April 1st - 2011

RECO Decision: Registrant fails to disclose financial interest in property

The following decision from RECO Discipline and Appeals Hearings has been condensed. All individual and corporate names have been changed.

The following decision from RECO Discipline and Appeals Hearings has been condensed. All individual and corporate names have been changed.

Tom and Ellie were relocating for their jobs and needed to find a house. They retained Edgewell Brokerage as their buyer brokerage and worked with Wanda, a sales representative. The couple gave Wanda a list of their preferences for their new home.

Wanda found a property that she thought would be suitable. It was for sale by Hammertop Builders. She gave Tom and Ellie the MLS® information sheet before showing them the house. It indicated that the house had been on the market for 108 days. When Tom asked why the house had been on the market so long, Wanda replied that a buyer had entered into a contract with Hammertop, but as a result of incessant design changes requested by the buyer, the builder backed out of the agreement.

During the first showing, Wanda told the couple that Hammertop Builders was using the property as a show home. What Wanda didn’t share with Tom and Ellie was that at the time she had a financial interest in the land on which the house was built.

Tom and Ellie liked the house but had concerns that it might not be big enough for themselves and their three children. They suggested that the house could meet their needs if the basement was finished with two additional rooms. Wanda relayed their request to the builder.

The couple also asked whether the basement was “dry” and Wanda informed them that it was. The builder agreed to add two rooms to the basement, so Tom and Ellie bought the house.

Three months after they moved in, the basement flooded. Hammertop repaired the structural damage and restored the basement to its closing date condition. Tom and Ellie’s insurance covered some of the damages.

Five months later, the basement flooded again, causing water damage a second time. Hammertop repaired all damage caused by the second water leak. However, the couple’s insurance company discontinued their water damage insurance. An engineer’s report indicated that the home’s construction likely caused a problem with the water table.

During the investigation into the water problems, it was discovered that up until just before the closing of Tom and Ellie’s purchase, the land on which the house was built was owned by a numbered company of which Wanda was president. Only moments before the deed to Tom and Ellie was registered, Wanda’s numbered company transferred title to the land to another number company.

The RECO panel determined that Wanda acted unprofessionally by failing to provide conscientious and competent service and failing to disclose a personal financial interest in the land on which Tom and Ellie’s new home was built. The panel also found that Wanda engaged in an act or omission that would reasonably be regarded as unprofessional or unbecoming a registrant.

The panel determined that Wanda breached Sections 5, 18(1) 1 and 38 of the REBBA 2002 Code of Ethics: 5 - Conscientious and competent service etc. - A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services; 18(1) - Disclosure of interest - A registrant shall, at the earliest practicable opportunity and before any offer is made in respect of the acquisition or disposition of an interest in real estate, disclose in writing the following matters to every client represented by the registrant in respect of the acquisition or disposition: 1. Any property interest that the registrant has in the real estate; 38 - Error, misrepresentation, fraud, etc. - A registrant shall use the registrant’s best efforts to prevent, error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate.

Wanda was ordered to pay a fine of $8,000.

The full decision is dated 2010/08/12. It can be viewed at www.reco.on.ca. Look under “Complaints and Enforcement” and then scroll down to the “Discipline and Appeals Hearings and Decisions” section. Choose the appropriate year, uncheck all other search boxes, and search by date only.

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