Canada's Condominium Magazine
A couple of current stories about real estate fraud draw attention to one of the fundamental assumptions we make when buying and selling property: the assumption of trust. The lawyer who handled Toronto condo purchasers’ deposits in the Centrust case has now been arrested for fraud after more than $12 million disappeared from a trust fund being handled by her. And from Vancouver today comes news that a real estate brokerage has had its licence suspended by the Real Estate Council of BC after failing to account for trust monies held on behalf of its clients.
Stories like these may make people nervous about handing over large sums of money to people they don’t really know. They should find reassurance in knowing that the real estate industry is closely regulated in Ontario, though, as we have seen, fraud will occur from time to time.
The Real Estate Council of Ontario (RECO) is the body that regulates brokers and brokerages in this province. It administers the Real Estate and Business Brokers Act 2002 (REBBA) on behalf of the Ontario Ministry of Government Services. One way that RECO ensures that brokerages are in compliance with REBBA is by carrying out inspections. Inspectors can randomly select a brokerage and set up a date for an inspection, or conduct an inspection without notice when circumstances require. It is likely (the Real Estate Council statement does not specify) that the suspension of that BC brokerage was the result of such an inspection.
Paperwork in real estate has traditionally been copious, and REBBA is specific about what must be kept on file by brokerages, beginning with copies of all trade contracts—agreements of purchase and sale, lease, exchange or rent. Brokerages are also required to keep copies of all “related correspondence and documentation,” as well as a signed buyer copy of any offer that comes in but has not yet been accepted.
Particular care to be taken with money held in trust
As would be expected, the laws and regulations concerning money held in trust are thorough and detailed. Naturally, a brokerage is required to keep written records of all money held in trust, and any disbursements made associated with it. They must prepare monthly reconciliation statements for trust accounts, in compliance with REBBA regulations. If in doing its monthly reconciliation the brokerage finds there is a shortfall in the trust monies, the brokerage must immediately deposit funds to cover that shortfall.
All money that goes to a brokerage in trust has to be held in an account that’s separate from any other account maintained by the brokerage, and it has to be designated Real Estate Trust Account. The brokerage must inform the person making the deposit into the trust account of the terms under which it will be deposited—the bank and the interest rate the money will earn. That interest is payable to the owner of the trust money.
The brokerage’s responsibilities concerning money held in trust go farther than that. If the person who deposited the money disappears, or if the brokerage cannot locate him or her, the brokerage must make reasonable efforts, including a notice in local papers, to find the person. If the person can’t be located after a year, the brokerage has to forward that money by cheque to RECO, along with all pertinent documents.
In spite of all the rules, fraud, breach of duty and breach of contract are still the most common complaints made against real estate brokers. Anyone who has a complaint, or a suspicion of something being not right, or a question about real estate regulations, should contact the Real Estate Council of Ontario, reco.on.ca.