Real Estate Exam: Units 5-7

• The final test is out of 40 and is worth 20 percent of the final grade.
• The test is closed book.
• The test includes 15 true/false questions and 25 multiple-choice questions.
• The test covers units 5-7.

Unit 5: Agreements

• This unit has a total of 12 questions.
• Agreements make up 5 of the questions.
• Agreement form statuses are important at various stages.

HST

• Resale homes are exempt from HST.
• Always include "included in" to protect buyers if a sale doesn't qualify as an exempt "resale".

Vacant Possession

• Buyers typically get vacant possession at the time of closing, unless otherwise provided.

Real Estate Agency: Listing Agreements

• This section has 7 questions.
• Real estate agents seek listings, which are contracts between the homeowner (seller) and the listing brokerage.
• The realtor agrees to market the property to find a buyer with terms favorable to the seller.
• The seller agrees to pay the brokerage a commission, usually 4-5% plus HST, when the deal closes.
• The seller's lawyer is expected to pay the commission from the closing proceeds.
• Listings are for a set period of time, like 90 days.
• Longer listings are better for realtors because they spend time and money marketing and preparing the property for sale.
• The seller must direct inquiries to the realtor.

Entitlement to Commission

• A realtor is paid a commission if a sale occurs within the listing period, regardless of how the buyer was introduced.
• When the listing period expires, the seller can renew with the same brokerage, sign a new agreement with another brokerage, or take the property off the market.

Holdover Clauses

• Listing agreements contain several clauses to protect the agent.
• These clauses can be holdover clauses of at least 60 days.
• If a property isn't listed with another agent after the listing expires:
• If an agreement is made with a buyer introduced to the property by the agent's efforts within the holdover period, the listing brokerage is still paid commission.
• This prevents the seller from cheating the brokerage out of commission by delaying the signing of an agreement.

Buyer Agency Agreement

• Buyers often hire their own agent to find property and negotiate on their behalf.
• Buyers sign a Buyer Agency Agreement for a set period of time, like 90 days.
• During the agreement, the buyer cannot make their own offer without involving realtors.
• When there is an agreement, the agent owes all agency duties to the buyer, protecting the buyer.
• If two agents are involved, the seller pays commission and the seller's lawyer sends a check to the listing brokerage, which then splits the money with the buyer's brokerage.

Duties of Agent to Principal - Agency Law

• An agent must act in the best interests of their principal and has a fiduciary relationship.
• Real estate agents cannot bind their principals to a contract, unlike those with Power of Attorney.

Duties Owed by Agents

• Competence: provide competent advice on pricing, marketing, negotiating, and agreement drafting.
• Confidentiality: do not disclose confidential information unless expressly authorized.
• Full Disclosure: disclose knowledge about the property, market, and transaction to the principal.
• Sometimes a seller lists the property for sale and a buyer is unrepresented, in which case agency duties are owed by the agent to the seller and not the buyer.

Unit 6: Statutes

• This unit contains 19 questions in total.

Planning Act

• Contains 5 questions.
• Official plans created by a municipality contain policies and objectives to guide future growth and development.

Zoning

• Part V of the Planning Act covers land use controls.
• Section 34 deals with zoning by-laws.
• Each property is mapped by the municipality within a specific "zone".
• By-laws regulate the permitted land uses in each zone.
• Types of zones include residential, office, commercial, industrial (light, general, heavy), institutional (schools, churches, hospitals), agricultural, resource extraction (mining, quarries), and open space (environmentally sensitive lands).
• Each zone has separate rules regarding minimum lot sizes (frontage, depth, area) for new subdivisions, building location (front, side, rear yard), building size (minimum/maximum area, height, lot coverage), and parking space requirements.

Non-Conforming Use

• The concept of "legal non-conforming", or "grandfathering", applies when building use was lawful when built, prior to any by-law or compliance with an earlier by-law that's been replaced.
• Continuous non-conforming use/building is allowed, but expansion of the non-conforming use/building is not.

Minor Variances

• Sections 44 and 45 authorize the Committee of Adjustments to grant "Minor Variances".
• They can retroactively or in advance approve "minor" deviations from zoning by-laws where use/building location is non-compliant and not legally non-conforming.

Adverse Possession (Limitations Act)

• Similar concept to a prescriptive easement under the Real Property Limitations Act.
• This act enables a person to acquire ownership ("possessory title") rather than just access rights.
• Section 4 states this can only occur if lands are registered under the Registry Act.
• It may still apply if acquired before conversion to the Land Titles Act.
• Requirements include:
• Possession by a 'trespasser' (and predecessors, if applicable) for 10 years uninterrupted.
• Possession must be “open” and “notorious” (not secretive).
• Possession must exclude the owner from using the lands.
• Trespasser cannot have acknowledged the owner's title, paid rent, or occupied under agreement/consent.
• This ultimately results in the trespasser acquiring "possessory title" after 10 years and the original owner can no longer sue.
• One cannot acquire adverse possession against the Crown.

Municipal Act

• The act is covered in 5 questions.
• Property taxes, plus interest and costs, form a special lien on the land in priority to every other claim.
• It's important to search tax office records and ensure payment of tax arrears during a purchase or mortgage transaction.
• Standard practice involves ordering a tax certificate and insisting on arrears being paid on closing.
• Municipalities allow arrears to accrue with interest, but eventually can sell the property for tax arrears.

Lien for Tax Arrears, Tax Sales

• The lien for tax arrears is provided in the Act.
• If realty taxes remain due on January 1 in the 3rd year after they became due, a certificate of tax arrears is registered on the title and notice is given to the owner, mortgagees, etc.
• If taxes (with interest and costs) are not paid within one year of certificate registration, the property will be sold by the municipality.
• If sold, the property is transferred to the purchaser by a tax deed.
• If not sold, the municipality registers a Notice "vesting" the land in the municipality.

Expropriations

• The act is covered in 2 questions.
• Expropriation is taking land without the owner's consent by an "expropriating authority" exercising its powers.
• The authority can be the Crown (municipality) or other authorized entities such as a school or hospital board.
• The expropriation proceeds as follows: if negotiations with the owner to buy the land by agreement fails, expropriation occurs, if approved, the authority retains a surveyor to prepare an expropriation plan and once the plan is registered, the land included “vests’ in the authority.
• An authority must compensate the owner for: fair market value, special difficulties in relocation, and losses or damages to remaining lands.
• If there is no agreement with the owner as to compensation, it is determined by Arbitration.

Conveyancing and Law of Property Act

• The act is covered in 1 question.
• Section 22 states that restrictive covenants that discriminate on the basis of race, religion, etc. are void.
• Section 61 allows a restrictive covenant to be modified or discharged by court order.

Heritage Act

• The act is covered in 1 question.
• Municipalities can pass by-laws designating buildings of historical/architectural significance as heritage properties.
• By-laws would be registered on title.
• Owners cannot demolish or significantly alter a property designated as a heritage property without consent.

Vendors and Purchasers Act

• The act is covered in 1 question.
• Section 3 allows a court application by a vendor or purchaser under an agreement prior to closing to determine obligations under the agreement.
• This includes a "requisition" made by the purchaser's lawyer and its validity and adequacy of answer.

Environment Protection Act

• The act is covered in 1 question.
• A major concern in industrial areas is if contaminated land is being purchased, the owner is responsible for clean-up costs regardless of whether they caused the problem.
• Purchasers can protect themselves by:
• Making the entire transaction conditional on obtaining an "environmental audit" involving a site inspection, aerial photos, records examination, and soil testing/analysis.
• Obtaining a "warranty" from the Vendor that there are no contaminants.
• Searching the records of the Ministry of Environment.

Conservation Authority Act

• The act is covered in 1 question.
• The act is important when purchasing properties near a river, lake, or wetland.
• There are restrictions on constructing, adding fill, or altering drainage in a flood plain or regulated area, requiring the conservation authority's approval to build or add an addition.

Fire Code (under Fire Protection and Prevention Act, 1997)

• The act is covered in 1 question.
• The act concerns commercial and multi-residential properties.
• It focuses on smoke detectors, fire alarms, sprinkler systems, fire separation, escape routes, and electrical safety inspections.

Unit 7: Mortgages

• This unit has 9 questions.
• Mortgages make up 6 of the questions.
• A mortgage has two components:
• A contract in which the borrower agrees to repay the loan to the lender.
• An instrument by which the owner grants security interest (equitable estate in property) to the lender.
• Key terms include:
  • Principal: money borrowed.
  • Interest Rate: fixed or floating.
  • Term: period of time in which the loan is in effect.
  • Blended Payments: including both interest and principal.
• “Amortization” represents how long it will take to repay the loan in full.
• The amortization is usually much longer than the term and the maximum amortization for insured mortgages is 25 years.
• An “Open” mortgage can be paid out at any time without penalty.
• A "Closed" mortgage cannot be paid out until the end of the term.
• Prepayment privileges allow for limited paydown rights each year, for example, 10-15% of the principal.
• If a loan is repaid in full before maturity, the prepayment penalty is either 3 months' interest or "interest differential”.
• Mortgage insurance is required for "high ratio" mortgages, when the borrower is borrowing more than 80% of the purchase price, up to 95%.
• Insurance companies like CMHC and Genworth cover the lender's loss if the borrower defaults.
• The mortgage insurance premium is added to the mortgage principal, ranging from 2.8% to 4.0% depending on the loan amount.
• Parties named in a registered mortgage are the Chargor/Mortgagor (borrower) and Chargee/Mortgagee (lender).
• A guarantor, or "co-signer," is responsible for the debt but doesn't own the property.
• All mortgagors and guarantors have “Joint and Several Liability".
• All are responsible for 100% of the debt, regardless of their ownership interest.

Standard Charge Terms

• This is part of the mortgage and lenders have their own form.
• The usual clauses include:
  • Promising to pay mortgage payments and taxes.
  • Keeping the property in good repair, insured, and used for lawful purposes.

Remedies of Bank on Default

• Can sue for the money.
• Can obtain possession.
• Can sell under Power of Sale or foreclose.

Types of Mortgages

• "First" Mortgage: Registered first in time and is usually to an institutional lender with a good interest rate.
• "Second" Mortgage: Registered second in time, may be a "secured line of credit" or a "collateral" mortgage, and may be to a private lender.
• "Vendor-Take-Back" Mortgage: From purchaser "back" to vendor, where purchaser continues to owe money to the vendor and agrees to pay the balance in the future with interest.

Other Registered Documents Relating to Mortgages

• Postponement of Mortgage reverses the priority of registration.
• It is used on refinance where there are two mortgages or where there's a mistake.
• Assignment of Mortgage (Transfer of Charge): when one Chargee transfers the Chargee to another.
• Discharge: Mortgagee releases security interest when a loan is repaid in full, with a "Partial Discharge" releasing the mortgage against part of the land.

Construction Liens

• The act is covered in 2 questions.
• The Construction Lien Amendment Act, 2017 was renamed the Construction Act on July 1, 2018.
• A person who works on property obtains a lien against the land for the value of their labor or materials.
• The lien arises automatically when work starts, but will expire 60 days after the date the last service or materials were supplied, unless the lien is "preserved".
• To preserve the lien, a Claim For Lien must be registered on the title as well as a "Certificate of Action”, which requires a court action for the lien to be “perfected”.
• If a title search discloses a Claim for Lien or Certificate of Action, it must be removed before closing.
• If work had been done, a trade person could register a Claim for Lien after closing and it would form a lien against the land, taking precedence over the purchaser.
• In the procedure on resale home purchases, a sworn declaration is obtained from the vendor that no work was conducted on the property within the past 60 days, or proof of work paid for is provided.
• Purchasers of new homes are protected from unregistered claims if they are not acquiring title until the house is complete.
• Owners must hold back 10% of each payment made to a contractor (or have security for that amount) until potential liens of subcontractors have expired (60 days after their last work).

Executions

• The act is covered in 1 question.
• This is according to the Execution Act.
• An unsecured creditor can obtain a lien against real estate.
• A Plaintiff (Creditor) obtains a Judgment against a Defendant (Debtor).
• If the Debtor doesn't willingly pay amount of judgment,"Execution Creditor" applies to the court for A Writ of Seizure and Sale .
• Writ is delivered to the Sheriff in the County, who can execute by seizing and selling the Debtor's property.
• Sheriff may seize and sell lands owned by Debtor, but that is very rare
• Usually, writ is simply filed and creditor gets paid when land is sold or mortgaged
• The Writ of Execution forms a lien against Debtor's interest in land.
• Purchasers will acquire title subject to the lien of the execution creditor.
• Purchaser or Mortgagee protects themselves by ordering an execution certificate at the time of a title search.