Recent changes to the RRSP Home Buyers Plan

With the federal government's Home Buyers' Plan, you can use up to $25,000 of your RRSP savings ($50,000 for a couple) to help finance your down payment on a home.

To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You must also provide a signed agreement to buy or build a qualifying home.

The best part is the withdrawal is not taxable as long as you repay it within a 15-year period. The payback amount is at least one-fifteenth a year of the amount you withdrew from your RRSP. So make sure you set up an automatic monthly, bi-weekly or even weekly contribution to your RRSP, to ensure you do not miss any repayments!

Advantages

Using your RRSP's as a downpayment may be a great option as you have the ability to draw from some of your existing resources and it might possibly allow you to accumulate the 20% down payment needed to avoid having to pay default insurance premiums. Even if you already have enough money for your down payment, it may make sense to access your RRSP savings through the Home Buyers' Plan.

For example, if you have already saved $25,000 for a down payment and assuming you still had enough "contribution room" in your RRSP for a contribution of that amount, you could move your savings into an RRSP at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan. The advantage? Your $25,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home. But remember, you will have to pay that amount back to your RRSP over the next 15 years.

Considerations

It's very important to your overall plan that both the pros and cons of this strategy be reviewed. There are a number of questions you should be asking yourself about this strategy:

• Will you repay the requirement amount each year?
•  Is it the right time to cash out your RRSP (i.e., this depends on the investments and rate of return you are getting on your current investment)? 
• Is it worth forgoing the future tax sheltered growth potential of your RRSP in favour of reducing the mortgage amount (including default insurance premiums, total interest costs, etc.)

6 Ways to Avoid the Tenant From Hell

 While there’s tremendous success to be had in the world of investment properties, the unsightly truth is that one bad tenant can cause a monumental setback.
It’s hard enough to keep up with wear and tear on your investment property without having to deal with disgruntled residents causing willful and severe destruction to a home. From “Sharpie parties” — where tenants invite friends over to vandalize the home with markers — to “indoor swimming pools,” where renters flood the premises and take a dip, there’s no shortage to the devastation that tenants can create.

Of course it’s not always so dramatic, but the problem of trouble tenants is quite widespread. In a poll conducted by Vancouver-based newspaper The Province, 71 percent of landlords say that they’ve had problems evicting a renter despite justifiable grounds. Late rent payments, broken appliances, and disputes over damage deposits are some of the most common issues that landlords face. The costs involved with repairing damage left by a less-than-upstanding renter, not to mention the time and money that it takes to pursue an eviction, can be enough to strike terror into the heart of even the most seasoned property owner.

The good news is that an ounce of prevention is still worth a pound of cure. While you can’t always foresee issues with renters, there are steps that you can take to drastically reduce the chances of problem tenants gaining access to your rental in the first place.

Having an airtight tenant screening process is one of the best ways that you can protect yourself and your properties from potential devastation. Let’s look at a few tasks that can help you build a metaphoric hedge around your property that helps prevent unsavory tenants from getting in.

1. Require a Tenant Application

The right questions can help you to sift through unqualified tenants at the start. Draft an application form and have it ready for every prospective tenant. Ask each adult to provide basic information, such as name, date of birth, contact information, emergency contacts, and request similar information about any children who live with them.

In addition to asking the date they hope to move in, ask these questions:

• Do you have any pets?
• Do you smoke?
• Have you ever been evicted?
• Have you ever been convicted of a felony?

Be sure to request references, employment information, and a way to contact their previous landlord. Consider asking an attorney look over your form, to ensure both that you’ve covered your bases and that you haven’t asked any questions that could be considered discriminatory or cause legal issues.

2. Start Interviewing

The interview is vital. This is your chance to screen prospective tenants and find out whether or not they’re an ideal match for your property. Good questions to ask include:

• Is your income the same every month, or does it vary?
• Why are you moving?
• Describe your perfect rental space.
• What’s your favorite or least favorite thing about the place you’re living in now?

The interview should give you a good idea about whether or not the prospective tenant will be able to afford the rent and abide by the terms of your rental. This About.Money article, “Ten Questions for Prospective Tenants,” provides a fairly comprehensive list well worth considering for the tenant interview process.

3. Conduct Diligent Research

Always follow through with a check of potential tenants’ references, credit, and possible criminal background. Verify important information that the tenant provides, particularly current employment and previous rental history.

When contacting references, ask how long each person has known the prospective tenant and for their opinion on the reliability and character of the tenant. It’s especially important to get in touch with previous landlords, who may be more likely to paint an accurate picture for you. Current landlords might be desperate for a problem tenant to leave and may gloss over the truth in an effort to get the tenant to move faster.

4. Watch for Warning Signs

Look out for red flags that can alert you to a potential problem tenant. If the applicant makes you feel nervous or seems desperate to move in as quickly as possible, that could be a warning sign.

And watch out for candidates who question every aspect of your rental application process, as this may be an indicator of someone who will be unwilling to abide by your rules when renting. Legitimate candidates understand that it’s important for you to conduct credit and background checks, and most will appreciate the care you take in selecting tenants.

Be sure to compare the application and your notes from the interview to what comes up on the background check. Be extremely wary of any discrepancies.

5. Keep It Legal

Of course, as important as it is to have a solid tenant screening process, it’s also important to ensure that your process complies with the law. While you should watch out for warning signs, never screen tenants based on feelings alone. Be careful to use the same qualifying procedure for all applicants, and treat all candidates equally to prevent accusations of discrimination.

You should also use the same process each time you deny someone, regardless of the reason for denial. A simple e-mail highlighting the reason is sufficient. Doing this properly and in writing can help to prevent any accusations of discrimination. As another legal side note: Be sure to check local laws before collecting application fees or a deposit, as this practice may not be legal in all areas.

6. Get It in Writing

Finally, once you have found a tenant for your property, it’s important to make sure you have a rental agreement in place. This document should contain clear guidelines and will help ensure that you and the tenant are both on the same page, preventing problems from arising later on due to miscommunication. The agreement should include the names of all the residents, occupancy limits, and rental terms, including late fees, acceptable payment methods, and charges if a rent check fails to clear.

While many landlords are hesitant to implement a tenant screening procedure because it’s time-consuming, in the end a solid screening procedure can save time and prevent a world of hassle. You’ll be able to weed out problem renters and save yourself from costly evictions and extensive repairs down the road. Finding a tenant that’s a great match for your property is more than worth the time and effort it takes. You’ll thank yourself later, and your wallet will too. 

by BRENTON HAYDEN, REPRINT

Canadian real estate market outlook 2015

Sooner or later mortgage rates will rise and house prices will start to moderate. Why this is the year the market will finally start to turn. Buy a house. Don’t buy a house. Soft landing. Crash landing. As we start the new year, the question on everyone’s mind is: What can we expect from Canada’s housing market?

Once again, experts agree that housing affordability is stretched, historically low interest rates will rise, and housing prices will drop. Rewind 365 days and you could be reading a forecast for 2014. But this time the experts agree: prices really will fall and it’s got everything to do with the recovery of the global economy.

Now, if the global economy were a ballgame we wouldn’t be in the World Series. Oil prices are depressed and Europe is still struggling with its credit crunch. But things are slowly improving in the U.S. and within Canada, and the important teams are still in the game: our employment rate is stable, oil prices are not (yet) low enough to cause real concern, and exports have picked up as the value of our dollar has dropped. All this leads most economists to believe we’ll see slightly higher bond and mortgage rates and a nation-wide cooling of the housing market over the next couple of years.

Robert Hogue, senior economist with RBC Bank, says he believes the coming year will be “a moderating phase for the market with a soft landing in 2016.” Hogue predicts national home prices will actually rise 1% or maybe 1.5% in 2015, as buyers race to get in the market before mortgage rates increase, after which prices will fall later in the year. “It’s one of the reasons why 2014 was such a strong year.”

But he cautions home owners: “Canada’s real estate market really is a multi-headed beast. It’s essentially very strong in Toronto, Vancouver and Calgary, but it’s balanced or soft in the majority of other markets.” As such, he predicts we’ll see a cooling of the three biggest markets by the end of the year in response to small mortgage rate hikes starting mid-year.

Now, if the prime rate were to climb from its current 3% level to 5% or 6% over the next year or two, many Canadians could find themselves in deep trouble, says Hogue. But he isn’t sure we’ll see rates shooting up that fast any time soon. Until recently, analysts and policy makers considered 5% to be the neutral or natural interest rate. It was the rate that allowed full employment, a stable inflation rate, and a sustainable growing economy. But Hogue, along with economists from Morgan Stanley and analysts from the C.D. Howe Institute, believe that the “new neutral rate” has actually dropped.

The primary reason is the impact baby boomers continue to have on the national economy. As boomers continue to age and leave the workforce, Canada can expect a slowing of the labour market, which will depress productivity growth, limit the economy, and suppress potential inflation, explains Hogue. “If the new normal is markedly below what we’re used to, then we won’t see as much downward pressure on housing prices,” he says.

The impact of demographics doesn’t stop there. According to a new report by Benjamin Tal, deputy chief economist with CIBC, analysts have been seriously underestimating the number of new immigrants in Canada. New immigrants account for 70% of the country’s population growth and about half are between the ages of 25 and 44—the key demographic that leads to household formations. According to Tal the under-estimated increase in the number of home-buying immigrants in Canada will help to offset a slowing economy, created by the boomer generation. “Immigration, itself, won’t be able to change this trajectory, but it will help to offset it,” explains Tal.

But David Madani from Capital Economics isn’t convinced. “Every good economist knows that immigration always fluctuates and it’s never prevented a housing cycle in the past.” He’s also not convinced that builders are out of the weeds when it comes to supply and demand. While he agrees that absorption rates are close to historical long-term averages, he’s confident that the market will suffer. “There are too many one-bedroom condo units being built when demand shows a need for family accommodation.”

So what’s a regular home buyer to do? The best advice is prepare for the worst, but if you’re ready to jump in and you can afford it, waiting for prices to fall might not be the best idea. Ted Rechtshaffen, president and CEO at TriDelta Financial, advises against trying to time the market in general. “It’s not about prices or the mortgage rate, it’s whether you can truly afford to own the home.” This means calculating whether or not you could still afford your monthly payments even if mortgage rates increased to 4% or 5% a few years from now. It also means deciding whether or not you can stomach a housing price drop. While many economists are predicting a 10% drop, the correction could be as great as 30% in some Canadian markets.

Of course, your home is more then equity and capital. It’s the place you spend time with friends and family, and the place you build memories. “Life and lifestyle is just as important,” says Rechtshaffen, so as long as you can afford your payments, “don’t be too concerned about the correction.” - by Romana King

How can mortgage prepayment charges be avoided?

 

You have a number of options available to prepay your mortgage and avoid prepayment charges:

Portability

If you’re selling and buying a new home, your mortgage may have a portability option that allows you to Port your existing mortgage term, outstanding principal balance and maturity date to a new property.

Assumption

If you’re selling your home, the purchaser may have the option of applying to assume your mortgage with the existing terms and conditions on closing.

Open mortgage

Enjoy the flexibility to pay off as much of your mortgage any time without paying a prepayment charge.

Subject to approval and eligibility based the terms of the mortgage.

Contact me to learn more about assuming someone else's CIBC mortgage, or having a potential purchaser assume your CIBC mortgage.

There are also ways to save thousands of dollars in interest payments breaking your mortgage early, paying the discharge penalty, and not being "out of pocket" for the expense.

Steven Porter, Mortgage Advisor - CIBC, 1-888-885-8962, steven@stevenporter.ca

When does a mortgage prepayment charge apply?

 

• Renewing your mortgage before the maturity date
• Prepaying more than the amount of your annual prepayment privilege
• Refinancing your mortgage and selecting a new term
• Transferring your mortgage to another lender
• Paying off your mortgage before the maturity date

In all of the above scenarios, the mortgage balance is being prepaid before the maturity date, which may result in a prepayment charge.

How are prepayment charges calculated for a fixed rate closed mortgage?

If you have a fixed rate closed mortgage, your prepayment charge will be the greater of the following:

• three months' interest on the amount you are prepaying. Interest will be calculated at your annual mortgage interest rate, plus any discount you received
• the Interest Rate Differential on the amount you are prepaying

What is interest rate differential (IRD)?

If you prepay your mortgage, you may be charged a prepayment charge. There are different methods for calculating prepayment charges. In some cases, the amount charged is the Interest Rate Differential amount. At CIBC, the Interest Rate Differential amount is the difference between the following two amounts:

• interest over the remaining term of your mortgage, calculated at your current mortgage interest rate, plus any interest rate discount you received.
• interest over the remaining term of your mortgage, calculated at CIBC's current posted interest rate for the comparison mortgage identified in your mortgage documents.

For a full prepayment, the prepayment charge is calculated on the full amount of the prepayment. For a partial prepayment, the prepayment charge is calculated on the amount of the prepayment that is more than your annual prepayment privilege amount.

How are prepayment charges calculated for variable rate closed mortgages?

If you have a variable rate closed mortgage, your prepayment charge will be three months interest on the amount you are prepaying. Interest will be calculated at CIBC Prime Rate.

Examples of prepayment charge calculations

The following illustrates how prepayment charges are calculated. To estimate your prepayment charge, use the CIBC Mortgage Prepayment Charge Calculator.
Example of estimating the prepayment charge for a variable-rate closed mortgage
Martin has a variable rate mortgage. If Martin wanted to pay off the entire principal amount, the prepayment charge would be equal to three months' interest on the entire amount he is prepaying, calculated at the CIBC Prime Rate in effect on the date the mortgage payout statement is prepared.
Martin still owes $60,000.00 on his mortgage. If the mortgage payout statement were prepared today, and if the current CIBC Prime Rate is 5.000%, here is how Martin estimates the prepayment charge to pay off the entire mortgage.

Step 1:

The total amount of the prepayment.

$60,000.00

Step 2:

The CIBC Prime Rate in effect on the date of the mortgage payout statement is prepared (written as a decimal). Thus, 5.000% becomes .050.

0.050

Step 3:

He multiples the total amount of the prepayment by the interest rate. This is equal to an estimate of one year's interest.

$3,000.00

Step 4:

He divides the annual interest cost by twelve to get an estimate of one month's interest.

$250.00

Step 5:

He multiplies one month's interest by three to get an estimate of three months' interest. This is an estimate of the prepayment charge.

$750.00

When Martin pays off his mortgage, he will need to pay an estimated additional amount of $750.00 to pay for the prepayment charge. This is only an estimate. Martin should call CIBC Mortgages or his current lender to find out the exact amount of her prepayment charge.

Example of estimating the prepayment charge for a fixed-rate closed mortgage
Maria has a 5-year fixed-rate closed mortgage. When she arranged the mortgage, she received an interest rate discount of .500%. Her existing annual interest rate on her mortgage is 6.500%.
The principal amount she still owes is $100,000. She has two years (or 24 months) left in the term of this mortgage. However, Maria has just inherited some money and wants to pay off the mortgage.
In Maria's case, the prepayment charge will be the higher of the following two amounts:

• three months' interest at her interest rate of 6.500% plus the discount she received of .500%, which is equal to 7.000%; or
• the interest rate differential amount

The following shows an estimated prepayment charge for prepaying the full amount of Maria's mortgage:

Estimate of 3 Months' Interest

Step 1:

The amount Maria wishes to pay off is $100,000.00.

$100,000.00

Step 2:

Maria’s current interest rate plus the discount she received equals 7.000%. Written as a decimal, this becomes 0.070.

0.070

Step 3:

The amount Maria wishes to prepay multiplied by her interest rate plus the discount ($100,000.00 x 0.070) equals the estimated annual interest costs.

$7,000.00

Step 4:

The estimated annual interest costs divided by 12 equals an estimate of one month's interest.

$583.33

Step 5:

1 month’s interest costs multiplied by 3 equals an estimate of 3 months’ interest.

$1,749.99

So, an estimate of 3 months’ interest would be $1,749.99.

Estimate of the Interest Rate Differential Amount

Step 1:

The interest costs over the term of a mortgage with Maria’s current principal balance of $100,000.00, with her monthly payment amount of $693.47, a term of 2 years (which is the remaining term of Maria’s mortgage) and her interest rate plus the discount that she received, which is 7.000%, would be $13,603.92.

$13,603.92

Step 2:

In Maria’s case, we determine that the comparison mortgage is the CIBC 2-year fixed-rate closed mortgage. On the date we prepare the mortgage payout statement, the posted rate for this product is 5.000%.

0.050

Step 3:

The interest costs over the term of a CIBC 2-year fixed-rate closed mortgage, with the same principal amount as Maria's remaining balance of $100,000.00, the same monthly payment amount of $693.47 and our current posted rate of 5.000%, would be $9,567.59.

$9,567.59

Step 4:

The interest costs calculated in Step 3 is subtracted from the interest costs set out in Step 1. This is the interest rate differential amount.

$4,036.33

So, an estimate of the interest differential amount would be $4,036.33.

The Estimated Prepayment Charge

Maria's prepayment charge is the higher of the estimated three months' interest costs of $1,749.99 and the estimated interest rate differential amount of $4,036.33.
So, if Maria's mortgage payout statement was prepared today, an estimate of her prepayment charge would be $4,036.33.
Maria should call CIBC Mortgages or her current lender to find out the exact amount of her prepayment charge. The amount above is only an estimate.
 The timing of your prepayment, changes in the interest rate and changes in your payment amount can have an impact on the IRD calculation. You can use the CIBC Prepayment Charge Calculator to see how these changes affect your prepayment costs.

What additional charges may apply when prepaying a mortgage?

There are sometimes additional charges that may apply when prepaying a mortgage in full before the maturity date:

Cash Back Repayment:
• If you received a cash back amount, when you entered or renewed your mortgage, you may be required to repay the cash back. Below are examples of situations where cash back repayment may be required. When you:
• Prepay the mortgage in full
• Ask us to transfer the mortgage to another lender (a "switch")
• Renew the mortgage with an effective date that is before your current mortgage matures
• Refinance the mortgage
• Transfer title to the property and arrange for the mortgage to be assumed by the new owner
• Port the mortgage

Mortgage Discharge Fee/Assignment Fee
• A discharge fee and/or assignment fee for document preparation and registration when the mortgage is prepaid in full.
• If you ask us to transfer your mortgage to another lender, an assignment fee will apply.

How can prepayment charges be avoided? Call me to find out, Steven Porter -1-888-885-8962

Steven Porter, Mortgage Advisor  CIBC, 1-888-885-8962, steven@stevenporter.ca
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Protect yourself against condo insurance deductible

 There is a lot of confusion out there by buyers and real estate salespeople as to what insurance is required when buying a condominium. The mistake is thinking that the insurance policy for the building will always cover your situation. In most cases, the buyer will still have to pay for part of the damages, even if they have done nothing wrong.

Here's why:

Condominium buildings do have an insurance policy that insures the building and the units. However, it will not cover any improvements to the unit made by the owners or the owners' contents, should damage occur, whether by water leakage, fire or smoke damage. In addition, if someone you invite into your unit gets hurt, they can sue the owner personally for liability. As a result, most condominium buyers purchase a policy that provides coverage for their contents, any upgrades that they do to their unit and liability insurance to protect them if someone gets hurt visiting their unit.

What is confusing to most buyers is that just about every condominium insurance policy has deductibles, which become the owner's responsibility should any damage occur, even if it is not the owner's fault. The deductibles are usually $5,000 but I have seen many policies that have $10,000 deductibles. What this means is that let's say you leave the bathtub overflowing and water damages the unit below you. You are responsible to pay the deductible, and the condominium will pay for any damage above the deductible. This will also be the case if you are responsible for the HVAC equipment in your unit and any malfunction causes damages to the building or to other units.

Let's say the pipes in the wall burst, your unit was damaged and you did nothing wrong. Although the pipes may be the responsibility of the condominium corporation, you will still have to pay the deductible before the condominium pays anything extra to repair the damages. The only way to fight this is if you could prove that the condominium corporation was negligent in conducting repairs and should have known that the damage could occur. In my experience, you will pay more in legal fees to fight this than the deductible, so it is just preferable to have the proper insurance instead.

In every condominium status certificate, there is a summary given of the insurance policy for the building, including any deductibles. One way to protect yourself is to send this certificate to your own insurance company and tell them that you wish to buy extra coverage for the deductibles noted on the policy.

A better idea, in my opinion, is to use the same insurance company that your building is using for your own insurance package. This company likely understands the deductibles better than anyone and will make sure that your package covers any gap that may exist in the building insurance policy.

If you are buying a condominium as an investment, you still need to make sure that you have this type of insurance protection. Most tenants purchase insurance for their belongings and to cover liability. If you want the tenant to also pay for insurance for the deductibles, you need to say so in your lease agreement and make sure that the tenant provides proof that they have obtained all required insurance coverage before you give them the keys to the unit.

When you understand the insurance you need before you move into a condominium unit, you will be prepared should anything occur later.

By Mark Weisleder, Toronto real estate lawyer. mark@markweisleder.com

Renewing your mortgage? Here’s why you should pick up the phone

I am one of those debt loving people who believe I can do more with my money by carrying a big debt at 3%, than by paying off my house and using up all that cheap capital – but that financial idea is a story for another column.

So, even though my mortgage comes due in October, I decided to lock in a rate four months earlier at a different institution at 2.79% for 5 years fixed. I was thrilled to have another five years of cheap money.

Even though I had already locked in elsewhere, I was interested in what my current mortgage lender would provide. I waited and I waited. Just four weeks before it was due for renewal they sent me a mortgage renewal notice. They could have sent it to me two or three months before my mortgage came due, but they may prefer to leave consumers less time to shop around and more inclined to just renew.

Here is where it gets interesting. “Please indicate which option you are accepting by signing your initials in the appropriate area indicated and return your signed agreement,” the letter stated.

I could just initial the 5-year fixed rate — for the princely rate of 4.79%.

Further on in the letter under a section called “Get the best rate,” it offered to extend to you our special interest rate hold guarantee provided if I signed by my renewal date. But all this says is that if the rate went down between now and about three weeks from now, I would get the lower rate.

This is a full 2% higher than what I am actually going to get somewhere else. If I had a $500,000 mortgage, this would cost me $47,600 more over 5 years by ‘just signing here’ vs. going to a mortgage broker three months in advance.

Just to be sure that I wasn’t missing something I called to make sure that I had the correct instructions and rate on my renewal. An interesting thing happened when I called. In about 30 seconds they said “I can actually get you a rate of 2.99% for 5 years.” I asked why my rate was 4.79%, and they said that this is the standard rate, but I can get this better special rate.

Doing the math, that phone call, using the same $500,000 example, would have saved me $42,800 over 5 years. That was a pretty valuable phone call.

I asked the kind sir on the phone how often people just sign the renewal form, and he said ‘quite a few.’

If a bank gets 5,000 people in the same $500,000 example to sign the renewal, that adds $42.8-million in profit to their bottom line each year.

Please do not automatically sign the friendly mortgage renewal form. At a minimum call to negotiate or call a mortgage lender to get the best deal for you. If you feel some sort of loyalty to your current mortgage provider, then be sure to see someone in person and ask for the very best rate that they give their very best customer. Your future net worth will be glad that you did.

By Ted Rechtshaffen, president and wealth advisor at TriDelta Financial

Lessons from a condo bankruptcy

 The bankruptcy of a proposed condo development and the arrest of a prominent real estate lawyer last month left many buyers potentially out of deposits totaling millions of dollars. It shouldn't have happened.

Here's why:

When you buy a new home or residential condominium from a developer in Ontario, part of your deposit is protected by the Tarion New Home Warranty Program.

This covers up to $20,000 for a new residential condominium deposit and $40,000 in deposits for a new house. However, deposits over and above these amounts are not protected. Similarly, no deposits for a proposed commercial or hotel condominium development are protected by Tarion. In most cases, all deposits are paid to the developer's lawyer, to be held in trust.

Under the regulations governing the Condominium Act, a lawyer is not supposed to release the moneys from trust unless and until they have been given proof by way of a security bond from the developer that the money is protected. In virtually all cases, the money is released when the developer is ready to begin construction on the project and would like to access the deposits for this purpose. As long as the security bond is provided, the law firm will release the funds from trust.

In the Centrum condominium bankruptcy in North York, the Bratty's law firm was holding millions of dollars in trust for the proposed residential condominium that was never built. The money was never released to the developer Yo Sup (Joseph) Lee and the buyers who purchased these residential units will get their deposits back, in full, even though the development is bankrupt and it appears that Lee has disappeared.

However, Lee retained another lawyer, Meerei Cho, to handle the commercial/hotel condominium project and although over 14 million dollars in total was placed into her trust account from buyers, it has since disappeared, even though construction never started and it does not appear that any security bond was posted. In another twist, 1.9 million of the 14 million dollars in deposits was originally placed into Bratty's trust account but developer Lee then instructed Bratty's to pay this money to Cho, which they did, and this money is part of what is now missing.

If Cho made an error in releasing the money, then part of this loss may be covered under her errors and omissions insurance policy, but this may only provide 1 million dollars in coverage for the victims. The law society has a discretionary fraud victim fund of $150,000 but this will also not be nearly enough to compensate all of the victims.

I imagine that some buyers may sue the Bratty's law firm for giving the money to Cho but in my opinion, as long as Bratty's obtained proof from Cho that the money was going to be held by her in trust according to the rules, they should succeed in any claim against them.

The good news is that over the past 20 years, in thousands of new condominium buildings, this has not occurred before, showing that in virtually all cases, lawyers follow the rules and buyers are protected.

The main lesson when buying a new condominium is still the same; check out the reputation of the builder. Reputable builders follow the rules, finish buildings on time and deliver what they promise. Still, whenever you are paying more than the Tarion protected deposits, you should now insist that the developer provide proof that they have sufficient security to protect any deposit over $20,000 if it is a new residential condominium and over $40,000 for a new residential home. It would also be a good idea for the government to just change the rules and make it a law that all lawyers holding trust moneys be bonded themselves, so it can't happen again.

Mark Weisleder is a Toronto real estate lawyer. Contact him at mark@markweisleder.com