January 3rd - 2011

RECO Case: Unsuspecting buyers get less than they bargained for

The following decision from RECO Complaints, Compliance and Discipline Appeals has been condensed.

The following decision from RECO Complaints, Compliance and Discipline Appeals has been condensed. All individual and corporate names listed below have been changed and fictionalized. The entire case can be viewed at www.reco.on.ca.

Carter listed his property with Meldrun Brokerage for $99,900. The list price was later reduced to $93,500 and then again to $92,900.

In inquiring about a mortgage, the buyers -- Mr. and Mrs. Williams -- contacted Lee, a mortgage broker who introduced them to his friend Pat. In turn, Pat introduced them to Bess, a broker with Farrell Brokerage. The Williams went with Pat to view Carter’s property and during this same visit decided to make an offer, asking Pat to call Bess.

Although the listing was now down to $92,900, Bess advised the Williams that the asking price was $120,000. Later that day, Lee brought the buyers a completed Agreement of Purchase and Sale (APS) drafted by Bess. According to the APS, the Williams offered $120,000 with a deposit of $17,000. When the APS was drafted and presented, the property was still listed with Meldrun Brokerage for $92,900.

No evidence suggests that Bess ever advised the Williams of the actual list price on the real estate board’s MLS® System (Multiple Listing Service) or that she drafted a confirmation of representation in order to properly disclose the brokerages’ representation of the parties to the transaction. There was also no indication that Bess disclosed her role or relationship to all the parties. No record suggests that the property was ever listed by Farrell Brokerage, or that Bess ever advised Meldrun Brokerage or the listing broker of the transaction pertaining to their listing.

The Williams state that they made a cash deposit of $17,000, but Carter contends that he never received any deposit funds. Carter states that the Williams were actually short $17,000 at the time of closing, and because the property needed a lot of work he decided to give them back $17,000.

Upon the conclusion of the transaction, the Williams discovered that they had a first mortgage of $73,000 and a second mortgage of $30,000. Although they had been told that the second mortgage was a vendor take-back, they discovered that the second mortgage was in fact with Knox Company, which turned out to be a self-directed RRSP belonging to a relative of Bess.

The RECO panel determined that the registrant, Bess, acted unprofessionally when she:

  • failed to verify that the property was already under a representation agreement with another brokerage before she presented the offer;
  • failed to disclose her role, at the earliest practical opportunity in the relationship, and/or in the alternative, failed to obtain, in writing, an acknowledgement of her role from the buyers;
  • failed to protect the best interests of her clients by placing them in a position whereby they entered into an APS with insufficient knowledge of all pertinent facts regarding the property value, specifically the actual list price on the board’s MLS® System;
  • participated in the creation of a false document, by inserting in the APS that a deposit of $17,000 was being made against the purchase price, or, in the alternative, failing to deliver the $17,000 deposit to Carter to be held in trust in accordance with the terms of the APS;
  • failed to disclose, or, in the alternative, deliberately omitted to disclose to the buyers, by way of written declaration, her interest in the property, in that the second mortgage was a self-directed RRSP belonging to her relative; and
  • artificially inflated the asking price of the property to $120,000 at a time when the property was listed at $92,900.

The RECO panel determined that the registrant, Bess, acted unprofessionally and breached the following sections of the REBBA 2002 Code of Ethics:

3 - Honesty, integrity etc.
4 - Best interests
7 (1) - Dealing with other registrants
8 (1) - Services from others
17 - Nature of relationship
18 (1) 2 - Disclosure of interest
21 (1) - Material facts
38 - Error, misrepresentation, fraud, etc.
39 - Unprofessional conduct, etc.

Bess was ordered to pay a penalty of $7,000.

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