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NDP housing critic David Eby remarked on Monday that the situation leads “to the inevitable conclusion that oversight of the real estate industry in B. is woefully inadequate.”Well, anyone who has ever made a complaint to the Law Society of B. or the College of Physicians and Surgeons may have the impression that regulatory bodies often do a better job of protecting members of their industry than members of the public.Those who have seen the movie, The Big Short, about the financial shenanigans surrounding the 2008 American housing market collapse, know that the U. Securities and Exchange Commission was entirely asleep at the switch in regulating the markets at that time.
My neighbour told me last fall he had sold his Kerrisdale home with a distant closing date of January, in a “contract assignment” arrangement.
He did not appear distressed, despite the fact he did not receive the additional profit that flowed from the quick flip that took place following the initial sale.
Call the arrangement a shady real estate practice or insider trading, such contract assignments have been occurring for some time in Vancouver — with full knowledge of both the Real Estate Board of Greater Vancouver and the Real Estate Council of B. (They also happen regularly in Toronto.)Yet, it took only a matter of days, after a newspaper article about the practice, for the Real Estate Council to strike an advisory group to scrutinize the practice as “an urgent matter”, and for B.
C.’s Communities Minister Peter Fassbender to declare that the government would take “very seriously” any recommendations.
Remember: Before executing your next purchase agreement (whether as a buyer or purchaser) or better yet, before you even negotiate the Letter of Intent, I would be happy to review your transaction and provide effective and efficient advice and counsel.
Maybe they are scrolling across your Facebook or Instagram feed.If anyone imagined that the Real Estate Board of Greater Vancouver was unaware of these contract assignments taking place, they had only to read the board’s website last autumn, which featured an article titled Protecting Yourself in an Assignment Agreement. rights (embedded in a Contract of Purchase and Sale) to someone else unless the contract states otherwise.This type of transaction is known as an assignment agreement.“In simple terms, someone can buy the right to step into the original buyer’s shoes to complete the contract.”The article counsels people to work with realtors on such arrangements and says the original seller should be made aware of the process, as well as ensure that “every individual involved in the transaction has been verified.”The real estate council’s Professional Standards Manual notes that the seller’s consent for a contract assignment is, in fact, not required by law — as long as written notice of the assignment is provided to him or her.Furthermore, even if a legal judgment is obtained against the purchasing assignee entity, it is often worthless because the purchaser has no assets.Why Legal Advice Should be Sought Regarding the Buyer’s Right to Assign the Purchase Agreement Anticipating that this issue may occur, we draft assignment provisions in the purchase agreement prior to signing that require two things.Unfortunately, prior to the close of escrow, if the new shell purchasing entity defaults on its obligations, and the seller seeks to recover the initial deposit based upon breach of contract, the seller is often left with less than a full recovery.When the replacement purchasing entity is a shell company with no assets, the seller may be unable to fully recoup its expenses, including attorney fees and escrow and title cancellation expenses.The seller, therefore, can pursue both entities for the initial deposit and if, upon default, the new buyer refuses to release the initial deposit from escrow, the seller can sue both entities for recovery of the initial deposit and all costs and expenses (including attorneys’ fees, cancellation expenses and interest).Additionally, the judgment will be “joint and several,” meaning that the seller can recover from either entity, permitting the seller to concentrate its collection efforts against the original purchaser (which has assets), rather than wasting time and money pursuing the shell entity.To that end, the council recommends inclusion of an “Assignment Option Clause,” stating “the buyer reserves the right to assign this contract in whole or in part to any third party without further notice to the seller.”In other words, the ostensible buyer can play the role of middle man, and subsequently flip the property, pocketing any additional profit.It is worth noting that the original seller is not out any money; hence my neighbour’s insouciance. Housing is extremely costly and in short supply in this region and thus ideally reserved for those wishing to acquire housing units as places to live.