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part 2: chapter 11-18 Cheat Sheet by

Chapter 11

Option
 
Legally enforc­eable agreement. Seller promises buyer to keep an offer open for acceptance until a specified time. May serve as a substitute for consid­era­tion.
 
Transa­ction with a subjective subject clause: buyer's repres­ent­ative may better protect the buyer by recording presence of separate consid­eration for the seller's promise to refrain from cancelling the agreement before the subject removal deadline
True Conditions Precedent
 
dependent on will/a­ctions of someone who is not a party to the contract. No party may unilat­erally waive.
Condition
 
fundam­ental term of contract.
Condition Breach
 
injured party can terminate and/or sue for damages or specific perfor­mance
Property Disclosure Statement
 
completed any time property is listed for sale. DOES NOT form a party of their contract unless agreed to.

Chapter 11: Contract of Purchase and Sale

Contains the obliga­tions of the vendor and purchaser with respect to purchase and sale
 
Legible, names/­occ­upa­tions, descri­ption of property, descri­ption of financ­ing­/price
 
Protection of personal inform­ation: obtain consent for various use
Terms and Condit­ions:
 
warranty: breach allows to sue for damages but not terminate
 
condit­ions, deposit, consid­eration
note: if the parties to the contract do not consent in writing to the release of the deposit, then the brokerage cannot release the deposit from trust.
 
Deposits protected under contract
Record Keeping: receipt of funds, client info, large cash transa­ction, suspicious transa­ction, client identi­fic­ation, unrepr­esented parties and third party determ­ina­tion, penalties: criminal charges
 
keep record of steps involved to ascertain the existence of party
Warran­ties: express or implied (verify implied)
 
written warranties necessary to preserve a parties right to sue after transa­ction

Chapter 12

When an agent acting within authority discloses he is acting as an agent enters into a contract with 3rd party, the parties to the contract are: PRINCIPAL + 3RD PARTY
Power of attorney, undersold property: succeed for damages for breach of agency contract (not for warranty of authority)
Ratifi­cation: agents authority created retroa­ctively by principal
An agent will be personally liable to third parties: where they fail to disclose that they are an agent
The licensee may advise the buyer that the offer exceeds the stated price in listing contract

Chapter 13

Reasons to borrow funds
 
Diversify invest­ments and reduce overall risk by using only part of total funds
 
Invest the borrowed funds at a higher rate of interest than the borrowing rate
 
Purchase real estate as a hedge against inflation
 
Save or release equity for activities
Primary objectives of the lender­-in­vestor
 
Regular and predic­table return on capital as specified in the loan contract
 
Return of capital through the scheduled payment
Primary Mortgage Market: sale of interests of land
Secondary Mortgage Market: mortgages bought­/sold as investment
Interest Rate Charged on a Mortgage Loan is Comprised of:
 
Return on the invested capital which is determined by current interest rates in investment markets and by the supply and demand for mortgage funds
 
Inducement to accept risk on the capital resulting from an uncertain invest­ment; prime invest­ments will generally be granted a lower rate than higher risk
 
Payment to the lender for part of the costs of managing m. lending activities
Elements Considered in Setting Rate
 
Credit rating of the borrower, property value
 
Admini­str­ative work
 
Type of property used
 
Amount of borrower's equity; rate being lower as the amount of equity increases

Chapter 15

Interest Act: no limit on the rate of interest which can be charged in a mortgage. Borrower must be indivi­dual, rates must be determined
Criminal rate is over 60%
Mortgage Fraud Offences:
 
person who acts under POA for the mortgage of property to fraudu­lently use proceeds for an unauth­orized purpose
 
agent of seller to fraudu­lently conceal title info to induce a sale
 
person who has knowledge of unregi­stered mortgage to sell property
Provincial Legisl­ation Over Mortgages: Business Practices and Consumer Protection Act
 
BC can intervene if loan is excessive, even rewrite entire transa­ction
Mortgage Brokers Legisl­ation: registrar has power to invest­igate compla­ints, freeze funds
Enviro­nmental Legisl­ation and Mortgage Loan Applic­ation Proced­ures: creates exemption from remedi­ation liability for lenders who act primarily to protect their security interest. Lenders become liable for remedi­ation when
 
they make requir­ements which cause a site to become conami­nated
 
registered owner of a contam­inated property
 
they must get approval from director of waste management within 10 days of purchase
Remedi­ation: cleanup of enviro­nme­ntally contam­inated site

Chapter 17

5 c's of credit in notes
Commercial Underw­riting Process
Reside­ntial property which is not owner occupied (income produc­ing), and all non reside­ntial property (predo­min­antly income produc­ing). Focus is on NOI. Applic­ation Factors Include:
 
Applic­ant's track record
 
Mortgage and real estate market conditions at time of applic­ation
 
Type, age, condition and location of the property securing the loan
 
Strength of the covenants of tenants resident in property
Lending Constr­aints: LVR and income constraint (lower of 2)
Income Constr­aint: safety margin ensures that the NOI can cover the mortgage payments by expressing the margin between the net operating income and mortgage payment as a percentage of NOI
 
DCR = NOI/Annual Mortgage Payments
 

Chapter 11

s59 of the Law and Equity Act (preve­ntion of fraud)
 
Should be in writing, otherwise it is NOT void, hard to enforce
EXCEPTIONS
 
contract for less than 3 years
 
indication of subject matter, money ahs been spent, reasonable reliance, deposi­t/p­rep­ayment given,
 
court may order deposit returned
 
writing can be sufficient even though a term is left out or improperly stated

Chapter 11

Doctrine of Merger
 
limits remedies available to the parties after real estate conveyance
 
doesnt apply to: fraud, mutual mistake, condition, warranty,
 
caveat emptor applies: buyer must be respon­sible for checking accuracy before purchase is made
 
if defici­encies are discov­ered, they must be acted upon before contract closing. Remedy: recession
Statutory Land Title System: transfers of freehold estate must be in a transfer form instead of a deed
 
seller executes a prescribed transfer form: seller has the right to convey title, buyer has quiet posses­sion, title is free from encumb­rance
 
seller will sign further docs, produce docs that support title and release claim to land
Encumb­rance: judgement, mortgage, lien or any other claim which is registered against land
Fiduciary: person who holds a position of trust with respect to someone and is obliged, to act solely on the persons benefit
Builders Liens: claim registered against the title to land by a contra­cto­r/s­upplier of material
Refusal to Perform Remedies: court will order
 
restit­ution (return deposit)
 
Incomplete contracts can still be enforced
 
you cannot enforce contract against person who did not sign

Chapter 12: Types of Agency Contracts

Exclusive Listing
 
Exclusive right to sell for a specific period of time
 
If the owner sells himself, he must still pay commission
 
If the owner uses 2nd agent to sell his property - two commis­sions could be payable
Multiple Listing
 
Exclusive right to sell
 
Listing must be distri­buted to all members of the real estate board and placed on MLS
 
Listing is not valid unless: its signed, in writing and true copy to owners, provision that it will expire on date
Open Listing
 
The owner may employ a number of agents to find the purchaser
 
A commission is paid to the agent who is the effective cause of the sale
 
Owner can also sell himself and no commission is payable (mostly commercial listings)
 
Brokerage promises to use best efforts to locate a ready, willing purchaser

Chapter 13

Supply of Mortgage Funds: linked with capital market: competes for share
 
When demand increases, interest rates increase, investment funds attracted to m. market
Demand of Mortgage Funds: activity of RE market and terms/­price of loan. UP when expanding economy
 
sticki­ness: slow response
Charac­ter­istics of Mortgage Loans
 
unique invest­ment, hard to trade, long repayment terms, admin work, large capital outlay
CMHC: the only government mortgage insurance in canada
Source of Mortgage Funds:
Instit­utional Lenders: banks, credit unions, trust and loan companies, life insurance companies
Private Lenders: indivi­duals, vendors of property, investment groups, trust companies, pension funds, might charge higher rates
Govern­ment: insured by govt agencies, source of mortgage funds
Mortgage Investment Corpor­ations: if borrowers cant qualify, their own lending policies
note: by creating a m.loan, the borrower (MORTG­AGOR) pledges their property rights as collateral for the loan.
 
Possession and right to redeem the clear title to the property remain with the mortgagor, they are able to build up a series of claims against remaining collateral (get more mortgages)

Chapter 15

Assignment of Mortgage (transfer to another). Risks: payments
Property Law Act Protection For: acquiring residence, making improv­ements, making expend­itures for household, refina­ncing
 
Property Law Act limits continuing liability of a vendor under a mortgage or agreement for sale under these circum­sta­nces:
 
Term has expired and lender does not make a demand for payments within 3 months of the expiry
 
Mortgage assumed or agreement for sale transf­erred is payable upon demand, no demand within 3 months: liability exting­uished
 
Lender expressly approves purchasers assumption of mortgage or agreement for sale then vendor's liability will cease, subject to requir­ements (approval made within 3 months, lender is entitled to reasonable financial info about purchaser)
Novation and Impairment of Security
 
With novation: borrower will be released from further liability. Substi­tution of one contract for another
 
Impairing the Security: lender does something which prevents lender from being able to restore the property to original state to the borrower upon the borrower repaying mortgage debt.
Accele­ration
 
maturity date of loan is pushed forward and lender demands to be paid out in full
Omnibus
 
in default of payment the lender will do payment and it will be added to the loan
Lender's Remedies
 
gives lender complete discretion to use most suitable remedy
Mortgage in Possession
 
forecl­osure
 

Compet­ition Act (chapter 11)

Federal statute designed to hold businesses accoun­table for misleading advert­ising, enforced by Compet­ition Bureau
 
Criminal Provis­ions: agreements in restraint of trade
 
conspires to fix, maintain, increase, or control prices for product supply or sales, allocate territ­ories, eliminate supply of product
Civil Provis­ions: agreements between compet­itors requir­ing­/pr­ohi­biting any person to take any action
 
misleading advert­ising, price mainte­nance, sale above advertised price

Chapter 12

Express Contract
 
Written or Oral, Mutual agreement of both parties
 
Most common relati­onship
Implied Agency
 
can be implied by conduct, not to common, "­bring me the buyer", agreeing to do something
 
past consid­eration is no consid­era­tion!
Ratifi­cation
 
An agent's authority can be granted retroa­ctively
 
When the agent informs the principal of his actions and the principal accepts, the principal will be bound by the contract
 
Gives sellers word before seller agrees, seller accepts past actions, if the seller says no - the agent will be respon­sible
Agency by Estoppel
 
(not too common) Where the principal acts in such way as to lead a 3rd party to believe that the agent has authority to act on behalf on the principal.
 
Limited right. Agent CANNOT sign for anyone, seller gives [similar to] power of attorney

Chapter 12

Actual Authority
 
Express Authority
  
How long/m­uch­/co­mmi­ssion
  
Is created and limited by the terms of the contract
  
Promise to pay commission must be supported by consid­eration (listing agreement)
  
(implied + express) Painti­ng/­Rolls Royce question: The agent has express authority to not come back without the original
 
Implied Authority
  
Every agent has implied authority to do anything necessary for carrying out the express authority granted (ie. enter property with buyer)
  
Goal: to sell
 
Usual or Customary Authority
  
(most common) The agent is governed what is usual in the trade (to collect deposit)
Apparent Authority
  
Where the 3rd party would reasonably consider, from the conduct of the principal and agent, that the agent did in fact possess authority
  
Not common. ie. the seller lets the agent act on behalf of them "sell my house for any price, i trust you"
  
THE AGENT CANNOT SIGN!
Termin­ation of Authority
  
The relati­onship is based on mutual consent, either party can terminate at will
  
Can be revoked orally or by conduct
  
Principal that is incons­istent with the commun­ication of authority (ie. one doesn't listen to the other)
  
Frustr­ation: something happens after the contract is signed (house burns down)
  
Death, Insanity, Bankruptcy

Chapter 15

Lender: mortgagee
Borrower: mortgagor
Implied Terms of A Mortgage
 
Prohib­ition Against Clogging: borrower has right to have the title conveyed in the same state free of any encumb­rances.
 
Option to Purchase the Property when Negoti­ated: clog on the equity of redemption and makes the contract void.
 
Option which makes the redemption date distant is void - a term which restricts prepay­ments or prevents assumption does not constitute a clog.
 
Stipul­ations for Collateral Advantage: mortgagee can give the borrower terms which benefit itself, but it has to extend outside of the mortgage (ie.buying their products)
Express Terms of A Mortgage
 
Land Title Act: delivered and signed to both parties
 
Land Transfer Form Act: interp­ret­ation of terms
Vendor "take back" Mortgage
 
taken back to facilitate a sale, vendor becomes mortgagee, purchaser becomes mortgagor
Reverse Annuity Mortgage
 
lender makes periodic payments to borrower. At the end of term, borrower will have to repay balance by owing or refina­ncing the property
Wrap Around Mortgage
 
2nd m. regist­ered, includes prior m. Writing for equal or greater amount. Payments include all sums, respon­sib­ilities same as original

Chapter 15

Interest Act: if the document does not mention interest, no interest can be charged.
 
If document requires interest to be paid with no set amount - rate allowed by law is 5% (does not apply to companies)
Forecl­osure: Process
 
Demand Letter: short time to pay
 
Petition: BC Supreme court registry
 
1st Court Order: Order NISI (redem­ption period)
Petitioner May Apply For:
 
Judicial Sale: Not enough equity, owner can still be liable, most common in BC (ie someone bought it for too much and cant sell)
 
Order of ABSOLUTE forecl­osure: enough equity in property, owner no longer liable, lender becomes registered owner, no further action can be taken against owner
1st Mortgage: Legal Mortgage
2nd Mortgage: equitable mortgage
   
 

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