As pressure from the public and real estate community mounts on Real Estate Council of Ontario (RECO) to take action in the iPro Realty. Ltd. fiasco, the industry watchdog has frozen the defunct brokerage’s account and undertaken an independent audit.
RECO’s board announced Monday it had ordered an immediate freeze on iPro accounts, to “safeguard funds and secure business operations,” it said, while an independent audit into the matter by legal firm Dentons Canada LLP will begin immediately, according to a statement.
Demands for action are getting louder after Ontario’s real estate regulator said last week that iPro Realty co-founders Rui Alves and Fedele Colucci will not face charges, despite $10.5 million going missing from the brokerage’s trust accounts.
Toronto real estate lawyer Mark Morris, who has more than 20 years of experience in the field, told Real Estate Magazine he believes RECO’s latest moves are a response to pressure.
“RECO needs to take definitive action and be seen to be doing so to re-establish trust in the profession and amongst the public at large,” said Morris, who heads up Legalclosing.ca. “This was, at a bare minimum, what was required to show that RECO is approaching this seriously and with the intent of reform.”
The freeze of iPro’s accounts means that all transactions will now be processed through ClaimsPro LP, the insurance adjusters for the professional liability policy administered by RECO, said Monday’s statement. The freeze will ensure safeguards are in place while still permitting a process for closure of real estate transactions, said RECO.
Advice for Realtors with client or commission money tied to iPro
Morris’ advice to anyone looking to recover a consumer deposit or commission through RECO’s insurance program is to “file early and file often.”
“The wording of Schedule A of the claims policy states that, as best I can read it, and with the caveat that I’m not an insurance lawyer, it’s first-come, first-served,” he said. “So you really want to get those claims in quickly.”
The total amount of insurance coverage for consumer deposits and commissions is up to $8 million in aggregate ($4 million for each) with an additional limit of $200,000 per individual, per claim (not per transaction).
While the two buckets of insurance money are “virtually identical interms of coverage and effect,” consumers and Realtors will be treated “very different” from each other by RECO, Morris said.
‘Consumers will be made whole’
Morris, who, as the lawyer of record for bankrupt brokerage TheRedPin has seen first-hand how these situations can play out, said RECO “will not allow consumer deposits to be lost, or perceived as lost,” because of the immense breakdown of trust in the industry that would inevitably follow.
“The job of RECO is to regulate on behalf of the public,” said Morris. “Self-regulation is a privilege, and if by virtue of their self-regulation, and the failure of their self-regulation, the consumers are hurt, meaning that they cannot depend on these deposits, then it’s hard to see how you can rebuild trust with the general public again.”
Could Realtors be on the hook?
Morris said he believes that if it comes to it, money owed to consumers could come out of Realtors’ pockets if any amount is outstanding beyond what insurance would cover.
“All deals are being paid by iPro as they conclude from a consumer deposit perspective, and it is my belief that whatever the cost, it will be borne by the Realtors of this province, whether it be by a special assessment or anything else,” he said.
“One way or the other, come hell or high water, the insurance coverage limit of $4 million will not stop RECO from affecting additional monies above and beyond because of the fundamental break in trust that will result,” he said.
How will commissions be paid?
“Technically, they’re supposed to pay it out on the first claims basis, but my guess is based on the way that they handled TheRedPin, it will be paid out on a pro rata basis,” said Morris.
The difference is that with first-come, claimants get 100 per cent until there’s nothing left in the pot. Pro rata means you “assemble the total amount of claims, figure the total amount of discrepancies after the insurance has fully paid it’s $4 million, and then from there you make everyone take an equal haircut,” said Morris.
How can Realtors protect themselves and their clients?
Morris advises Realtors to be vigilant about commission payments and the handling of funds through trust accounts.
He said that delays should never be ignored.
“If people are taking a while to pay your commissions or giving you excuses as to why it is you’re not getting your commissions on closed deals, be suspicious,” he said. “That’s a pretty good lesson from this.”
The rules of which trust accounts can he used, he said, are flexible.
“There’s nothing that says that commissions have to be paid to any particular trust account. It can be paid to the buyer’s trust account, the seller’s trust account, the seller’s solicitor’s trust account, [or] the buyer’s solicitor’s trust account.”
Morris emphasized the importance of insurance coverage on trust accounts, something people can ask about before handing over any money.
“All lawyers maintain sufficient coverage per transaction to account for most normal deposits,” he said. “If people are having problems or suspecting that something may be amiss, then just put it into a solicitor’s trust account, there is no difference,” he said.
Morris’s comments for this story are editorial opinion only, and are not to be taken as legal advice.
RECO commits to releasing report by October
RECO said in Monday’s release that the legal auditor is to deliver an interim report to the board by Sept. 30, and then a final report by Oct. 30. RECO said it will release the final report’s recommendations.
An independent accounting firm is also being engaged to oversee iPro’s closure/wind up and will ensure oversight for remaining iPro transactions, as well as providing forensic audit services.
Real Estate Magazine has made several attempts to arrange an interview with RECO.
Courtney Zwicker is a digital reporter and associate editor for REM. Based in Atlantic Canada, she has over a decade of experience covering daily business news.