Friday, August 24, 2007

Legal Advice can be very important!

Have your lawyer review purchase agreement before you sign anything

This can be the best advice you may ever receive when you are contemplating purchasing real estate

A decision of a three-judge panel of the Ontario Divisional Court earlier this year highlights the risk of waiving conditions in a multiple-offer scenario.

In December 2001, Saeid Sharifara and his wife were refugees from Iran who had started their own business in Canada and accumulated enough capital for a down payment on a house.

Sharifara submitted an offer to buy a house through a real estate agent. Among other things, the offer was conditional on arranging financing within seven business days. One day later, Sharifara learned there were other potential buyers bidding for the property. He then submitted a second written offer to purchase the house at a higher price and with a larger deposit.

He says that at the time he signed the second offer, he believed that only the price and the amount of the deposit had been increased and that the new offer was conditional in the same way as the first had been. It wasn't, and when the second offer was accepted by the seller, an unconditional agreement of purchase and sale was made.

Sharifara testified that the agent, without his consent, did not include the financing and other conditions in the second offer. The agent disputes this and testified that Sharifara was aware the second offer was unconditional.

Four days after submitting the second offer, the buyer was approved for financing by the Bank of Montreal. He began preparations to move into the house on Jan. 10, 2002, the scheduled closing date.

Two days before closing, however, the bank withdrew its approval for financing because of discrepancies in the mortgage application. All of the dealings Sharifara had with the bank were handled by a mortgage broker without any direct participation or involvement by the applicant.

Sharifara then consulted a lawyer to review the agreement of purchase and sale and says that only then did he learn the agreement was unconditional. Despite this, he decided not to proceed with the transaction. Using the services of another lawyer, he negotiated a return of one-half of his deposit and successfully sued his real estate agent and broker for damages including the forfeited half of the deposit.

The agent and broker then appealed the judgment against them to the Divisional Court. In a decision released in March of this year, the trial judgment was reversed and the buyer's action against the agent and broker was dismissed.

Writing for the three-judge panel, Justice Theodore Matlow notes that the real cause of Sharifara's problem was not the unconditional offer prepared by the agent, but rather "the decision of the bank to withdraw the financing that it had earlier offered to provide to him."

Even if the second offer had been made conditional, as Sharifara says he expected, the financing condition would have expired before the bank withdrew its offer of financing, and the buyer "would have been left in exactly the same position he would have been in had the offer been conditional, namely, without the desired financing from the bank."

In dismissing the action, the court concluded that Sharifara suffered no damage as a result of any act or omission of his agent or broker, since they had no responsibility for the actions of the bank.

Three important lessons to be learned from the case are:

Always have an agreement of purchase and sale reviewed by a real estate lawyer before signing it or make it conditional on subsequent approval of the terms by a lawyer.

Remember that a financing commitment is almost always conditional until closing. A prudent buyer will have a Plan B in case the bank changes its mind at the last minute.

Blaming the real estate agent for something that's not his or her fault is not a wise idea.

Read more about lawyers, legal advice and cautions when making an offer

Toronto Real Estate Board (TREB) Average Prices and Graph

For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829

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