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New real estate rules aim to reduce fraud

|Written By Robert Todd

Lawyers who helped shape a pair of new Rules of Professional Conduct that aim to reduce fraud in real estate transactions say the result is a satisfactory compromise between government orders and concerns from the profession.

Jeffrey Schwartz, chairman of the Ontario Bar Association’s real property section, says he expects many real estate practitioners will struggle to comply with the new rules by March 31.

“This was a lot of stickhandling, and that’s the only word to use because it was very difficult to score the goal through a real tough group of people who had interests - all the stakeholders,” Bencher Alan Silverstein, a member of the Law Society of Upper Canada’s real estate issues working group, tells Law Times.

The law society’s Convocation last month approved two changes to the Rules of Professional Conduct that were recommended by that working group. The changes follow government reforms to the Land Titles and Land Registration Reform Act, which came after public outcry over well-publicized cases of real estate fraud.

Rule 2.04.1 was added, stating, “An individual lawyer shall not act for or otherwise represent both the transferor and the transferee in a transfer of title to real property.”

But there are a number of exceptions to the new rule. The law society notes that a single lawyer can still represent both the transferor and transferee in the following situations:

•    both the transferor and transferee are the same and the transaction intends only to effect a change in legal tenure;

•    the transfer is from an estate trustee to a person who is beneficially entitled;

•    the transferor and transferee are related persons, as defined by the Income Tax Act;

•    the lawyer practises law in a remote area where there are no other lawyers that either the transferor or the transferee could easily retain;

•    the transfer is being registered to give effect to a severance of land prior to the expiry of a consent under the Planning Act or pursuant to a municipal bylaw;

•    the transfer involves a government body, including a municipality;

•    the transfer of easements.

Two lawyers from the same firm can act on opposite sides of a transaction - an important stipulation that many real estate lawyers sought.

Convocation also amended rule 5.01 by adding sub-rule 5, which clarifies lawyers’ duties regarding title insurance and the electronic system used to register title documents. The new rule states, “A lawyer who electronically signs a document using the system for the electronic registration of title documents - E-REG - assumes complete professional responsibility for the document.”

The new rule also imposes new regulations on lawyers regarding the handling of information and advice given to clients regarding insurance.

The changes take hold March 31.

In his address to Convocation, co-chair Bradley Wright says the working group received during its consultation period over 100 responses regarding the new rules. He and co-chair Don Thomson believe “90 per cent” of the criticisms they received were accounted for in the final draft of the rules, said Wright.

“Anybody concerned about backlash in the profession should understand that, with the exceptions and the two-lawyer rule, most of the concerns are no longer there,” says Wright. “Nothing is perfect, I hasten to add. There will still be some people who don’t like these changes, but it’s the best that could be forged in the interests of every stakeholder, not just one group over another.”

Silverstein says the working group struggled to find rules that satisfied all the interested parties, including the profession, the government, LawPro, and benchers. He adds that there may need to be some “tinkering” done in the future to improve the new rules.

But in the short term, the new rules will be in place within the government’s timeline and small firms and sole practitioners won’t be impacted by the changes as much as they would have been under the original set of exceptions, says Silverstein.

Bencher Bob Aaron, who was on the working group, says real estate lawyers may be most impacted by the rule that prevents them from delegating the electronic signing of deeds.

“The lawyer is going to have to use his own Teranet security disk to sign or register the deed,” says Aaron. “That means the lawyer will physically have to push the button him- or herself, which is going to make it somewhat challenging for lawyers who have busy real estate practices and in the past have delegated this to staff members.”

Aaron says the new rules won’t eliminate real estate fraud but will make it more difficult to pull off.

“The fraudsters are always one step ahead of the rest of us,” he says.

Aaron notes that there have been situations in the past where two lawyers have worked together to carry out a fraud, and adds, “That situation will not be changed by these rules.”

Jeffrey Schwartz, chairman of the Ontario Bar Association’s real property section, says he expects many real estate practitioners will struggle to comply with the new rules by March 31. The OBA is planning a blast e-mail to let members know about the changes, and members are informing their colleagues about them, he says.

“People are still scrambling, trying to figure it out. But they’re getting it,” says Schwartz. “The communication is going on, people are learning, and we’re getting information out there. But it’s all happening very, very fast; that’s always a problem.

“I don’t expect this to go smoothly, but it’s going to happen, and lawyers will hit walls and they’ll have to step back and say, ‘OK, how do I do this?’” says Schwartz.

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