower”) collected goods and services tax (“GST”, the same analysis applying to HST) in the amount $67,854 relating to that business. The Borrower failed to remit this amount to the Receiver General. In 2010, after the Borrower failed to remit collected GST, the Bank granted the Borrower a line of credit and a mortgage, which were both secured against the Borrower’s property. The Bank was unaware of the Borrower’s unremitted GST amounts. Upon selling the property in 2011, the Borrower repaid the line of credit and mortgage and the Bank discharged the charges registered against the property.
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In 2015 the CRA asserted a deemed trust claim in the amount of $67,854 against the Bank pursuant to the provisions of the Excise Tax Act (Canada) (the “Act”). The Act creates a deemed trust in favour of the Crown with respect to GST amounts collected. The Act also extends this deemed trust to the property of the tax debtor, including property held by secure creditors such as the Bank. The Bank refused to pay for the Borrower’s tax debts and the CRA commenced legal action. The Federal Court found in favour of the CRA and ordered the Bank to pay $67,854 plus interest to the Crown. The Bank appealed. Spoiler: The Federal Court of Appeal in Toronto-Dominion Bank v Canada, 2020 FCA 80, dismissed the appeal, upholding the ruling of the Federal Court. The issue before the Federal Court of Appeal involved the correct interpretation of the deemed trust provisions of the Act. The Court began its analysis by considering the proper interpretation and history of the deemed trust provisions. The Court noted that Parliament had amended the relevant section of the Act to give absolute priority to the deemed trust over secured creditors and to extend the scope of the deemed trust to include property of the debtor and property held by any secured creditor. Based on its interpretation of the provisions, the Court found that Parliament CMB MAGAZINE
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deemedtrusts
intended to grant priority to the deemed trust in respect of the property that is also subject to a security interest. The purpose of the provision is to protect the collection of unremitted GST/HST.
...when the Bank granted the Borrower a line of credit and mortgage and took security over the Borrower’s property, a deemed trust arose in favour of the Crown to the extent of the tax debt. Therefore, when the Bank granted the Borrower a line of credit and mortgage and took security over the Borrower’s property, a deemed trust arose in favour of the Crown to the extent of the tax debt. When the Borrower sold the property, the Bank was statutorily obligated to remit the proceeds it received to the Receiver General. The Court did note that the super priority normally given to the deemed trust provision of the Act does not survive bankruptcy under
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the Bankruptcy and Insolvency Act (Canada), nor does it apply to arrangements under the Companies’ Creditors Arrangement Act (Canada). Effectively this means that a secured lender would likely be in a better position if a borrower goes bankrupt, at least as it relates to unremitted GST/HST. The Court also noted that lenders who advance funds and take security before a borrower fails to remit GST/HST are protected by subsection 222(4) of the Act. This provision provides that the deemed trust will not override certain “prescribed security interests,” which is generally interpreted as including a mortgage on a borrower’s property before the borrower fails to remit GST/HST. The Federal Court of Appeal ultimately upheld the decision of the Federal Court, requiring the Bank to pay to the Crown the sum of $67,854 plus interest. The Court found that no triggering event is required to bring the deemed trust into operation. It was further held that the Federal Court did not err by finding that the bona fide purchaser for value defence is not available to secured creditors such as the Bank. Finally, the Court outlined the following potential options for secured lenders to manage the risk posed by deemed trusts: “identify higher risk borrowers (which might include persons operating sole proprietorships), require borrowers to give evidence of tax compliance, or require borrowers to provide authorization to allow the lender to verify with the Canada Revenue Agency whether there are outstanding GST liabilities then known to the Agency.” Lenders would be wise to follow the advice of the Federal Court of Appeal, at least to the extent that a lender can, however any lender who wishes to verify the status of a GST/HST account with CRA should be prepared for a delay between receiving a loan application and when the transaction will be able to close. It’s also important to remember that, by the time CRA demanded payment from the Bank, the mortgage was already discharged. Even if the Bank can try to recover the amount they had to pay from their Borrower, without registered security the Bank is an unsecured creditor, and the current financial health, and legal status, of the Borrower is unknown. It would not be surprising for the Bank to attempt to appeal this decision to the Supreme Court of Canada. Considering the decision of the Federal Court of Appeal was unanimous, though, the likelihood of the Supreme Court agreeing to hear an appeal could be slight. Even if appealed, lenders need to make sure they do their due diligence when underwriting, because, unless overturned by the Supreme Court or amended by Parliament, what is certain is that, if a borrower has unremitted GST/HST from before a mortgage is registered, CRA will continue to look to lenders to ensure that tax debts are paid. Matthew Wilson is the leader of the real estate department at Siskinds LLP, where he assists borrowers and lenders (including institutional, MIC and private lenders) on a variety of mortgage matters. He is recognized by the Law Society of Ontario as a Certified Specialist in Real Estate Law. This content is for information purposes only and does not constitute legal advice or provide any legal opinions, and it is only accurate as of the date of first publication. More information: siskinds.com
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realestatedevelopment
DEMAND & SUPPLY IN MARKET HOUSING
Call for a paradigm shift in housing supply policies to enable providers to better respond to communities’ needs BY HESAM DEIHIMI
O
ne of the most dynamic, appealing, yet challenging aspects of being involved in the residential real estate development sector is the unique lens it requires to ensure every project helps to preserve and advance the well-being of communities. To make that vision a reality, each project should be treated as its own business entity. Once an opportunity is identified and the development site is secured, the development team begins its due diligence. This process determines the suitability of the property for its intended purpose. Most, if not all, development teams draft a thorough business plan based on the findings of the due diligence process. The foundation of any business plan is the demand and supply analysis.
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THE DEMAND SIDE The demand for housing is primarily a function of social, demographic and economic trends. Dynamic trends include changes in household size and composition, household income, mortgage interest rates, lifestyle choices, and the existing and anticipated transportation network. These factors determine how different sectors of the market use housing. Understanding the conditions surrounding these factors can help in an analysis of the market and estimating demand for a particular product type. Demographic trends, including changes in number of persons per household, household head age and marital status impact the current and future housing demand significantly. For example, the older households are generally more interested in
smaller units requiring less maintenance in high service levels, closer proximity to local amenities such as retail areas and health services, greater security levels and fixed costs. On the other hand, young families may be more interested in living close to transit, recreational amenities and childcare services. School catchment and proximity to employment centres are a higher priority for those with children in their households. One of the most easily overlooked demand-side issues in policy making is related to the changes in household size. A decrease in household size (number of persons per dwelling) can have an intensified impact on the demand once combined with a rise in population. For example, according to Statistics Canada census data, in the District of North
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Vancouver (DNV), the average household size decreased from 2.66 to 2.63 between 2011 and 2016 while the population increased by 1.8 per cent from 84,412 to 85,936, while Metro Vancouver Regional District grew by 6.5 per cent during the same period. The increase in new dwellings between 2011 and 2016 amounted to only 883 units. Assuming there was no change in population during those census years, 362 of those new units would be needed to serve the change in new household size. The remaining 521 units would then be distributed to the 1,523 new community members at a rate of 2.92 persons per household. Not only was the population growth not in line with Metro Vancouver’s population growth, even the slight increase in population between those two census years was met with significant lack of housing supply. This imbalance creates further sociodemographic issues for communities.
commuting, doing more online shopping and increasing the use of outdoor amenities – may be here to stay. Beyond the social and demographic trends lie the local, provincial, national and global economic changes that help shape demand for residential real estate. Undoubtedly, one of the biggest reasons behind the surge in demand for housing is the low interest rate environment Canadians have experienced since the 2008-09 financial crisis. Lower interest rates not only result in lower mortgage payments and a surge in house prices, they also help to grow the general economy and increase employment. There are other important factors on the demand side that can temporarily create important shifts in the market. These include technological changes that have led to the mass public adoption of short-term vacation rentals as well as the mood and sentiment of the marketplace.
If local politicians continue implementing inelastic and heavily constrained supply-side policies that are incapable of responding to social and economic changes, communities will continue to be punched in the face.
According to Stats Canada, in the same municipality DNV, the proportion of the population for age groups ranging between 25 and 44 years is reduced by 9.6 per cent and has been increased by 12.18 per cent for residents over the age of 55. Social trends such as international, interprovincial and intermunicipal migration patterns as well as changes in lifestyles, habits, behaviours and tenure choice also have significant impact on the demand for housing. As we experience a global pandemic, communities are also going through a fundamental shift in their preferences, attitudes and behaviours. Some of these shifts in behaviour – such as working from home, becoming accustomed to spending less time 44
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THE SUPPLY SIDE The biggest challenges currently being faced in many of the major metropolitan regions are the supply of land, long permitting delays faced by both for-profit and not-for-profit housing providers, and access to a welltrained construction labour force. Metro Vancouver produces its Regional Growth Strategy that projects the future growth of the region and principles under which municipalities must accommodate growth targets. Municipalities spend years and millions of dollars to draft their official community plans (OCPs), which must integrate the above-mentioned growth targets. The purpose of this exercise is to set the general
framework to plan for a more balanced and diverse population and create more complete, compact and connected communities. With the OCP in place, municipalities can then take another few years to draft their local area plans, neighbourhood design guidelines and other OCP-related policies. Yet between 2011 and 2018, only two municipalities in Metro Vancouver met or exceeded the Regional Growth Strategy targets. These planning exercises, while well intentioned, result in creating heavily constrained and inelastic supply dynamics that may lose their linkage to the everchanging social, demographic and economic changes that shape the diverse housing needs of communities. If these housing needs are not met, residents will struggle to find affordable and attainable homes in the communities they work in and where they provide essential services.
ADJUSTING THE EQUATION As Canada experiences one of the biggest surges in real estate activity since 2016, in the midst of a global pandemic, one can’t help but remember Mike Tyson’s quote about planning. The boxer famously said, “Everybody has a plan until they get punched in the face.” While the demand side of our housing dynamic has a significant impact on the well-being of our communities, so does the supply side. If local politicians continue implementing inelastic and heavily constrained supply-side policies that are incapable of responding to social and economic changes, communities will continue to be punched in the face. The only way to adjust the equation is through a fundamental paradigm shift that holds elected officials accountable in creating policies that help housing providers respond better to our communities’ everchanging housing needs. Hesam Deihimi is an award-winning community developer who serves as the president and principal at Milori Communities and Placemaker Group of companies. He currently serves as the representative of the development community on the District of North Vancouver Rental and Affordable Housing taskforce.
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A mortgage application is just a snapshot Let’s partner and ask the right questions to truly understand your client’s story. Together, we can develop the right financial solution. To see the whole picture, visit hometrust.ca/realstories