The Canadian Mortgage Broker Magazine - Summer 2021 by CMBA (National)

SUMMER 2021 $6.95

THE MAGAZINE FOR PROFESSIONAL MORTGAGE BROKERS

I N S I DcEiples

The 10 prin ional of profess ur behavio p.22

LENDING PRACTICES Reducing the criminal

Living the Pura Vida: A mortgage broker in Costa Rica p.34 Statutory obligations: When to provide discharge statements p.26 Sharing content: Beware the copyright trolls p.38

PM No. 41297283

interest rate will impact all lenders p.8

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inside VOLUME 6 ISSUE 3 SUMMER 2021

ELEVATING PROFESSIONALISM SINCE 1988. Ajay Soni has seen mortgage brokering transform from early obscurity to mainstream acceptance during his 33 years in the business. A keen photographer, Soni captured Canadians emerging from pandemic restrictions and enjoying a sunny afternoon at the beach for this issue's cover. BY LISA GORDON

features 13

UNCONDITIONAL RISK As buyers rush to waive protective conditions in a competitive housing market, it may be time for a countrywide cooling off period BY LISA GORDON

UNDERSTANDING THE DIFFERENCE

THE 10 PRINCIPLES OF PROFESSIONAL BEHAVIOUR BY SAMANTHA GALE

DISCHARGE STATEMENT RIGHTS Mortgagees should provide a discharge statement to a mortgagor immediately after it is requested BY JAMES R.G. COOK

BANK ERROR IN YOUR FAVOUR The $900-million wire transfer mistake: Practical implications in the Canadian lending context BY BRYCE KUSTRA, JOYCE M. BERNASEK AND DANA SARIC

BEWARE THE COPYRIGHT TROLLS It’s tempting to share content, but ensure your use of the content has been explicitly or implicitly authorized

VARIABLE REAL ESTATE MARKETS Inability to get financing is no excuse for backing out of a house purchase agreement BY PETER S. SPIRO

Do homeowners need title insurance and home insurance?

CMBA and MBRCC adopt a Code of Conduct to promote high standards and protect consumers

OFSI PROPOSES QUALIFYING RATE FOR UNINSURED MORTGAGES CMBA suggests OFSI target its stress test to scenarios involving speculation or investment BY SAMANTHA GALE

INNOVATION IN THE MORTGAGE INDUSTRY Technology can remove costly and time-consuming administration barriers from your process BY GREG WILLIAMSON

departments 8 Editorial summary 46 Advertisers Index

columns 34 Off the Clock: Living the Pura Vida – Kiki Berg in Costa Rica BY LISA GORDON 18 Broker profile: Ajay Soni in focus

BY LISA GORDON

BY CLINT LEE

COVER: © AJAY SONI; TOP: KIRA OUJONKOVA

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VOLUME 6 ISSUE 3 SUMMER 2021

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CANADIAN MORTGAGE BROKER magazine is produced by the Canadian Mortgage Brokers Association (CMBA) EDITOR

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Joyce M. Bernasek James R.G. Cook Samantha Gale Lisa Gordon Bryce Kustra Clint Lee Dana Saric Peter S. Spiro Greg Williamson IMAGES

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editorialsummary

LENDING PRACTICES

A reduction of the criminal rate of interest will have implications for lenders in all sectors, including mortgage lenders and brokers or agents who arrange mortgages BY SAMANTHA GALE

n its April 2021 budget the federal government made a promise to review predatory lending practices and, in particular, the criminal rate of interest. Specifically, it advised that: “To help fight predatory lending, the Government of Canada will launch a consultation on lowering the criminal rate of interest in the Criminal Code of Canada applicable to, among other things, installment loans offered by payday lenders.” Such a consultation is likely to pit consumer advocacy groups against industry associations in a debate that revolves around whether lowering interest rate ceilings reduces access to much needed credit or protects consumers from the debt burden of high-interest credit. The focus of the anticipated consultation appears squarely aimed at payday lending activities and short-term personal loans. However, a reduction of the criminal rate of interest, which currently sits at 60 per cent per annum, will undoubtedly have implications for lenders in all sectors, including mortgage lenders and brokers or agents who arrange mortgages. In addition, there are currently two government bills moving through the parliamentary process that seek to lower the criminal rate of interest. British Columbia MP Peter Julian recently tabled Private Member’s Bill C-274, which seeks to reduce the criminal interest rate to 30 per cent plus the Bank of Canada's overnight rate. The Bill also adds insurance charges to the calculation of total interest and would subject all payday lenders to the same rules by removing their current conditional exemption. Julian explains the rationale of the Bill: “People are using high-interest loans to buy food, pay rent, or meet their basic needs. But these loans are not well regulated by the government and instead of helping people the loans often catch Canadians in a vicious debt spiral with skyrocketing interest rates of up to 500 per cent which only profit the lenders.” Putting the criminal interest rate debate back in the Senate for a third time is Senator Pierrette Ringuette, who recently tabled Bill S-233. This Bill is even more restrictive than Julian’s Bill C-274, as it redefines the criminal interest rate to 20 per cent over the Bank of Canada’s overnight rate. The 20 per cent threshold was adopted by Ringuette as “an interest rate of 20 per cent is above the majority of credit cards and well above any mortgage rate or most standard bank loans.” The senator argues, “This measure won’t affect the vast majority of standard financial transactions.” Like Julian, she views the adoption of the Bill as urgent in order to curtail consumer debt during the pandemic recovery

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editorialsummary

and predicts a looming economic crisis for Canada without legislative intervention. The promise of federal government consultation on lending practices, combined with two similar criminal interest rate Bills working their way through the legislative process, will inevitably guarantee a focus on predatory lending practices and spark debate about the appropriate interest rate ceiling. However, one of the pivotal issues that is riddled throughout any debate over the criminal rate of interest prohibition is whether it represents criminal or consumer protection law. It is necessary to review the intended purpose of embedding an interest ceiling in criminal law to ensure that law makers pass appropriate, well-considered statutory reforms.

CRIMINAL INTEREST RATE LAW IN CANADA In modern times, Canadian lawmakers have been concerned with "loan sharking," which entails lending at exorbitant rates, often using harsh, intimidating and extortionary enforcement mechanisms. This represents a focus on crime control and not the regulation of generally accepted commercial lending practices by mainstream lenders. This led to the implementation of expansive Criminal Code provisions, which were passed unanimously without debate in 1980. Section 347 of the Criminal Code created a new criminal interest rate cap of 60 per cent, which captures all loan costs, interest rates and fees into an effective annual interest rate for all loans regardless of the type of loan or principal amount, with the exception of insurance charges. Evidence that a loan exceeds 60 per cent must be in the form of an actuarial certificate. Clearly, section 347 was viewed as purely criminal law aimed at loan sharks and not consumer protection legislation designed to ensure that borrowers are treated fairly in all consumer loan transactions. This resulted in the absolute failure of the Crown to prosecute any payday lenders, who were routinely and systematically charging people in excess of 60 per cent for micro-loans covered by paycheques. Accordingly, in 2007, section 347 was amended to clearly capture payday lending activity, except for loans under $1,500 with terms of 62 days or less.

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Section 347 creates an unusual criminal offence in that it requires that the Crown obtain the consent of the attorney general prior to charging a person under this section. Presumably, the attorney general acts as a gatekeeper to ensure that only “real criminals” and not “legitimate commercial lenders” are prosecuted for charging a criminal rate of interest. This presumption, if true, is problematic in that under the standard tenets of criminal justice, the kind or nature of the offender should not be a factor in determining who should be held accountable for breaching any section of the Criminal Code. If the elements of an offence are satisfied, the system should not arbitrarily weed out offenders who appear “mainstream” while sticking prosecutions to only those who appear “criminal.” The nature and personality of the accused should only be a factor for consideration by the court post-conviction, upon sentencing.

adduced of whether they are actually guilty of breaching section 347. The concept of legal certainty requires that citizens have some clear idea as to what is legal and what is illegal so that they can regulate their own conduct. It is clearly obvious that a drastic plunge in the criminal interest rate from 60 per cent to somewhere in the region of 20 or 30 per cent will move criminal conduct perilously close to, or within, a significant proportion of commercially acceptable transactions. One further confounding challenge with the criminal interest rate prohibition is that, in reality, criminal prosecutions are scarce and convictions almost non-existent. It is clear from an analysis of case law that judicial consideration of the criminal interest rate ceiling occurs predominantly in a civil context, with a dearth of criminal judgments. The Supreme Court of Canada observed that the criminal rate of interest prohibition

It is conceivable that a high-risk borrower might very well attract an interest rate of 20, 25 or even 30 per cent or higher once all costs and fees have been taken into account. The question is: where is the bright line between commercially justified high interest loans and extortion and racketeering? An obvious additional challenge with section 347 is that high-interest lenders may not know whether they have crossed the 60 per cent interest threshold, which pushes them into criminal offence territory, as they would not have had the benefit of obtaining actuarial evidence before making the loan. Many people are not aware that 48 per cent loans with commercially acceptable nominal fees and rates can readily exceed effective annual interest rates of 60 per cent when the effective annual interest rate is calculated. Relying on expert evidence to answer the ultimate judicial question of whether the offence was committed is problematic, as accused persons may never know in advance of such evidence being

is applied in civil proceedings to commercial loan transactions that bear no resemblance to criminal loan-sharking activity. Law Professor J.D. McCamus notes, “While an offence under section 347 could lead to a criminal charge, the possibility of partial invalidity is the more practical implication in conventional commercial transactions. The doctrine of severance has routinely been applied to restrict the lender's recovery to an amount of interest which does not violate section 347.” In a typical scenario, a borrower may assert that an interest rate on a loan exceeds the threshold of 60 per cent when the lender seeks to enforce repayment upon the borrower’s default, for instance, in a foreclosure proceeding. CMB MAGAZINE

CMBA-ACHC.CA SUMMER 2021 I

editorialsummary

We should also keep in mind that the purpose of the Criminal Code is to prohibit criminal conduct, not to interfere with the capacity of parties to make sound contracts based on reasonable risk factors. It is reasonable for lenders to charge higher costs to borrowers who are higher risk. As long as there is a commercial rationale to justify the rate and other costs, the Criminal Code has no business interfering with the transaction. It is conceivable that a high-risk borrower might very well attract an interest rate of 20, 25 or even 30 per cent or higher once all costs and fees have been taken into account. The question is: where is the bright line between commercially justified high interest loans and extortion and racketeering? The number 20 or 30 added to the Bank

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of Canada rate is arbitrary. There are of course loan costs, which are so exorbitant they are without any commercial rationale. However, these loans fall within the category of extortion and racketeering, which do deserve criminal sanction and are prohibited by other racketeering provisions in the Criminal Code. In Canada, the scant but arbitrary criminal enforcement of section 347 against those who only appear to be gang-like loan sharks begs policy-makers to review whether the provision should be removed from the Code as it serves no real criminal law purpose. This of course defeats the stated intentions of section 347 to protect the public from loan sharking – it churns criminal law into some form of ineffective consumer

protection legislation, as consumers seeking to rely on it must proceed to the civil courts to extricate themselves from the criminal elements of their loan. This is hardly a process that small personal loan consumers burdened with debt, can readily undertake. It is not clear whether Senator Ringuette, or MP Julian, have considered this reality in tabling their respective Bills. Surely, criminal law, which is utilized almost exclusively for civil purposes, requires placement in a civil statute, such as the Federal Interest Act, which provides a comprehensive set of rules around the charging of interest by lenders. Accordingly, not only should parliamentarians reject Bills S-233 and C-274, but they should rescind section 347 of the Criminal Code altogether.

mandatorycoolingoff

As buyers rush to waive protective conditions in a competitive housing market, it may be time for a country-wide cooling off period BY LISA GORDON

UNCONDITIONAL

RISK

ccording to the Canadian Real Estate Association (CREA), the average price of a home in Canada was a little over $688,000 in May 2021, up 38.4 per cent from the same month one year ago. However, May 2021 statistics on national home sales also showed that activity declined by 7.4 per cent month over month, building on an 11 per cent decline in April. A slowing of the hot real estate market would be welcome news to mortgage brokers and lenders who

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are increasingly confronted by “no condition” offers to purchase. While it’s true that sellers love unconditional deals, the reality is that homebuyers always incur some level of risk when they remove protective conditions from their offer. In today’s frenetic market, purchasers are foregoing home inspections and omitting clauses that are designed to ensure they can arrange financing, property insurance and the sale of their existing home. They are trying to do everything they can to present an attractive offer to a

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mandatorycoolingoff

vendor – who in many cases is entertaining multiple prospective buyers – but in doing so, they may encounter serious pitfalls. Consider what happens if a no-condition offer is signed and then an appraisal comes in below the offered purchase price, or if a deep dive into the applicant’s credit history results in financing being declined or reduced. In either case, if the buyer cannot come up with the required funds, they would not only lose their deposit but may also be mandated to follow through with the sale or face legal action. As reported by Samantha Gale in the Spring 2021 issue of Canadian Mortgage Broker, there are increasing calls for the real estate community to implement mandatory subject removal periods. This would give buyers a period of time to satisfy all conditions prior to closing the sale. As it happens, one need look no further than the province of Quebec for such a model. Governed by its Civil Code – compared to the rest of the country, which falls under common law – Quebec has a unique process in place for real estate transactions. Sylvain Poirier, a long-time mortgage broker and president of CMBA Quebec, explains how it works: “Buyers sign a promise to purchase form that includes several clauses that must be satisfied, including the arrangement of financing.” The Promise to Purchase must set out the exact amount of the loan being sought by the buyer, as well as the interest rate not to be exceeded, the amortization period, the term required by the buyer and the deadline to provide the seller with a copy of lender approval. Generally, Poirier said the time period to satisfy all conditions, including financing, is 14 days. Upon the seller’s acceptance of a Promise to Purchase, the buyers are legally required to fulfil all conditions within the specified time period. If they cannot, the Promise to Purchase is no longer valid and the seller can work with other buyers. “At the end of the 14-day cooling off period, there will be no conditions and the deal proceeds to closing without any surprises,” continued Poirier. “In other provinces, they waive any conditions at closing while we do it ahead of time. In

Sylvain Poirier is a long-time mortgage broker and president of CMBA Quebec.

includes lender approval,” he explained. “Buyers must provide a commitment with no conditions at the end of the subject removal period. It’s like a chain – if one buyer cannot get a financing commitment, the whole thing can fail. But the key is that it fails early, prior to closing. The seller can go out and take the next offer.” He added that the only time a buyer can avoid the mandatory subject removal period is if they have the full purchase price available in cash and can prove it. Similarly, some Australian states have mandated cooling off periods of two to five business days. While each state differs, the aim is to provide property buyers with their last chance to opt out of a real estate transaction without major financial or legal consequences.

Sellers love unconditional deals, but homebuyers always incur some level of risk when they remove protective conditions from their offer. Quebec, this puts time pressure on brokers and banks and lenders at the beginning, but when we have a commitment from a lender, it’s a final commitment. We’ve already done all the steps: verified income, done a home inspection, a title check, confirmed deposit. It is very stressful, but at the end of the day when we send deals to notaries for closing, it is a done deal 99 per cent of the time.” Poirier noted that deposits may be paid with cash, but bank records must be produced to show the money was available for at least 90 days prior to the credit application. If the deposit is coming from the sale of another house, buyers must have a firm commitment proving the financing for that deal in order to proceed. “If I have a client who needs the money from selling his house, it’s very important to have a commitment from his buyer that

As Gale wrote in her Canadian Mortgage Broker article, real estate contracts without subjects are never preferred by lenders, “who prioritize processing financing applications for contracts with subject removal dates.” As a result, Canadian buyers outside Quebec who remove financing conditions might find themselves low on the lending priority list. In the race to compete for a home in an overheated market, prospective buyers are offering inflated prices and removing conditions in order to make their offers more attractive. The problem is, those buyers could very well find themselves getting burned. As Gale concluded, “the current, anomalous COVID-19 environment exposes unprecedented risks for house hunters and clearly calls out for some kind of greater intervention in the house buying process.” A country-wide mandatory subject removal period could fit that bill. CMB MAGAZINE

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insurancecoverage

It’s more important than ever for mortgage brokers to understand the difference between title insurance and home insurance

TITLE INSURANCE AND HOME INSURANCE DO HOMEOWNERS NEED BOTH? Submitted by First Canadian Title Company

uying a home is an incredibly exciting event for any new homeowner, but with ownership of any property comes the need to protect it from a range of risks. These could include losses or damages to the home and fraudulent attempts to steal, transfer or use the ownership title. Homeowners and lenders can safeguard property from threats with the right insurance. Many Canadians are familiar with two of the most common forms of insurance, home and title. But they may not be aware that they are two fundamentally distinct forms of coverage. This common misconception can be dangerous, and confusing the two has led many people to obtain one form of insurance,

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but not the other, leaving them vulnerable to greater risks down the road. The reality is, both forms of insurance are essential to provide comprehensive protection of your property. The red-hot real estate market shows no signs of slowing down in the foreseeable future. As more Canadians become homeowners, it’s more important than ever for mortgage brokers to understand the difference between title insurance and home insurance to properly assist your clients, and the benefits of investing in both to protect what may be the largest single purchase of their lifetime.

HOME INSURANCE Home insurance (also known as homeowner’s insurance or house insurance) protects a residence against losses and damages for

many risks and can also include additional structures on your property. While home insurance comes in many forms in the market, the standard policy includes coverage that provides six types of protection: 1. Dwelling coverage: the most recognized coverage, which protects from natural disasters such as fire, wind and lightning. It is important to note that flood and earthquake coverage are not always covered and may need to be purchased separately. 2. Other structures coverage: protects sheds, fences and detached garages from natural disasters. 3. Personal property coverage: covers the items inside the home such as furniture, clothing, electronics and jewelry. Each policy will outline the maximum amount of personal

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property coverage that homeowners are entitled to. 4. Personal liability protection: pays for the legal defence if someone gets injured on the homeowner’s property. It is important to note that the policy will only pay up to the specified coverage limit. If legal costs or a settlement exceeds the coverage, the owner will be required to pay the balance out of pocket. 5. Medical payments coverage: provides protection if someone gets injured on the property and does not want to sue. This coverage will pay for their medical expenses such as crutches or prescription medicines. 6. Loss of use coverage: covers expenses such as a hotel stay and restaurant meals if the home becomes uninhabitable and needs repairs due to an event that is covered by the policy. Again, there is a limit to how much coverage is received for loss of use. Make sure your client checks with their insurance provider. Home insurance is typically paid via monthly insurance premiums, and the cost depends on various factors including details of the property and the province or city. The average annual home insurance cost in Canada hovers around the $1,500 mark.

TITLE INSURANCE Title insurance is a policy that provides protection by indemnifying against loss with respect to your ownership or true entitlement of the insured property. There are two types of title insurance: one protects property owners through an owner’s policy, and the other protects lenders through a loan policy. A homebuyer receives title to a home once the previous owner has signed the deed and transferred the property over, and the homebuyer is registered in the government’s land registration system. Many homeowners assume that title insurance is included within a home insurance policy. Because of this misunderstanding, an alarming number of Canadians today do not have title insurance. While home insurance protects homeowners from unexpected circumstances that occur on or against their property, title insurance protects the homebuyer from unexpected circumstances that affect the title to the property, such as financial loss from title fraud or other issues.

Title insurance also provides protection against loss from pre-existing issues, which may include: 1. Challenges to title by third parties. 2. Liens on the title due to the previous owner’s unpaid debts. 3. Encroachment issues, such as if your client’s backyard shed is technically on their neighbour’s property and needs to be removed. 4. Adverse matters that would have been disclosed on an up-to-date survey. 5. Title fraud, which occurs when a person uses false identification to get the title of a property in order to obtain a mortgage or sell the home without the homeowner knowing or impersonating you to obtain a mortgage. Additionally, title insurance protects homeowners from title issues that may impact their ability to sell, lease or mortgage their property in the future. It also includes a “duty to defend” to protect both buyers and lenders against expensive litigation related to title issues. Unlike home insurance, title insurance is a one-time premium that is typically purchased at the same time as the property. However, title insurance can be purchased even if your clients already own their property. The cost of title insurance in Canada averages around $250 but can range anywhere from a few hundred to a few thousand dollars, depending on factors relating to the property.

BE PREPARED The best way for homeowners to protect themselves from expensive and unexpected costs associated with property ownership is to understand the various risks, and to invest in the right insurance coverage. Without question, both home insurance and title insurance are incredibly important protection options that homeowners should always consider when purchasing a home. A home is often your clients’ most valuable asset – make sure they protect it with home insurance and title insurance. The FCT group of companies is based in Oakville, Ontario. The group provides industry-leading title insurance, default solutions and other real estate-related products and services. CMB MAGAZINE

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brokerprofile

Ajay Soni has seen mortgage brokering transform from early obscurity to mainstream acceptance during his 33 years in the business. Now, as he contemplates retirement, Soni reflects on the profession’s growth and shares his vision for the future.

BY LISA GORDON

jay Soni remembers the public mindset is a huge benefit to new brokers. The the early days of term mortgage broker is mainstream now, whereas in my mortgage brokering day, you still had this unknown about what a mortgage in British Columbia. broker was. We were an alternative distribution channel As a cash-strapped to new lenders, and we fought that battle for reputation university graduate, among the general borrowing public.” persistence landed Soni said mortgage brokers bring incredible value him a job with a small to the marketplace, offering great service along with Richmond company competitive rates. He said over time his business that was looking for was built on referrals, including multi-generational people to write mortgages. Soni’s first day on the job was “I don’t believefamily in mortgages. By doing good work and elevating September 19, 1988. professionalism in the industry, mortgage brokers have “My boss gave me a week of training in his office and I at been able to communicate a strong value proposition being young heart. started with two other guys – they both left within weeks,” to homebuyers. My heart is old; but he recalled. “Within three months, I was writing business “How many millions of Canadians have used the serlike crazy, on commission. I landed in my this business vices– of aitmortgage broker and benefited from it? Those brain,by it is 25 accident, but then learned that if you see opportunity and consumers have in turn promoted the use of mortgage wants to learn.”brokers because of their positive experiences. The biggest work hard, you can do well.” Sylvain Poirier, In 1992, Soni struck out on his own, founding MPMC benefit has been reaped by the mortgage consumer.” President ofwith PrêtsHypothèque.ca – Mortgage Professionals Mortgage Corporation As he approaches 34 years in the mortgage industry, partner Karl Madsen. At the time, mortgage brokering was Soni reflects on the changes he’s seen. only the glimmer of a profession. “In my region here, a big highlight for the industry “The industry was hardly an industry at all,” said Soni. was the formation of the Mortgage Brokers Association “But we saw that there was so much potential, and we of British Columbia (MBABC). I was on that first board wanted to help shape that potential with professionalism. of directors and stayed involved over the years. I was We had a dress code and offices with a killer view of president from 2013 to 2016.” Vancouver – when clients came to see us, they knew they From a handful of mortgage brokers who came were in the right place. In a sense, we were inventing a together in 1988, Soni said MBABC grew to hold its 2020 mortgage broker brand within our company.” conference at the Marriott hotel in downtown Vancouver, When he first started, Soni knew almost every with over 500 people in attendance, professional speakers mortgage broker in Vancouver. Then, in 2001, the industry and exhibitors. consolidated in what he referred to as “the super-broker “MBABC was the first seed used to institutionalize movement.” He sold his company to Invis that year as the the mortgage broker brand in B.C. That was a key point. industry grew and gained more recognition. Over 30 years later, here we are communicating with “Over the years, [the industry has] gone through regulators. Media reporting about mortgage brokers has various generations and business models,” he adds. “Today, become mainstream.”

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HIGH FLIER ELEVATING PROFESSIONALISM SINCE 1988

PHOTO: KIRA OUJONKOVA

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brokerprofile

With the launch of the Canadian Mortgage Brokers Association (CMBA) in 2015, mortgage brokers across the country have become more unified, as regional associations – including MBABC – come together to speak with a common voice. “Today, it is a far more mainstream and institutionalized profession,” said Soni. “There is more regulation, which is not a bad thing. Thirty years ago, there was no technology. Now, there are multiple systems providers, credit bureaus, etc. And from a handful of lenders, there are now numerous lenders accessing mortgage brokers to distribute their funds.”

ADAPTING FOR THE FUTURE At 58, Soni is a senior mortgage broker under the Invis banner and works from the same office he established in 1992, still enjoying the killer view of downtown Vancouver. While he’s seen the industry undergo many changes, he believes the onset of new technologies will radically alter mortgage brokering in the years to come. First-time homebuyers represent the biggest intake of borrowers, so industry will need to cater to their service preferences. “There’s no doubt in my mind that new technology, artificial intelligence (AI), and direct access to income and supporting documents from CRA, financial institutions and employers will enable the ‘robo mortgage broker’ to influence the mortgage marketplace,” he said. “The algorithm for mortgage approval is actually fairly simple for a mainstream borrower. As we get more regulated and more integrated with so many other parts of the financial community, it makes it easier for that information to be extracted without the human touch.” While most older clients still prefer personal interaction during a mortgage transaction, new first-time buyers will be accustomed to – and, in fact, may often prefer – no human contact. “They’ll be used to using AI to get their information. As an industry, mortgage brokers will need to adapt to this new way of doing business. For new brokers coming in, this is what they’ll be used to.” Soni also predicted that while there may be the same amount of business, the industry 20

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Ajay Soni often combines his love of flying and photography by shooting photos at airshows. Here he captured (from top): an AMI Typhoon and a CF-18 pass with pyro. Below: Soni has provided cover photos for several issues of Canadian Mortgage Broker magazine. PHOTOS: © AJAY SONI

of the future may be controlled by large companies that function as mortgage distribution channels. Along with the banks, these will be the companies that can afford to bankroll the development of cutting-edge technologies. “Nothing stays the same, and many companies are still heavily dependent on a business model that revolves around people,” he added. “New companies can harness technology and send applications directly to lenders and insurers, all in one seamless transaction. People are writing technology that still uses the physical mortgage broker in the equation. A real step change will be when that person is not there at all – the threat to mortgage brokers is, will we go the way of travel agents? They still exist today, but in a very different capacity than previously.” As for his own future, Soni said he’s gradually been “engineering his exit” for about two years. As he draws down his business and prepares for eventual retirement, he is looking forward to enjoying more family time, hobbies and volunteer work. He coaches his son’s hockey team, his daughter’s baseball team and is a regular volunteer at their school. Lately, he’s been reconnecting with hobbies he’s always loved but rarely had time to pursue: photography and flying are two examples. A private pilot since 2000, Soni often combines his love of aviation and photography by shooting photos at airshows and other aviation events. “I am focusing on the positive, putting creative pursuits in front of me,” he said. “I’m in the later stages of my career. I feel proud of what I was able to do to help my clients. I helped many mortgage brokers; I’ve volunteered with various industry organizations to give back. I value the great friendships and relationships I’ve made, and the great people who’ve been part of my career.” As he shifts his focus to family and leisure, Soni knows it will be a big life change. That’s why he’s not leaving “cold turkey.” Instead, he’ll gradually step away as he focuses on personal priorities. “It’s a dynamic shift, but it’s time to make other things a big priority in my life,” he concluded. “You know, the best part of coaching my kids is when my son or daughter comes up to me with a big smile and says, ‘Hey Dad!’”

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CMBA-ACHC.CA SUMMER 2021 I

codeofconduct

PRINCIPLES OF PROFESSIONAL BEHAVIOUR

CMBA and MBRCC adopt a Code of Conduct to promote high standards and protect consumers of mortgage brokering services BY SAMANTHA GALE

he Mortgage Brokers Regulators’ Council of Canada (MBRCC) recently completed reviewing industry responses to its consultation on its proposed Code of Conduct (Code) for mortgage brokers. CMBA participated in the consultation and has now adopted the Code in concert with MBRCC. The MBRCC is a forum for Canadian mortgage broker regulators to collaborate and promote regulatory consistency to serve the public interest. The MBRCC developed this plain-language Code to promote high standards of conduct to protect consumers of mortgage brokering services. The 10 principles in the Code outline professional behaviour and conduct expectations that Canadians should expect when working with mortgage brokers. Mortgage brokers should conduct their business following these common principles, while ensuring compliance with all applicable laws, regulations, rules or regulatory codes within their respective jurisdiction. Any stricter or more specific requirements, rules or standards of conduct take priority over the Code. Beyond professional conduct expectations, the MBRCC supports a vibrant and inclusive working environment, where industry representatives do not discriminate or participate in discrimination against any person or entity and where they are not subject to discrimination.

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THE COMMON PRINCIPLES FOR CONDUCT IN THE CANADIAN MORTGAGE BROKERING SECTOR ARE:

Compliance / Outcomes: Regulated persons and entities must comply with legislative and regulatory requirements. They should take reasonable steps to ensure their staff and third-party partners also comply. Their conduct should embody the principles included in this Code.

Accountability: Regulated persons and entities must act in a responsible/accountable manner. They must exercise care, due diligence and sound judgement in providing products and services.

Disclosure: Regulated persons and entities must fully disclose material information to applicable parties in a transaction. Disclosures must be meaningful and made in an honest and timely manner.

Management of Conflicts of Interest: Regulated persons and entities must identify and disclose actual, potential and/or perceived conflicts of interest to applicable parties in a transaction. They should have documented policies for managing such conflicts.

10.

Honesty: Regulated persons and entities must conduct their activities in a truthful, clear and transparent manner. They must not mislead, hide or obscure material information. Competence: Regulated persons must have and maintain the skills, knowledge and aptitudes necessary for their business activities. They should decline to act when they are unable to provide products/ services in accordance with this Code. Suitability: Regulated persons and entities must take reasonable steps to present products/services that are suitable for their client(s). They must have a sound understanding of how the products/ services match the disclosed circumstances of their client(s).

Security and Confidentiality: Regulated persons and entities must protect their clients’ information. They must use and disclose it only for purposes for which the client has given consent or as compelled by law. Stewardship: Regulated persons and entities should act ethically, with integrity and respect. They should foster a culture of compliance. Their conduct should not undermine the public’s confidence in the mortgage brokering sector. Co-operation with Regulators: Regulated persons and entities must co-operate with mortgage brokering regulators. They should report possible violations of laws, regulations or this Code to the appropriate authority.

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dischargestatements

DISCHARGE STATEMENT

RIGHTS

Mortgagees should provide a discharge statement to a mortgagor immediately after it is requested and ensure that the power of sale complies with their statutory obligations BY JAMES R.G. COOK

mortgagor has a right to request a discharge statement from a mortgagee at any time prior to the mortgaged property being sold by the mortgagee. A mortgagee who has commenced power of sale proceedings cannot refuse to provide a discharge statement even after the 35-day standstill period has expired. A sale by a mortgagee that violates these rules contravenes section 22 of the Ontario Mortgages Act and may be set aside, as demonstrated by the decision in 2544176 Ontario Inc. v. 2394762 Ontario Inc, 2021 ONSC 3067 (CanLII). The case involved a gas station that had been purchased by the owner/mortgagor for approximately $5.4 million. The purchase was financed with a mortgage of approximately $3.79 million through a mortgage that was assigned to several mortgagees. On November 13, 2020, the mortgagor entered into a conditional agreement to sell the property for $8.7 million with a closing set for February 15, 2021. On December 9, 2020, the mortgagees delivered a notice of sale to commence private power of sale proceedings under the mortgage. They were not aware of the conditional sale entered into by the mortgagor. The 35-day mandatory standstill required in power of sale proceedings expired January 13, 2021. The next day, on

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January 14, 2021, counsel for the mortgagor told the mortgagees that the property had been sold with a February 15, 2021, closing date. Counsel for the mortgagor also requested a discharge statement for the amount required to discharge the mortgage. Counsel for the mortgagees refused to do so and took the position that because the notice of sale period had expired on January 13, 2021, the mortgagor’s “equity of redemption” had expired. The next day, the mortgagees listed the gas station property for sale. On February 4, 2021, the mortgagor’s sale to its buyer went firm at a reduced price of $5.4 million. The closing date was deferred from February 15, 2021, to March 31, 2021. On February 10, 2021, the mortgagees entered into an agreement to sell the property to another buyer, who agreed to accept title to the property, pursuant to the Mortgages Act, for $4.9 million. The mortgagees’ sale closed March 2, 2021. Understandably, the mortgagor commenced litigation to stop the power of sale by the mortgagees given that the sale price was $500,000 lower than its own negotiated sale price.

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dischargestatements

An application was heard by Justice F.L. Myers in April 2021. At issue was whether the mortgagees conveyed good title when they sold mortgaged land by private power of sale without providing the mortgagor a discharge statement when requested under section 22 of the Mortgages Act, which deals with the rights of an owner/mortgagor to cure defaults that have led a mortgagee to accelerate the mortgage debt and declare it all due under the terms of the mortgage. Despite acceleration, the mortgagor/owner is entitled to pay the arrears, with interest and costs, to bring the mortgage back into good standing. The right to cure applies despite anything in the mortgage to the contrary, and it does not matter if a power of sale is in progress: 1173928 Ontario Inc. v. 1463096 Ontario Inc.,2018 ONCA 669 (CanLII) at para. 41. Justice Myers noted that there was nothing untoward about the mortgagees listing the property for sale under their power of sale while the owner was also trying to sell it, and vice versa. If the mortgagees lawfully sell the property, the owner will lose its

ability to redeem the mortgage. The owner cannot interfere with the mortgagees’ sale of the property provided they have acquired the right to do so. Similarly, there is nothing stopping the owner/mortgagor from trying to sell the property while the mortgagees are also trying to do so. If the owner sells the property before the mortgagees sell it, then the owner will only be able to provide clear title to its purchaser by paying the mortgagees in full to obtain a discharge. Under section 43 of the Mortgages Act, if the owner pays the mortgagees in full before they have sold the property pursuant to their power of sale, the mortgagees must discharge the mortgage. Justice Myers determined that counsel for the mortgagees was “patently incorrect” when he asserted that the mortgagor was foreclosed from selling just because the 35-day notice period had expired after service of the notice of sale.

were paid in full. In the circumstances, the mortgagees frankly should not have cared where the money came from. While the mortgagees may have a practical interest in deferring effort and cost on their own sale if they thought the owner had found a live purchaser, this had nothing to do with the mortgagor’s legal rights. What the mortgagees could not do was refuse to provide a discharge statement in order to pursue their own preferred buyer. By failing to supply the discharge statement as required by the Mortgages Act, the mortgagees’ rights to enforce the mortgage were suspended. Justice Myers found that the sale by the mortgagees was therefore void. In the result, the sale by the mortgagees was set aside, and they were declared to have violated the provisions of the Mortgages Act. While the buyer of the property from the mortgagees was an innocent party, the agreement to purchase the property

If the mortgagees lawfully sell the property, the owner will lose its ability to redeem the mortgage. The owner cannot interfere with the mortgagees’ sale of the property provided they have acquired the right to do so. A mortgagor’s “equity of redemption” is not foreclosed by the expiry of the 35-day notice period. Under section 22(1) (a) of the Mortgages Act, the owner/ mortgagor retains the right to redeem until the mortgagee sells the property, namely when the mortgagee enters into an agreement of purchase and sale for the mortgaged property. That had not yet occurred in this case when the mortgagor requested the discharge statement. In Justice Myers’s view, the mortgagees had no reasonable excuse to refuse to provide a discharge statement, or grounds to question the legitimacy of the sale by the mortgagor. The mortgagees only had to provide a discharge of the mortgage if they

was to take title subject to the Mortgages Act, which indicated an acceptance of a potential risk of breach by the mortgagees, which is what occurred in this case. Mortgagees seeking to avoid similar results would do well to provide a discharge statement to a mortgagor immediately upon request and to ensure that the power of sale complies with their statutory obligations. James R.G. Cook is a partner at Gardiner Roberts and has been with the firm since 2002. As a litigator in the firm’s Dispute Resolution Group, he has experience in a broad range of commercial, real estate and professional liability litigation. Information: grllp.com CMB MAGAZINE

CMBA-ACHC.CA SUMMER 2021 I

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paymenterrors

BANK ERROR IN YOUR FAVOUR –

THE $900-MILLION WIRE TRANSFER MISTAKE: PRACTICAL IMPLICATIONS IN THE CANADIAN LENDING CONTEXT BY BRYCE KUSTRA, JOYCE M. BERNASEK AND DANA SARIC

SUMMARY

n August 2020 an unprecedented black swan event occurred when Citibank N.A. (Citibank), acting as an administrative agent in a loan facility, accidentally wired out almost US$900 million and paid off the borrower’s loan early – with Citibank’s own money. Borrowers and lenders typically focus on the meat and potatoes commercial matters in a loan transaction, however Citibank’s recent payment error raises the question of what happens when a debt is paid early – by mistake and without authorization. Can the payer that made the mistake recoup the amounts erroneously paid? Even if it can, should parties be adding additional protections to the loan agreements just in case? A United States federal court recently considered Citibank’s situation and concluded that the agent bank was not entitled to recoup its mistaken payment. At that moment, payers of debt obligations of all kinds were put on notice that the risk of loss lies with them. While this litigation is based on United States law (and is likely to be appealed), it is instructive in Canada and has spurred a flurry of contractual

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protections in credit facilities and amendments. Bank lenders and creditors of all kinds in Canada should consider implementing clawback provisions and other contractual and administrative protections to ensure that mistaken payments are not made and, if made, are recoverable. These measures are discussed below.

HOW WE GOT HERE: FACTS AND U.S. LITIGATION On February 16, 2021, a U.S. federal judge held in In Re Citibank August 11, 2020 Wire Transfers (the Revlon Decision) that Citibank, as administrative agent, was not entitled to recover over US$500 million that it had mistakenly wired to pay off a syndicated loan for Revlon, Inc. (Revlon), but which the receiving creditors refused to repay. During a complex transaction, Citibank intended to transfer an interest payment of US$7.8 million to Revlon’s lenders. Instead, because of unintuitive back-office software, Citibank wired almost US$900 million of its own money, the exact amount down to the penny of the principal and interest owing on Revlon’s loan. The lenders in that credit facility thought Revlon had decided to pay

off the loan early – until Citibank asked for the money back. The recipient of a mistaken payment is usually required to give it back, on the basis of unjust enrichment. However, under the discharge-for-value exception to that rule, New York law allows creditors to keep money that was owed to them, even if the payment was unintentional. This position supports the policy goal of finality in business transactions, especially for instantaneous wire payments. The discharge-for-value principle recognizes that payers should bear the risk of loss from an accidental payment because they are in the best position to avoid payment errors in the first place. Although the Revlon Decision is likely to be appealed, several banks have implemented contractual terms to ensure recovery of mistaken payments in the future.

PRACTICAL CONSIDERATIONS FOR CANADIAN LENDERS AND ADMINISTRATIVE AGENTS While the Revlon Decision is not binding in Canada, it has spurred a number of banks to update their practices to address the risk of

paymenterrors

! S P O O

erroneous payments. Canadian regulators, lenders and borrowers, and others whose business may involve mistaken payments of contractual obligations, should also consider implementing contractual protections and new standard administrative practices to prevent a similar mishap. The Loan Syndication Trading Association (LSTA) recently published model language to address erroneous payments for inclusion in credit agreements. Canadian banks are also including tailored clawback provisions that extend beyond existing clawback provisions. The clawback clause affords a lender or administrative agent a contractual right to recover any mistaken payments. Canadian banks are opting to include expanded clawback provisions, which generally contain the following elements: n How to determine that a payment is erroneous, such as based on a discrepancy from the payment notice or otherwise. n That the erroneous payment must be held in trust or the recipient creditor must return any erroneous payment with interest required within a specified time. n That the recipient creditor of a mistaken

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payment waives applicable defences. Adding a similar clause to Canadian credit agreements that have an administrative agent may help to ensure that a mistaken payment would be returned if an agent bank makes a mistaken payment without

dardized payment notice in advance of a wire transfer could help parties avoid costly litigation. In the Revlon Decision, the judge suggested that such a notice might state: You will shortly receive a wire payment of $X. This payment is for interest only; it does

The recipient of a mistaken payment is usually required to give it back, on the basis of unjust enrichment. However, under the discharge-for-value exception to that rule, New York law allows creditors to keep money that was owed to them, even if the payment was unintentional. a customer’s authorization. In addition to contractual protections, borrowers and other payers should also consider adopting other security procedures to verify payments, detect errors and insure against losses. For example, a practice of providing a stan-

not include any payment of principal. If you receive more than $X, any excess would be the result of an error and you would not be entitled to keep it. Under the Canadian test for recovery of money paid under a mistake of fact CMB MAGAZINE

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paymenterrors

(discussed below), one of the defences (which would otherwise allow the creditor recipient to keep the mistaken payment) may not be available, “where the payee, being aware of the payer's mistake, did not receive the money in good faith.” It may be easier to prove that a recipient of a mistaken payment did not receive the money in good faith if the entity making payments had an established policy of sending out advance payment notices, such that the recipient would be aware that any change from that payment must be a mistake, and that therefore the recipient did not receive (or keep) the money in good faith.

APPLICATION OF THE REVLON DECISION IN THE CANADIAN CONTEXT The leading Canadian case on mistaken payments is B.M.P. Global Distribution Inc. v. Bank of Nova Scotia, 2009 SCC 15 (Global). In Global, the court adopted the following test (known as the Simms test) for recovering money paid under a mistake of fact: n If a person pays money to another under a mistake of fact that causes the payer to make the payment, the payer is prima facie entitled to recover it as money paid under a mistake of fact. The prima facie entitlement to recover mistaken payment applies regardless of any negligence of the payer. n Notwithstanding that, the prima facie right to recover may fail if one or more of the following exceptions are found to be present: o The payer intends or is deemed by law to intend that the payee shall have the money in all circumstances, whether the mistaken fact is true or false. This exception is less important in these circumstances because of course a payer would not intend the recipient creditor to keep funds sent out by mistake. o The payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee by the payer or by a third party by whom the payer is authorized to discharge the debt. The key factor in this exception is the requirement that the third party authorizes the payer to discharge the debt. As such, on the facts of the Revlon Decision (where the underlying debtor, Revlon, did not request or authorize the

repayment of the loan), this exception to the bank recovering the erroneously wired funds would likely not apply, because the bank was not authorized to discharge the debt by the debtor. o The recipient of the mistaken payment materially changed their position in good faith reliance on the mistaken payment, or is deemed in law to have done so, such that it would be inequitable to require the recipient to return the funds (or a portion of them). This last factor is likely critical to the analysis of the remarkable facts of the Revlon Decision in the Canadian context.

to return funds paid by mistake may create uncertainty around the enforceability of the debt is a material issue. Unless a Canadian court would be willing to concurrently make an order that the debt was enforceable and reinstated in full, there is a risk that the recipient of the mistaken payment could argue that the noted exception should apply, and the recipient should be entitled to keep the erroneous wire transfer. A court may find that issuing an order establishing the enforceability of the debt (from the underlying debtor to the recipient of the funds) is beyond the scope of the immediate court proceedings (because the underlying

... if the funds are sent to the holder of a debt then there remains a risk that Canadian courts would reach the same practical result (that the receiving creditor keeps the money paid by mistake).

OUCH! The Simms test was adopted from English law, and the court’s commentary in another English case, Lloyds Bank PLC v. Independent Insurance Co. Ltd., is instructive. In that case, Justice Waller suggested that the bank that mistakenly wired the funds, Lloyds Bank PLC (Lloyds), should not be entitled to recover the funds unless the debt from the debtor, WF Insurance Services Limited (WF), to the receiving creditor, Independent Insurance Co. Ltd. (Independent Insurance)) would be re-instated. Although determined on other reasons, Justice Waller had concerns that the underlying debtor under the loan, WF, could argue that the debt had been discharged (by the mistaken payment from Lloyds), and that this legal uncertainty put the recipient creditor of the funds (Independent Insurance) in a materially changed position. Given the investment that lenders put into having enforceable loan documents, the prospect that requiring a receiving creditor

debtor is not a party to the proceeding, which would only be between the mistaken payer and the recipient creditor). While everyone involved with wire transfers, big or small, hopes to never experience a wire transfer error, if the funds are sent to the holder of a debt then there remains a risk that Canadian courts would reach the same practical result (that the receiving creditor keeps the money paid by mistake) through application of the Simms defences under Canadian law, as the court in the Revlon Decision did through application of the New York discharge-for-value principle. This article was first published by Osler (osler.com). The authors are partners at Osler, a leading business law firm practising from offices across Canada and in New York. Bryce Kustra is partner, Real Estate; Joyce M. Bernasek is partner, Financial Services; and Dana Saric is partner, Banking and Financial Services. CMB MAGAZINE

CMBA-ACHC.CA SUMMER 2021 I

brokersoff-the-clock

LIVING THE Mortgage broker Kiki Berg helps her Canadian clients realize the dream of home ownership while following her own life’s plan in Costa Rica BY LISA GORDON

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brokersoff-the-clock

PURA VIDA

t’s been 15 years in the making, but Kiki Berg has finally written her own definition of being a mobile mortgage broker. Berg, 49, gives new meaning to the term “remote work.” It’s taken a while to get all the pieces in place, but today the broker known as the “Mortgage Diva” enjoys a busy and rewarding career with Surrey-based Mortgage Architects – even though she’s been nowhere near British Columbia for most of the past year. In fact, when Canadian Mortgage Broker caught up with Berg in late May, she had just rented a condo in Playa del Coco in Costa Rica’s Guanacaste province, which she intends to make her permanent home base for now. Despite travelling to 28 fascinating countries over the past 10 years, Costa Rica is the one that has found a place in her soul. “Why Costa Rica? It’s a bit like when you find the right husband. You either feel it or not,” laughed Berg. “When I was young, my parents bought me a globe. I used to spin it and wonder what this tiny place was, separating North and South America. “When I came backpacking here five years ago, I had a strong spiritual connection to it. It feels like home and reminds me of my mother. The weather is warm, the people are relaxed and supportive of their neighbours, and there is not a lot of crime. The social scene and community are vastly different here, more friendly and outgoing.” Her decision to put down more permanent roots in Costa Rica comes after nearly a decade of seeing the world while backpacking and volunteering.

“When I hit 40, it was an eventful year,” recalled Berg. “The kids had moved out, and I wanted to start my world adventures. At 44, I did my first big trip to the Philippines, volunteering with Habitat for Humanity. We were on the island of Mindoro building cement homes after a typhoon had gone through and destroyed their houses.” In the past few years, she has backpacked through the Philippines, Vietnam, Singapore and Thailand; then, through Panama, Nicaragua, Costa Rica and Colombia over a nine-week period – twice! – all the while helping her Canadian clients finalize their mortgages. From hostels to beachfront cafes, she’s been there working on her laptop. Along the way, Berg has taken on some unique volunteer challenges, many of them involving children and animals, including a stint at a Catholic orphanage in San Jose, Costa Rica. “I am forever grateful to have the most loyal clients who trust in me, and their support allows me to do the volunteer work I do,” she explained. “Volunteering is not free, and when a client completes a mortgage with me, they are part of my journey to make the world a better place – one mortgage at a time. “There is a deep sense of gratification and peace you can get from volunteer work that you can’t get elsewhere,” continued Berg, who in January 2021 worked at the Jaguar Rescue Center near Puerto Viejo de Talamanca, Costa Rica. This time, she was joined by her 25-year-old daughter, Jessica. Berg and her daughter spent six weeks in Costa Rica, including one month at the Jaguar Rescue Center (which has not actually hosted jaguars in recent years).

Clockwise from top left: Jessica, Kiki Berg's daughter, helps out at the Jaguar Rescue Center in Costa Rica. Kiki cares for a monkey; these birds get some attention from the “Mortgage Diva;” Kiki takes time out to enjoy a hike.

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brokersoff-the-clock “Volunteering is not free, and when a client completes a mortgage with me, they are part of my journey to make the world a better place – one mortgage at a time.” “When the centre opened in 2005, a local Bribri indigenous person came across an orphaned jaguar and brought it to the centre, and that is where the name came from,” she explained. “At the centre, we do have ocelots, pumas, monkeys, sloths, kinkajous, coati, snakes, deer and many birds. The centre encourages the animals to be out of their cages so they can be released back into the wild once they are recovered.” Volunteers are critical at the Jaguar Rescue Center. “Down here, they rely heavily on travelling backpackers to come and volunteer with the animals,” continued Berg. “With COVID, the animals were really struggling as there was a massive shortage of help – and the local Ticos don’t want to volunteer, as they can’t afford to.” She said a lead hand teaches volunteers how to care for the animals, most of which are fairly harmless. Volunteers are not allowed to work with any of the cats or adult howler monkeys, but time caring for the baby monkeys and sloths was plentiful and “magical.” Twice a day, volunteers were tasked with feeding hundreds of animals, cleaning the cages and cutting fresh wild flora from the jungle to give the cages a natural feel. It’s a long way from the fancy shoe collection and 99.9 per cent approvals that earned her the “Mortgage Diva” nickname back in B.C., but Berg loves her new life in Costa Rica. “There is so much opportunity to volunteer here,” she said. At the time of writing, her next stop was Charlie’s Angels Animal Rescue, an organization that ships rescue dogs to Canada. “It is harder to find volunteer work in Canada. Down here, there is a lot of freedom to do these feel-good activities. It teaches me patience and humility and gives me a sense of pride and identity.” With her volunteer schedule in Costa Rica, people might be surprised to discover that Berg continues to work as a successful mortgage broker. In fact, she says she closes more mortgages remotely than she ever did at the office. “Many people think I stopped working, but I designed this so I can get up in the morning and work for the parts of the day,” she said. “I am more focused and organized in my day,

which makes me a better broker on the road.” Her business is transacted via Zoom, FaceTime, WhatsApp and email, with the help of good marketing and CRM systems and her assistant Kerri, back in Canada. “I needed to hire someone to do my paperwork. She closes my files, and I’m mentoring her to be a broker. Mentoring new brokers and sharing my vast experience with them is important to me.” She finds that many of her clients back home are intrigued by her nomadic lifestyle, with many following her travels on social media. In fact, Berg has found a unique niche as a Costa Rica expert, helping expat Canadians refinance their properties back home or negotiate the purchase of Costa Rican getaways. While travelling during the pandemic has certainly been more complicated, Berg said the biggest hurdles have come from general perceptions about who can and cannot travel. “There was never a rule that said you couldn’t leave the country. People asked me, ‘Why travel during a pandemic?’ COVID is

Sometimes life seems to slow down – like when you're sloth watching.

here in Costa Rica, but it’s not neurotic. People wear masks, wash their hands, and get on with living and working. I had to get a COVID test and health insurance, find connecting flights, and crossing back into Canada has its own challenges. Otherwise, it’s far more chill down here. It’s all about ‘pura vida,’ which means living the pure life.” Berg plans to travel back to B.C. a few times a year. In addition to her daughter Jessica and son Jonathan, 28, her first grandchild has arrived, so there is a lot of FaceTime in between visits. She also has a supportive husband, who she hopes will soon join her in Costa Rica once he retires. “He has been an incredible rock along my self-discovery journey,” reflected Berg. Meanwhile, she is thrilled to be living her dream. “At home in B.C., I’m an avid hiker. Here, I hike the volcanos, which is cool because they are active and gorgeous. The sun sets here every day at 6 p.m., because we are so close to the equator. So I’m up by 5 a.m. and off hiking, biking, swimming or doing beach Zumba in the mornings, and spend my afternoons working mortgage files when it’s really hot.” Berg believes that whatever your goals in life, you must be intentional about pursuing your future. “I chose the ‘I can’ route,” she said. “You can do anything you want, but you need to set your intentions, and they can take years to come to fruition.” For someone who would “lose her mind” on a traditional all-inclusive resort vacation, Berg says her busy lifestyle is relaxed and happy. “Being in Costa Rica allows me to be a much more efficient, much better broker.” This interview with Kiki Berg continues our series Brokers off the Clock. In every issue, we ask a mortgage broker to tell us what they like to do when they’re not behind a desk. Be it driving fast cars, travelling to exotic places or researching your family roots, we want to know how you unwind. Would you like to be profiled in a future edition – or suggest a fellow mortgage broker? Contact us at info@cmba-achc.ca CMB MAGAZINE

CMBA-ACHC.CA SUMMER 2021 I

copyrightlaw

BEWARE THE COPYRIGHT TROLLS 38

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copyrightlaw

It’s tempting to share content, but ensure your use of the content has been explicitly or implicitly authorized BY CLINT LEE

hether you’re a seasoned broker or just getting started in the profession, your marketing material is crucial to get noticed. Marketing materials, such as websites, business cards, brochures and, more recently, your social media accounts, are the foundations of your brand and image. When you create marketing material, you probably don’t intend using someone else’s content without their authorization, but mistakes can happen. Although it may be tempting to ‘borrow’ someone else’s work or to believe that everything online is free, chances are someone owns the content and is willing to protect its use. With the proliferation of social media sharing, it is sometimes hard to reconcile making content go viral while respecting the rights of copyright holders. Consequently, we are witnessing the rise of copyright litigation and a special breed of copyright litigants, the copyright troll. A copyright troll is a copyright owner who threatens litigation but would rather settle the matter at a fee that far exceeds the royalty you would have initially paid to properly license the copyright. Trolls bank on defendants taking the settlement payout rather than proceeding through lengthy and costly litigation. Typically, copyright trolls send defendants cease and desist letters coupled with an offer to immediately settle the matter at a certain payout. This “act now” tactic is used to scare defendants into compliance while padding the troll’s bank account without much effort. Although this tactic may seem repugnant, legitimate copyright owners and their exclusive licensees have the right to police their copyright. In Canada, the owner of a copyright has the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever, to perform the work or any substantial part thereof in public or, if the work is unpublished, to publish the work or any substantial part thereof. In general, the term of copyright is the life of the author plus 50 years following the end of the calendar year of the author’s death. Works for which

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the copyright has expired fall into the public domain and may freely be used. Additionally, in Canada we have a European derived right called moral rights. Here, the author of a work has the right to the integrity of the work and the right to be associated with the work as its author by name or under a pseudonym and the right to remain anonymous. Where copyright has been infringed, the copyright owner is entitled to all remedies by way of injunction, damages, accounts, delivery up and otherwise that are or may be conferred by law for the infringement of a right. Injunctive relief aims to stop the infringing activity from further taking place and is often the primary goal of intellectual property litigation. Delivery up refers to handing over the infringing work, such as a fake painting. Damages and accounts deal with the monetary aspects of infringement, the former being the loss suffered by the copyright holder, and the latter being the profits made by the infringer – a plaintiff may elect between the two, especially when the copyright holder is unable to prove its damages. Realizing that damages may be difficult to calculate, Canada also provides a successful plaintiff with the right to “statutory damages” of between $500 and $20,000 per infringement. So what do you do when you receive a demand letter from a copyright troll? First, don’t panic because that is exactly the emotion the troll is trying to elicit. A demand letter is just that, a demand for payment. A court hasn’t ruled that you have infringed copyright and the letter will not affect your credit score, contrary to dubious claims made by certain demand letters. Second, do your due diligence and gather as much information as possible. This may include: a) Requesting documentation from the troll proving ownership of the copyrighted work or exclusive licensing arrangement. b) Reviewing the troll’s allegations and the alleged copyright infringement and comparing the infringing work against your marketing materials to verify whether the image, text, video, song, etc. appears (or appeared) in your marketing materials.

c) If the work does appear in your marketing materials, reviewing whether you previously paid a royalty and have receipts as evidence. Once you’ve done your due diligence, you may find that you have several options, including telling the troll to simply go away as you’ve already properly licensed the copyright work. If you do not have authorization to use the work, you still have various options (including negotiating a reduced payout), which are best discussed with a lawyer who specializes in copyright law. In the future, the best way to protect yourself is to only use your own content or content that you have specifically been authorized to use either through payment of a royalty or other licensing arrangement. If you have hired other people to create your content, for example, your website, ensure these individuals provide you with representations and warranties of originality and indemnifications in the event that another party claims copyright. Although it is tempting to share content, especially in today’s viral environment, take a moment and consider whether your use of the content has been explicitly or implicitly authorized. When in doubt, seek clarification from the copyright owner and discuss the matter with your copyright lawyer. Clint Lee is a partner at Nexus Law Group where his practice covers all areas of intellectual property, primarily in litigation. He has represented clients before the Federal Court of Canada and the British Columbia Supreme Court. He obtained a Bachelor of Science in Mechanical Engineering from the University of Alberta, a Bachelor of Commerce and a Juris Doctor from the University of Victoria. He is a practising lawyer before the British Columbia Bar, an Affiliate of the Intellectual Property Institute of Canada (IPIC) and is a registered Canadian patent and trademark agent. CMB MAGAZINE

CMBA-ACHC.CA SUMMER 2021 I

mortagefinancing

INABILITY TO GET FINANCING IS NO EXCUSE FOR BACKING OUT OF A HOUSE PURCHASE AGREEMENT

BY PETER S. SPIRO

hen real estate prices are hot, optimistic buyers sometimes forget that house prices can change direction quite quickly and decline as well. This occurred in Toronto in 2018 due to the introduction of stricter mortgage rules. Average house prices fell by 10 per cent or more. In some individual situations, the price drop was much larger, as suggested by the damages reported in the present case. Not only did prices fall, but some buyers were unable to secure mortgage financing. Either for that reason, or because they felt they had overpaid, many buyers backed out of purchase agreements in that episode.

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DEFAULTING BUYER ALMOST ALWAYS LOSES DEPOSIT Canadian common law creates a strong presumption that a buyer who backs out of an agreement will lose their deposit. In addition, if the seller resells at a lower price, the delinquent buyer is liable to pay damages for the seller’s loss. Claims related to the 2018 episode were still working their way through the court system as late as 2021. The case of Burkshire Holdings Inc. v. Ngadi is particularly interesting because the buyer there attempted to advance some fairly bold arguments. Unfortunately for him, none of them succeeded. This should be taken as warning to others who are

in this position, to try to avoid litigation and attempt to seek a settlement.

JUDGE REJECTS THE ARGUMENT THAT THE CONTRACT WAS FRUSTRATED First, the defendant attempted to argue that the drop in the real estate market made the circumstances radically different from what was anticipated at the time the contract was signed, and therefore should allow him to cancel it. This was thoroughly rejected by the judge. As a result of the decrease in value in real property in the GTA, he was unable to secure financing, which resulted in a remarkable

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mortagefinancing

hardship making the Agreement of Purchase and Sale (APS) commercially impractical for the Purchaser to complete. He submits that these unforeseen events resulted in the obligations under the APS of being radically different from those contemplated by the parties to the APS, resulting in a frustration of the APS, which relieved him of his obligations pursuant to the APS. He emphasizes the drop in the real estate market was outside of his control. He further submits that the drop in the GTA real estate market was not anticipated by the parties to the APS. Our Courts have held that a decrease in real estate values is not “unforeseen” nor does it “radically alter” one’s obligations in a real estate transaction as required by the doctrine of frustration/impossibility. I agree that these doctrines do not apply. The Purchaser claims for a return of the deposit on the ground that that the APS was terminated as a result of the operation of the doctrine of frustration, impossibility, force majeure and impracticality.

The Purchaser’s obligations under the APS did not change, nor did the purpose of the APS. The Purchaser contracted to pay a price for the property, regardless of whether he could obtain financing. Even if the Purchaser was unable to borrow a sufficient sum of money to close the transaction of purchase and sale, (the Purchaser has not adduced any evidence to support his assertion that he was unable to secure financing), such does not absolve him for his liability pursuant to the APS.

JUDGE REJECTS THE ARGUMENT THAT THE CONTRACT WAS UNUSUALLY ONEROUS Second, the defendant argued that he did not understand how onerous his obligations were under the Agreement of Purchase and Sale, and therefore should not be bound by its terms. In some extreme cases contracts have been found to be unenforceable because they were very long and complex, with unusual and onerous terms of which the buyer could not be expected to be aware. The judge ruled

that this does not apply to the standard real estate contract. In particular, the exclusion clauses [in the cases where the contract was found to be unenforceable] were inconsistent with what the plaintiff had been told about the contract by the defendant or with other express terms on the front of the contract, and importantly, were inconsistent with the overall purpose for which the transaction was entered into by the plaintiffs. These circumstances are very different. As a result, the judge ordered that the $160,000 deposit paid by the buyer was forfeit. In addition, even after the deposit was credited against what the seller obtained on the second sale, the seller had a loss of $273,000. The defendant was liable for damages of $273,000 for the seller’s loss, plus court costs. Peter Spiro is the principal of Spiro Law PC. He focusses on providing legal consulting and analytic services to other law firms in support of complex litigation. More information: peterspiro.com

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CMBA-ACHC.CA SUMMER 2021 I 41 2021-06-23 9:43 AM

uninsuredmortgages

OFSI PROPOSES QUALIFYING RATE FOR UNINSURED MORTGAGES CMBA suggests OFSI target its stress test to scenarios involving speculation or investment BY SAMANTHA GALE

he Canadian Mortgage Brokers Association submitted the following comments to the Office of the Superintendent of Financial Institutions (OSFI) concerning its consultation on the proposed implementation of a qualifying rate for uninsured mortgages at a rate that is the greater of the contractual rate plus 200 basis points or 5.25 per cent. Upon receipt, OSFI forwarded our letter to the Department of Finance for its consideration of our broader points on consumer debt.

RATIONALE FOR THE PROPOSAL The rationale stated in the OSFI consultation for implementing the qualifying rate is that the COVID-19 environment has created economic uncertainty combined with soaring house prices. Record low interest rates are likely to bounce higher with a post pandemic recovery, leaving indebted homeowners vulnerable to over-indebtedness. 42

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The qualifying rate is proposed as consumer protection to ensure that mortgage borrowers are more likely to withstand the shock of interest rate increases. We offer the following comments and recommendations on your proposal:

The proposal should address consumer debt One of the most evident challenges with the proposal is that it is exceptionally narrow in its scope and does not address more pressing personal debt issues for consumers. In fact, personal lenders can be very aggressive and undiscriminating in flogging their loans to consumers. Personal loans are issued by a myriad of lenders, including federally regulated financial institutions, most notably in the form of car loans or credit cards. Personal debt generally attracts excessive interest rates, especially when compared to rates on mortgages, and is readily given without the

rigorous underwriting scrutiny as is undertaken by mortgage lenders and brokers. Incredulously, credit cards and dealership financing are usually issued without any income verification at all. In addition, credit card limits are increased based on utilization and repayment without any regard for the borrower’s growing debt burden. You may wish to know that many lenders grant unsecured lines of credit to complement mortgages. Had these lines of credit been active prior to consumers obtaining their mortgage, a significant number of these mortgages would never have been approved. These are all examples of egregious and irresponsible lending practices, which should clearly be the focus of the government’s regulatory actions to curb consumer debt. We further note that as a standard practice, consumer debt issued by federally regulated lenders is often secured against the borrower’s real estate in the form of a

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uninsuredmortgages

collateral mortgage, which then renders the stress test on insured mortgages moot. Under collateral mortgage instruments, easily obtained personal debt can be readily added to a borrower’s mortgage obligations and create undue financial hardship and add to the risk of foreclosure. We recommend that the OSFI focus regulatory efforts to ensuring that financial institutions are more accountable for how they issue personal debt, and set limits and guidelines on the amount of debt that can be given to consumers. In particular, we recommend a review of collateral credit practices among federally regulated financial institutions to ensure that these practices do not usurp OSFI’s purpose of ensuring that borrowers can afford their mortgages.

Where do people live if they don’t pass the stress test? It goes without saying that people have to live somewhere: if they are not able to purchase housing, they must rent. In doing so, they are no longer paying down a mortgage on their appreciating asset, but instead that

of their landlord. However, most federal government policies, such as OSFI’s proposed new uninsured mortgage stress test, which are intended to promote economic stability by curbing consumer debt, only have only a singular, narrow focus on the economy. These policies fail to consider that housing affordability problems impact both lower- and middle-income households, renters, first-time buyers and even established homeowners. Persons without the ability to purchase a home must rent at a time when vacancy rates are at an alltime low and rents are, accordingly, at an all-time high. We further note that the current housing shortage was an issue prior to COVID-19 and urge the Government of Canada to work on programs to assist with housing development. In addition, we recommend that OSFI examine any unintended consequences or impacts that its proposed policy may have on the rental housing market and any potential upward pressure on rent rates, prior to implementing its proposed policy.

Requirement for a more targeted approach to stress testing At a time of record-setting property price escalation where homebuyers are challenged by multiple offer competition, blind bidding processes and numerous financing hurdles, the stress test puts an even greater divide between the haves and have-nots. Instead of implementing blanket stress tests to all mortgage borrowers under all circumstances, perhaps OSFI should consider targeting its stress test to scenarios involving speculation or investment. For example, currently the City of Halifax is witnessing a trend from out-of-province buyers who purchase Halifax real estate with all-cash offers for the purpose of flipping or renting. A more nuanced stress test targeted at mortgage applicants who are purchasing multiple properties or buying in a province that is not their province of primary residence would more appropriately serve the goals of the proposal. We recommend that OSFI consider fine-tuning the proposal in such a manner.

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CMBA-ACHC.CA SUMMER 2021 I

industryinnovation

INNOVATION IN THE CANADIAN MORTGAGE INDUSTRY

Technology can remove costly and time-consuming administration barriers from your process BY GREG WILLIAMSON

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industryinnovation

t Lendesk, we have a vision of a mortgage in minutes – with the objective of taking away the administrative and repetitive tasks that are slowing Canadian mortgage professionals down, so they can focus on what they do best: delivering a great borrower experience. The concept of a mortgage in minutes often brings up doubt and questions in the

industry. With the current state, imagining a world where a mortgage broker could send an application link to their client, have required documentation and credit consent completed, find the right lender for the application and submit directly to a lender, all within minutes, can feel unfathomable.

I’d like to say this: it’s time we expect more. Expect more from your technology provider. Expect more for how you spend your time. Expect more from yourself and the experience you can provide your borrower. Think about all the things you do in a day as a mortgage broker... are they all things you “should'' be doing? Are there any tasks that slow you down, or that someone (or something) else would be better off doing for you? If you could remove these types of tasks from your process, what would you spend that additional time on? I’m passionate that technology should be a solution, not a blocker. It’s time we expect more from the technology in this industry and how it serves us. Technology can remove costly and time-consuming administration barriers from your process, to empower you to scale your business how you choose. Do more deals, focus on client relationships, take a vacation - whatever you’d like to do with this time. We need to not only embrace technology to do this for us, but have high expectations of it. Finmo recently launched Lender Connect, a toolkit for sending, tracking and closing deals with over 240 lenders, including (but

not limited to) Scotia, TD, CMLS Financial, Home Trust, First National, MCAP Prime and RFA. It can take as little as 10 minutes to set up, and allows a Finmo user to move twice as fast by removing administrative and repetitive tasks out of the submission to lender process.

As the CRO of a technology company, I often hear about the constraints of time to adopt new technology. Brokers are busy, and if the status quo isn’t broken, why fix it. I get it. But, we need to think about optimizing and scaling our businesses. As well, let’s think about our borrower experience. If new technology can help you deliver an experience you’re incredibly proud of to your borrower, it’s time to jump on it. My advice is this: learn about what a technology system can do for you in the long

term, and then, what the onboarding process (and time commitment) would be. Compare the two to realize the ROI - often the time spent initially to adopt the technology will be worth it. We have hundreds of brokers using Finmo’s Lender Connect. It was tested by brokers for months, and is not only a seamless, quick process; it’s optimized beyond. A broker can get set up in less than 10 minutes on Finmo’s Lender Connect and it saves them hours and hours of time. This is a smart investment in the long term. Ultimately, technology should save mortgage professionals time and allow them to focus on what they’re good at. I’d like to argue that a mortgage in minutes is the new reality and software that doesn’t help you facilitate that, is holding you back. At Lendesk we’re passionate about choice and competition in the industry there are a lot of great solutions out there to help you. Make sure you do your research and find one that is easy to onboard onto, has responsive customer support, and allows you to work smarter and faster. A mortgage in minutes is in your grasp. Greg Williamson is chief revenue officer at Lendesk. Information: lendesk.com CMB MAGAZINE

CMBA-ACHC.CA SUMMER 2021 I

CMBA advertisers index

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