In June’s REIX support: Know the steps to follow in the face of legal action blog post, we provided a step-by-step approach for subscribers to follow if they find themselves facing any sort of legal action.

When to reach out to REIX?

The moment you have any inkling you have made an error in a transaction or if your client or another party in that transaction is threatening to take legal action.

Before something becomes a “claim” it starts as an “incident.” REIX deals with hundreds of incidents in a typical year, many of which only involve the REIX providing sound advice to our subscribers and walking them through their next steps to avoid it turning into a claim. This is a big part of the support REIX offers our subscribers.

Choosing not to report can be risky and costly

In some cases, it could be tempting not to report a potential claim, hoping it might go away or resolve itself. The risk of that?

Not reporting a claim to REIX is actually a breach of REIX’s policy condition, and choosing not to report a claim ASAP may result in REIX not being able to respond to the legal action in a timely manner, or may result in you being left to handle the matter yourself.

Delaying reporting may also result in potential costs for you, from legal costs of having to retain a lawyer, to paying for judgment yourself. 

The bottom line: If you find yourself in a situation where you are expecting to hear from an unhappy client or their legal team, let REIX know in writing asap.

In last month’s “Being sued will cost you money and time” blog post, we described some of the costs of dealing with a potential claim for subscribers.

This month, we want to walk through the steps involved if you find yourself facing potential legal proceedings – from a demand letter, a Civil Claim, a Statement of Claim, or anything similar – as a result of your activities as a real estate professional. So, make sure to keep this article handy if you or a colleague finds yourself in legal hot water.

Step #1: Report your concern or claim to REIX immediately – notify REIX promptly that you may have a lawsuit or claim being filed against you is key. This is important for a few reasons there are filing deadlines and other court-related timelines which must be met on your behalf. Prompt reporting is crucial so that REIX can review coverage and take the next steps.   Once REIX is involved, you do not have to deal with the uncertainty of legal processes and proceedings that you may know very little about.

Step #2: Halt any communications with the party suing you – DO NOT correspond with any other party to the lawsuit (or anyone else) about the matter, other than REIX, REIX Defense Counsel, and your managing broker. In particular, do not admit liability as doing so may put your REIX coverage at risk. 

Step #3: Gather and share your documentation with REIX – you will need to identify and collect all of the communications – including emails, text messages, WhatsApp messages, etc. – that you had with the client, customer, other agent (etc.). Even if you think it is not relevant to what is being claimed, REIX requires everything in order to be in a position to present the full case in Court.

You will also need to prepare a detailed statement with dates & times where possible, that outlines everything that happened during the deal, from your initial conversations until the time you were served with Court papers or notified of the legal action. Once you have gathered everything, send it to the REIX team member who has been supporting you so far.

Step #4: Working with you on next steps – once we have had a chance to review all of the facts and the information you provide, you will be advised if the matter falls within coverage and, if it does, we will open a file and retain Defense Counsel to represent and defend you. This begins with REIX and REIX Defense Counsel drafting and filing your Defense, so no action is required on your end. You may be subject to a deductible – $5000 if this is your first claim within the last three years, or $10,000 if this is a subsequent claim within the last three years.

If the matter falls outside of or is excluded from your REIX coverage, you will need to retain your own lawyer to protect your interests in the matter. If you have other insurance coverage, you should report the matter to them.

Step #5: Supporting you through ongoing legal proceedings – once some of the initial steps are covered and we have filed your Defense, you may find that the process slows down, something that some subscribers describe as “hurry up and wait.” The process will also depend on which Court your case will be heard as the litigation procedure differs if you are sued in Provincial Court/Alberta Court of Justice, or the Court of Kings Bench. REIX will continue to support you, answer any questions you have and walk you through the litigation process, regardless of how long it takes. This can include negotiating an out-of-court settlement with the other party or supporting you through a Trial.

As a REIX subscriber, you likely know you may have coverage for a range of types of claims against you, but you should also know that REIX doesn’t you cover for every type of potential claim that a client might make against you.

You may be wondering what kinds of costs could be involved if someone files a claim alleging an error, omission, or act of negligence, against you? We breakdown a few scenarios to illustrate what you could be facing.

Your REIX Deductible

If REIX does open a claim file on the matter, you may be required to pay a deductible — $5,000 if this is your first claim, or up to $10,000 if you have had a previous claim against you within the last three years. Once we have opened a claim file on the matter, you will need to spend time on a number of activities including:

• providing your documents and information to REIX staff and Defence Counsel
• attending meetings with this team to review the documents and answer questions
• participating in Court proceedings and other meetings

Other Costs

It is important to remember that attendance at these Court proceedings, hearings and Trials is mandatory. So, if you have a vacation or another event scheduled for a date that conflicts with a Court appearance, you will most likely have to reschedule your personal life to attend. This can result in costs for cancelling everything from flights to hotels, etc.

Are there times when REIX coverage does not cover my actions?

There are certain times when your actions fall outside of your REIX coverage including (but not limited to):

• Prejudicing REIX’s position — If you have done anything to prejudice REIX’s position or defense in a claim, you may not have REIX coverage for the claim. This will require you to retain and pay for your own lawyer. An example of this would be if you admitted liability for the alleged error, omission, or negligent act being claimed against you.
• Damages outside of REIX’s coverage — if certain claimed damages fall outside of your REIX coverage, and a Judge finds that you are liable for damages which are directly excluded from REIX coverage, you will be required to pay this yourself. For example, if one of the damages claimed is commissions, and a Judge finds that you are required to pay back your commission, that cost falls on you.

Claims outside of REIX coverage

If the type of claim being made against you falls outside of your REIX coverage, you may be in a position where you need to retain your own lawyer and pay them yourself, plus any amounts to settle the claim. In this last scenario, the costs are difficult to estimate but could easily run into the tens of thousands of dollars.

If you are served with a lawsuit or demand letter, or if you feel an issue is arising in your real estate deal, you’ll need to report your claim to us and contact REIX immediately.

Trading in Real Estate Outside of Your Area

Information is power, and technology is giving licensees access to incredible amounts of information which helps them better meet their clients’ needs. Pillar9™ allows licensees to trade outside of their area and bring properties to clients from any jurisdiction in the province. But the question is, should you?

REIX recommends that you should NOT.

Your client is relying on your expertise and knowledge to help sell or purchase a property and the law imposes that duty on you.

Clients expect that you as their representative have awareness of any unique features of both the property and the area in which it is located. If you are hundreds of kilometers away and haven’t seen the property for yourself, these features can go unnoticed. Given that, being part of that listing’s transaction could risk your reputation and invite potential liability.

You have a fiduciary duty to your client and taking a listing or writing an offer on a property you’ve never seen or a residence you have not stepped foot in leaves you open to a claim and or litigation.

If a claim or lawsuit arises from a transaction where you have either listed or sold outside your area, a Court will most likely find that you failed in your fiduciary duties to your client and may assess liability and damages against you. Both you and your broker may be financially liable and responsible for payment of that Judgement.

Trading outside your area is risky, so what should you do if you find yourself in this position? Your best course of action is to refer the buyer or seller to a qualified agent in the area. To do otherwise just isn’t worth the risk.

If you have any questions, concerns or have been served with a lawsuit/demand letter contact REIX immediately at admin@reix.ca.

---

 

In recent years, the Canadian housing market has been exceptionally active, driven by a combination of factors.

The onset of COVID-19-induced lockdowns led to an economic slowdown, coinciding with historically low interest rates. These low rates allowed individuals who might not typically meet the Canada Mortgage and Housing Corporation’s (CMHC) stress test criteria to secure substantial, long-term mortgages.

However, the landscape is shifting dramatically.

Two significant challenges have emerged: escalating inflation rates and a series of interest rate hikes by the Bank of Canada. Variable interest rates have surged, and many homeowners who purchased properties above the list price with no conditions are now facing mortgage renewals. Roughly around 20% of mortgages reach their renewal dates every year, signaling a rising tide of homeowners potentially facing difficulty meeting their mortgage obligations.

REIX anticipates a substantial increase in foreclosures. With homeowners beginning to list their homes prior to the property being foreclosed upon, real estate professionals must do their due diligence and be well prepared for the risks they and their clients (both buyers and sellers) could face. Neglecting to do so may result in unfavorable consequences such as:

1. Insufficient funds from the sale of the property to cover commissions.
   
   
2. Deals that collapse because the proceeds from the property sale cannot satisfy the mortgage.
   
   
3. New registrations being registered on Title (such as a second or third mortgage) that were not previously disclosed or discovered.
   
   
4. Wasted time and effort on properties that struggle to find buyers.
   
   
5. Buyers losing out on a property they were interested in purchasing and spending money that they can no longer recover.

To sidestep these potential pitfalls, REIX recommends the following steps:

1. Always pull the Title, without exception. Even if it was pulled three months ago, revisit it and thoroughly review all registrations on Title and make sure you and your client understand them. Title should be pulled at the time of list, when an offer comes in/is being made, and prior to close (with the lawyers). It may also be useful to pull Title prior to conditions being waived.
   
   
2. Engage in extensive conversations with sellers, posing multiple questions concerning the property’s financial health: How many mortgages are involved? Have they exhausted a line of credit? If there’s a shortfall, where will the required funds come from? What is the property’s equity status, if any? Does the property need to be listed at a higher price or does the real estate professional need to negotiate a lower commission (because a lower commission is better than no commission at all).
   
   
3. Ensure that buyers are aware of what they are offering to purchase and that they are aware of and understand everything registered on Title. Ensure that Title is pulled and reviewed with buyers prior to them making any decisions or giving instructions relative to making an offer and/or waiving conditions.
   
   
4. Ensure that buyers are aware of the risks with unconditional offers and the risks they could face if they are unable to close on the property due to debt/mortgage issues the seller is facing with respect to the property.
   
   
5. Keep an eye out for warning signs. Real estate professionals have reported instances where their instincts suggested potential issues with a transaction, however they chose to overlook those issues to keep the deal moving forward, which then led to even bigger issues in the future. Pay attention to these indicators and investigate further when warranted.
   
   
6. Review all Transaction Documents and Representation Agreements (including conditions, terms, etc.) with your clients to ensure they understand what they are agreeing to and that they are aware of the potential risks they may face. Make sure that any verbal discussions are followed up with a confirming email.

It is imperative for real estate professionals to allocate the necessary time and due diligence to gather all the information required to make well-informed decisions and provide adequate advice to their clients.

With the anticipation of increasing foreclosures looming, this proactive approach can save both you and your clients from unnecessary turmoil in the long run.

As always, please contact REIX with any questions or concerns that may arise.

A Passion for Risk Management

Do you like what you have just read? Are you passionate about risk management in real estate and ready to challenge yourself in a new way? If so, we encourage you to apply for the REIX Risk Management Program Advisor role.

Join our dynamic team and make a meaningful impact in the world of real estate risk management. Your expertise and knowledge could be the perfect fit for our organization. Don’t miss out on this exciting opportunity to shape the future of risk management. Apply today and embark on a rewarding journey with us!

---

The Real Estate Insurance Exchange (REIX) provides mandatory errors and omissions insurance to over 17,000 Alberta and Saskatchewan real estate industry members and more than 1,250 brokerages. We’re dedicated to providing high value to our subscribers through exceptional claims, risk and financial management. Be sure to follow us on Facebook and LinkedIn!

 

---

 

This is the second in a three-part series taking a closer look at the top three causes of loss – financial mishaps, defective documentation and property condition.

Defective documentation is one of the three top causes of claims against agents. To protect yourself from being sued, be mindful that accurate documentation is one of the keys to a successful, claims-free real estate practice. This is the second installment in a three-part series examining the top causes of lawsuits against licensees and registrants.

Whether you’re drafting an Offer to Purchase, reviewing a lease agreement, inserting the legal description of a section of land, or working on a condo deal that includes a parking spot, be aware that careless errors can trigger financial claims and lawsuits.

Steer clear of defective documentation pitfalls by being vigilant about:

Access Prior to Close: This is when agents allow buyers access to the property prior to possession date and those buyers begin storing belongings, or altering or renovating the property, even though that was not agreed upon in the Purchase Contract or any other documentation. REIX recommends that if sellers agree to having the buyers access the property early, that their intention and any work they want to do is agreed upon in writing and signed off by both parties.

Chattels/Appliances: This is where chattels/appliances are either removed by the seller on possession date, or are not in the same working order as the buyer thought they were in at the time the offer was made. REIX recommends that agents take the time to review the list of chattels/appliances with their clients so that they are well aware of what’s included in the purchase of the property. REIX also recommends that agents advise their buyers to have the items inspected or tested to ensure that they are in normal working order. It is also recommended that agents verify with the sellers if there is anything to disclose regarding the chattels/appliances with buyers, and if so, that disclosures are made upfront.

Incomplete Sale: This refers to transactions that were initially firm but later collapsed due to a variety of reasons, including financing or buyer/seller’s remorse. REIX recommends that agents verify all of their instructions in writing (via email) and they communicate effectively and promptly.

Lease Agreements: These refer to disputes arising from errors in lease agreements, such as disagreements over responsibilities for utilities, landlord-tenant duties, and lease terms. REIX recommends that agents verify instructions in writing (via email) and ensure that their client is well aware of what they are agreeing to. Misunderstanding and miscommunication can lead to financial claims and lawsuits.

Legal Land Description: This refers to inaccurate or misrepresented descriptions of the property, Title or Real Property Report (RPR) leading to buyer dissatisfaction or seller’s inadvertent misrepresentation. REIX recommends that agents review documentation with their client to ensure that both the agent and the client are aware of the descriptions and registrations on the documents; that both the agent and the client understand them; and that the parties address any potential errors, non-compliance or disclosures that need to be made.

Lot Size/Location: This refers to claims related to discrepancies in land size and boundaries, or the inclusion of unexpected features, such as waterways, affecting property dimensions. REIX recommends reviewing documentation with the client to ensure that both the agent and the client are aware of the descriptions and boundaries on the documents and understand them well. If something is unclear, it may need to be verified and disclosed.

Parking Arrangements: This refers to errors concerning titled parking stalls, including discrepancies between listing representations and actual inclusions or inadequate garage space. REIX recommends verifying the information with the seller and actually viewing the parking stall to ensure that it is the correct one and whether it is underground or a surface-level spot. The same applies for garage spaces.

Square Footage: This concerns disputes arising from inaccuracies or misrepresentations in property square footage. REIX recommends having properties measured by a third party professional measurement company. By doing so, any representation surrounding square footage is made by the third party professional measurement company and not the agent.

Subject Clauses: This refers to issues stemming from incorrectly drafted subject clauses in contracts, impacting the transaction’s conditions. REIX recommends that agents review all subject clauses with their clients to ensure they understand the clause. Additionally, the clause should be specific and clearly explained to both parties.

REIX emphasizes the importance of avoiding defective documentation. Real estate professionals must ensure their documents are error-free and accurately convey information to all parties involved. Failure to do so may result in legal liability.

To prevent defective documentation, REIX recommends the following proactive measures:

1. Review contracts and documents thoroughly with clients.
2. Double-check all work for accuracy.
3. Confirm verbal instructions and all conversations in writing via email.
4. Have clients initial every page, including MLS feature sheet and title.

Real estate agents facing uncertainty regarding documentation should seek assistance from their Broker and promptly contact REIX if legal issues arise.

A Passion for Risk Management

Do you like what you have just read? Are you passionate about risk management in real estate and ready to challenge yourself in a new way? If so, we encourage you to apply for the REIX Risk Management Program Advisor role.

Join our dynamic team and make a meaningful impact in the world of real estate risk management. Your expertise and knowledge could be the perfect fit for our organization. Don’t miss out on this exciting opportunity to shape the future of risk management. Apply today and embark on a rewarding journey with us!

---

The Real Estate Insurance Exchange (REIX) provides mandatory errors and omissions insurance to over 17,000 Alberta and Saskatchewan real estate industry members and more than 1,250 brokerages. We’re dedicated to providing high value to our subscribers through exceptional claims, risk and financial management. Be sure to follow us on Facebook and LinkedIn!

This is the first in a three-part series taking a closer look at the top three causes of loss – financial mishaps, property condition and defective documentation.

In the high-stakes world of real estate, avoiding lawsuits is paramount. Understanding the top three causes of loss – property condition, defective documentation and financial mishaps – can help ensure a smooth path to success.

Financial claims are one of the most common reasons for legal battles in the industry. REIX, an expert in handling such claims, has identified several key areas that often lead to disputes. These include deposits, loss of income, mortgage issues, property value disagreements, tax concerns and condo fees disputes.

Let’s delve into some typical scenarios that may trigger financial claims:

1. Deposit Disputes: Often arising from issues with handling deposits, such as disputes over who should receive the deposit when a deal falls through.
   
   
2. Loss of Income: This category covers losses related to property income, such as potential rental income or commercial use income.
   
   
3. Mortgage Problems: Claims may arise when buyers are unable to secure financing, or subscribers recommend waiving the financing condition prematurely.
   
   
4. Property Value Disagreements: These claims occur when buyers or sellers feel that the property was overvalued or undervalued.
   
   
5. Tax (GST) Conflicts: Claims may be due to misinformation or misrepresentation regarding taxes related to the property.
   
   
6. Condo Fee/Special Assessment Discrepancies: Claims arise from misrepresentations of condo fees or special assessments.

To safeguard against financial losses, real estate professionals can take proactive measures:

1. Refer to Experts: When clients have specific questions or concerns, it’s best to direct them to relevant experts, such as accountants or tax professionals.
   
   
2. Direct Communication: Maintain clear and direct communication with clients only. Avoid engaging with third parties, like mortgage brokers, on behalf of the client.
   
   
3. Outline Risks: Ensure that clients fully understand the risks involved in failing to close a deal or breaching contract terms.
   
   
4. Understand Property Valuation: Educate clients that property value is determined by multiple factors and is ultimately dependent on a buyer’s willingness to pay and a seller’s willingness to sell.

By being cautious, well-informed and proactive, real estate professionals can minimize the risk of financial claims and steer clear of potential lawsuits.

---

The Real Estate Insurance Exchange (REIX) provides mandatory errors and omissions insurance to over 17,000 Alberta and Saskatchewan real estate industry members and more than 1,250 brokerages. We’re dedicated to providing high value to our subscribers through exceptional claims, risk and financial management. Be sure to follow us on Facebook and LinkedIn!

Real estate agents are used to racing from one listing to another or from meeting to meeting, but one thing they’re most likely not travelling for is to deliver contracts to be signed.

These days, document-signing software that allows clients to sign contracts online is a mainstay of the real estate business, eliminating the need to print, scan and personally deliver contracts.

But the technology is not without its issues.

While the use of electronic signatures (e-signatures) continues to grow, it may not be for everyone, especially clients who aren’t comfortable with the technology or who are resistant to change.

The Personal Touch

REIX Advisory Board Member Randy Plant says that REIX recommends all real estate agents take the time to fully explain to clients what it is that they are signing electronically (or in person).

“In previous practice, agents sat with the majority of clients face-to-face, which presented the opportunity to engage in meaningful dialogue, providing explanations of the clauses contained in the documents,” says Plant.

“Today’s practice has, in large part, shifted to a model using technology tools favouring convenience over face-to-face meetings when it comes to signing documents, therefore the explanations may be overlooked,” he says.

Given that one of a real estate agent’s most important duties is ensuring their clients understand the terms of a contract, along with the purchase and sale of property, those face-to-face meetings remain as critical as ever.

“Agents have a responsibility to assist clients in understanding the clauses contained in all documents that are being signed. One can’t be faulted for exercising too much diligence!”

---

The Real Estate Insurance Exchange (REIX) provides mandatory errors and omissions insurance to over 17,000 Alberta and Saskatchewan real estate industry members and more than 1,250 brokerages. We’re dedicated to providing high value to our subscribers through exceptional claims, risk and financial management. Be sure to follow us on Facebook and LinkedIn!

---

The Real Estate Insurance Exchange (REIX) provides mandatory errors and omissions insurance to over 14,800 Alberta and Saskatchewan real estate industry members and nearly 1,200 brokerages. We’re dedicated to providing high value to our subscribers through exceptional claims, risk and financial management. Be sure to follow us on Facebook!