Tarion needs to increase homebuyers deposit protection: BobAaron
Tarion’s limit for deposit protection — $20,000 on condosand $40,000 on homes — hasn’t changed in years
Tarion’s limit for deposit protection hasn’t been changed inyears, while home prices and deposit amounts have skyrocketed, writesreal-estate lawyer Bob Aaron. (Dreamstime)
By Bob AaronPropertylaw
Sat., Sept. 10, 2016
An interim report on the Tarion warranty corporation shouldhave gone further to protect home buyers’ purchase deposits.
Special adviser J. Douglas Cunningham, in releasing theinitial report of the independent review, last week told the Star he didn’t“know enough about it quite frankly to make a comment.”
That must be disappointing to the unlucky purchasers left infear of losing their deposits following the bankruptcy restructuring of Torontodeveloper Urbancorp.
Tarion’s limit for deposit protection is fixed at $20,000 oncondominiums and $40,000 on homes.
This protection hasn’t been changed inyears, while home prices and deposit amounts have skyrocketed.
Back in June, I suggested Tarion depositprotection should be increased to $200,000 on all purchases, whetherfreehold or condominium.
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Tarion fired back on its website, saying my view “has beenadvanced without any supporting research on actual claims data.
“Tarion regularly monitors all of our claims data to ensurethe warranty remains effective. Last year, we reviewed deposit claims over afive-year period and found that the average claim was only $29,000 — well within the $40,000 limit.”
The key word in Tarion’s rebuttal is “average.”
No mentionwas made of the largest claims, or those in excess of the deposit protection,or the total amount of consumer losses.
Tarion added that raising the limits of Ontario’s depositwarranty would “very likely” result in a significant enrolment fee increase forall new homes across the province, and could have the unintended consequence ofincreasing deposit amounts requested by builders.
In my view, one consumer loss is too many.
The Urbancorp disaster is not unique. In 2003, two dozenbuyers purchased units in Jarvis Mansions, at 539 Jarvis St. Four years later,developer Panterra Mansions went into receivership with some of the unitsvirtually completed. The purchase agreements were terminated, and although thepurchasers received their deposits back, they got nothing for the thousands ofdollars they had spent in upgrades.
As well, they all lost four years ofappreciation in value representing tens of thousands of dollars per unit.
Back in 2009, I wrote about a couple who signed an agreementto buy a condominium in Parry Sound, and handed the builder a deposit of$40,000. Tarion only covered $20,000.
Together, three purchasers lost a totalof $76,000.
Two years ago, Toronto lawyer Meerai Cho was charged with426 counts of fraud after $14.9 million in deposits was released to developerJoseph Lee and Centrium Development Group.
A total of 180 residentialpurchasers had to go to court to get back $9 million in deposits, but there wasno protection for the buyers of the commercial units.
Financial problems in condo developments are not uncommon.
The Whitby Yacht Club development, Queen West Vintage Lofts and Avante were alltaken over by new developers. The purchase agreements were terminated, althoughthe deposits were refunded.
Tarion and the Ontario government need to step up to theplate, increase deposit protection, and ensure that once an agreement issigned, it is binding on any developer who takes over the project.
Bob Aaron is a Toronto real-estate lawyer. He can be reachedat firstname.lastname@example.org on his website aaron.ca, andTwitter @bobaaron2.