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Disciplinary Newsletter September 2009

Disciplinary Newsletter

September 2009

Volume 1 Issue 1

About the Commission's Discipline Process

The Nova Scotia Real Estate Commission is responsible for the administration of the Real Estate Trading Act and the Commission By-Law. Part of that responsibility is dealing with complaints from the public concerning a brokerage or an Industry Member.

The Commission investigates these complaints and if there are grounds to support that a breach of the Act or By-Law has occurred, then charges are laid against the Industry Member. At this point the Industry Member may agree to a Settlement Agreement, which includes specific charges and penalties. If they do, this Agreement is signed off by the Industry Member and the Registrar. It then goes to the Complaint Review Committee for review and approval.

If the Industry Member does not agree with a Settlement Agreement then the matter is referred to a full discipline hearing. After the Commission’s and witnesses’ evidence has been examined and cross examined at a hearing, the Hearing Panel will decide whether or not the Industry Member is guilty of any of the charges. If they are found guilty of any of the charges there is then an opportunity for both the Commission and the Industry Member to speak to appropriate penalties.

An Industry Member has the right to appeal the decision of the Hearing Panel to the Supreme Court of Nova Scotia and further to the Nova Scotia Court of Appeal, should they wish to and if there are grounds to do so.

Types of Complaints

On the following pages are overviews of a number of cases the Commission has dealt with over the last three years. These cases are provided as learning opportunities for the industry and to highlight the consequences when a consumer’s best interests are not protected. The complaints fall into three main categories:

Poor Communications/Disclosure/Documentation

  • Failure to provide information in a timely manner to the parties to a transaction, including the buyer, seller, other Industry Members, lawyers and lenders
  • Failure to disclose important information
  • Documentation:
    • Failure to put agreements in writing, relying too much on oral agreements
    • Sloppy, incomplete or poorly written documentation

Water/Septic Issues

  • Failure to properly address water-quality issues, both in a properly worded clause and in follow-up during the testing period 
  • Failure to include a water-quantity clause

Industry Members Buying and Selling

  • Industry Members improperly acting in an agency capacity for the other party to the transaction when they are a party to the transaction
  • Industry Members placing their personal best interests over and above the clients being represented by their brokerage

These cases do not cover all the issues involving complaints investigated by the Commission, but they are representative of the more serious issues.

Inside This Issue

Material latent defects and breach of agency
Failure to disclose a private road, a relationship, and a relative
Fake listing cuts and contracts, forged signatures, mishandled trust funds
Failure to disclose septic problems and disgraceful, dishonourable, or unprofessional conduct
Failure to put agreements in writing, failure to make viewing appointments, and failure to disclose intent
A case of unfair treatment and a case of false signatures
Failure to put an agreement in writing

Case Overview: Material Latent Defects and Breach of Agency

The Commission received a complaint from buyers who claimed a water quantity problem was not disclosed to them prior to their purchase of a rural property.

The property was listed by a lender who had foreclosed on the original owner. The property was listed “As is, where is”. When the property was first listed a neighbour down the street had spoken to the listing Industry Member by phone, and had also e-mailed, stating that any potential buyers should be made aware of possible water quantity problems on that street and also of issues around the private road.

A couple of months later the buyers became aware of the property online and contacted the Industry Member directly about the property. Not long after that they negotiated and accepted offer on the property subject to inspection and water test within a month, and being satisfied with the property. The Industry Member acted as a limited dual agent in the transaction and entered into a Limited Dual Agency Agreement. The Industry Member had never met the buyers in person and had not dealt with them on any other properties. The buyers viewed the property a couple of weeks later. At that time the Industry Member disclosed the issues with the road and cautioned the buyers about water-quantity issues in the general area.

The Industry Member received another e-mail from the neighbour in around the same time. The Industry Member claimed to have not read the e-mail and forwarded it directly to the seller. The Industry Member did not provide it to the buyer.

Two months later, shortly after taking possession of the property, the buyers ran into serious water shortage problems. A couple of months later the buyers filed a complaint with the Commission. After investigation, the Commission charged the Industry Member with failing to carry out dual agency obligations properly by not treating both parties in an even-handed way. The Industry Member provided information to the seller regarding possible water issues on that side of the street, but did not pass the same information on to the buyers. The Industry Member was also charged with not adequately addressing the water-quantity issue in the Agreement, knowing the property could have water-quantity problems. The Industry Member was a very experienced person with significant local knowledge.

Results

The Industry Member was found guilty of the following charges by a Discipline Panel:

  • By-Law 702, Article 2 (not dealing fairly with all parties to the transaction)
  • By-Law 702, Article 10 (not discovering and disclosing a material latent defect)
  • By-Law 702, Article 11 (not ensuring a clause went into the Agreement requiring a well-quantity water test)

Appeal to Nova Scotia Supreme Court

The Industry Member then appealed that decision to the Supreme Court of Nova Scotia. The grounds for Appeal are summarized below:

  1. The Commission charged the Industry Member with a nonexistent offence, as the By-Law does not contain such a requirement.
  2. The Discipline Committee erred in their interpretation of the adequacy of the water-testing clause that was in the Agreement.
  3. The Discipline Committee erred in law by finding the Industry Member as having failed to meet accepted professional standards in the absence of the applicable professional standard.
  4. The Discipline Committee erred in finding the Industry Member guilty and imposing sanctions for failing to include a water quantity clause, an offence for which the Industry Member was not charged.
  5. The Discipline Committee erred in making findings that were not based on clear, strong and convincing evidence.
  6. The Discipline Committee erred in law in its interpretation and application of the law of dual agency.

Results

The Supreme Court Justice dismissed the appeal making the following comments:

  1. The Justice found that the Panel was correct in its decision and acted within its jurisdiction.
  2. The Panel considered the circumstances and the knowledge of the Industry Member regarding water quantity issues in the area and the specific street as pointed out by the e-mail the Industry Member claimed not to have read. It was reasonable for the Panel to have concluded that the Industry Member had not protected their clients.
  3. The Panel did not invent a standard, but relied on the wording of the By-Law. The Justice also found the composition of the panel to be a peer review by persons knowledgeable in the standards common in the province.
  4. The Justice found that the Industry Member had to have known the allegations, as it was clear in the charge letter and earlier correspondence between the Industry Member and the Commission, which clearly identified water quantity problems as an issue.
  5. The Justice believed the Panel met a standard-of-proof in line with the seriousness of the allegations. She felt the panel’s conclusions could bear a somewhat probing examination and there was evidence to support the Panel’s reasoning.
  6. The Panel found the Industry Member had violated several Articles, but did not base their decision on an interpretation of dual agency. They properly observed the relationship the Industry Member had in the transaction and the obligations in a dual agency role.

Appeal to Nova Scotia Court of Appeal

The Industry Member appealed three issues from the Supreme Court decision, and the grounds of the appeal were:

  1. That the Court find that the Industry Member did not commit unprofessional conduct.
  2. That the Court find that the Discipline Committee erred in its decision.
  3. That the Court reduce the penalties and costs imposed.

The Nova Scotia Court of Appeal dismissed the Appeal finding that the Supreme Court had not committed any reviewable error. The Court of Appeal commented: \

  1. Expert evidence was not necessary with regards to the standards of professional conduct.
  2. The appellant in testimony had acknowledged that the two parties were not treated evenly and the Panel’s finding that the Industry Member failed to promote the interests of her client was correct.
  3. The appellant was aware of the potential problems of water quantity and failed to meaningfully address this issue in the offer.
  4. The appellant’s challenge of the charges to put the water quantity issue in writing was eclipsed by the appellant’s failure to be even handed and protect the purchaser from a water quantity issue.
  5. The Court did not accept the appellant’s submission of not being sufficiently alerted to the case which had to be met.
  6. The penalty and costs were not an issue before the Supreme Court and the Appellate Court assumed without deciding that it is now open to them to consider, saw no merit in the Appellant’s submission.

The fact that the notice of hearing was issued, lower fines had been offered through a settlement agreement, which the Industry Member had rejected, does not mean that the fines and costs awarded after a full hearing were unreasonable. They did not accept that there was any obligation to offer the Industry Member a further opportunity to enter into a voluntary Settlement Agreement.

Penalty 

The Industry Member was ordered to pay a fine of $1,500 and $8,103 in Hearing costs. The Industry Member also had to pay to the Commission an additional $850 of costs for the Supreme Court Appeal and $1,500 for the Nova Scotia Court of Appeal proceedings.

Your Duty to Disclose

In this case, the Industry Member failed to disclose a material latent defect to the buyers.

A material latent defect is a fault in the property that would not be discovered by a reasonably thorough building inspection (for example, a serious crack in the foundation that has been covered over with paneling or, in this case, a serious water-quantity issue). Material latent defects have a serious impact on the value of the property or involve health and/or safety issues.

Typically, material latent defects are disclosed in the Property Condition Disclosure Statement (PCDS), however, as a foreclosed property, there was no PCDS because the owner (the bank) had never lived in the home.

Industry Members have a duty to discover and disclose any known material latent defects about the property to buyers and other Industry Members involved in the transaction. In this case, the Industry Member informed the seller but not the buyer, both of whom were clients.

Settlement Agreements

The first option for most Industry Members facing disciplinary action is a Settlement Agreement.

In the majority of cases, the Registrar offers the Industry Member a proposed Settlement Agreement which outlines the alleged violations and corresponding penalty.

If the Industry Member accepts the terms of the Settlement Agreement, the Registrar recommends acceptance to the Commission’s Complaint Review Committee.

If the Complaint Review Committee accepts the Settlement Agreement the Industry Member must satisfy the penalty imposed and the violation goes on public record. If the Complaint Review Committee rejects the Settlement Agreement it may recommend alterations to the Agreement or it may recommend that the matter be dealt with through a formal hearing.

Industry Members who reject a Settlement Agreement may find themselves facing more or harsher penalties at a formal hearing.

Appeals Process

An Industry Member has the right to appeal the decision of the Discipline Committee to the Supreme Court of Nova Scotia and further to the Nova Scotia Court of Appeal.

The Supreme Court and Court of Appeal do not re-try cases. Rather, both Courts review the record of the trial and argument to determine if errors of law were made in a decision and that natural justice was followed.

The Courts can dismiss the appeal (confirming the decision of the lower court); allow the appeal and order a new trial; or allow the appeal and change the order of the lower court.

Case Overview: Failure to Disclose a Private Road, a Relationship, and a Relative

An Industry Member listed a large condominium project. The listing cuts and other information provided to buyers made no mention that the road providing access to several condominium corporations was a private road and the ongoing upkeep of the road would be the responsibility of the condominium corporations. The buyers would only discover this issue around the time that their lawyer was preparing the closing documents. Two buyers made complaints to the Commission.

During the investigation it was discovered that most of the transactions, where the listing Industry Member was the only salesperson involved, were carried out as dual agency. This was not possible in a situation where the Industry Member represented a developer on a large number of transactions and should have treated buyers as customers, not clients. The Industry Member was also a relative of the developer.

Results

The salesperson agreed to two Settlement Agreements with the following terms:

  • First Settlement Agreement
    • RETA Section 38, 3a, (failure to disclose that an Industry Member involved in a transaction is an associate of a party to the transaction)
    • Commission By-Law 702, Article 2 (not dealing fairly with all parties to the transaction)
    • A fine totaling $1,200 ($600 for each violation)
  • Second Settlement Agreement
    • By-Law 702, Article 5 (not informing the party to the Agreement of the costs that they would be liable for) 
    • A fine of $5,000

About Private Roads

A private road is a piece of land set aside for the “private use” of landowners in a subdivision to access their properties. On a subdivision plan, private roads are often called “private access” roads.

Private roads do not have to be built to Department of Transportation standards and title to the land under the road is not held by the province or the municipality. Because the government is not the landowner, it is not responsible for providing repairs, maintenance, and services of a private road. This means the government is not responsible for snow removal, grading/paving/ patching, it is the landowner’s responsibility.

Private roads may not receive other services, like school bus service and mail delivery.

Family Matters

Industry Members must disclose any personal relationships they may have with a party to the transaction to the other parties to the transaction. In this case, the Industry Member had a long-standing working relationship with the developer and was also a relative.

Case Overview: Fake Listing Cuts and Contracts, Forged Signatures, Mishandled Trust Funds

An Industry Member created listing cuts for properties that were being sold in private transactions. The listing cuts were made to look like authentic listings that were active with the brokerage, but in fact, there were no Seller Brokerage Agreements in place. Agreements of Purchase and Sale were drawn up and the Agreements indicated that the brokerage was representing the Seller. Both the listing cuts and the Agreements indicated there were other Industry Members representing the parties to the transaction, when there were not. Both the listing cuts and the Agreements were provided to mortgage lenders as part of mortgage applications.

The following allegations were made against the Industry Member:

  • During the Commission’s investigation process, failed to provide all documents requested.
  • Used other Industry Members’ names on documents without their permission.
  • Created false and misleading listing cuts
  • Created false or fraudulent Seller Brokerage Agreements and provided them to the Commission in the course of its investigation
  • Created Seller Brokerage Agreements and Agreements of Purchase and Sale that showed false and misleading dates
  • Created Agreements of Purchase and Sale that indicated the parties consented to Limited Dual agency, but failed to provide those documents during the investigation.
  • Used signed Agency Disclosure Acknowledgements that predated the transactions up to three years. This did not fulfill the responsibility to inform buyers and sellers of changing agency regulations.
  • Failed to deposit trust funds into the brokerage trust account as required in several Agreements

Results

The Discipline Hearing Panel’s decision was that the Industry Member breached:

  1. RETA Section 22(1) Unprofessional Conduct (creation of false or misleading documents)
  2. RETA Section 32(1) (requirement to deposit funds into brokerage trust account)
  3. By-Law 702, Article 31 (failing to place all pertinent facts)
  4. By-Law 702, Article 2 (dealing fairly with all other parties to the transaction)
  5. By-Law 702, Article 27 (conducting business to avoid controversies with other Industry Members)
  6. By-Law 702, Article 34 (an Industry Member shall not make any statement or participate in the creation of any document or statement that the Industry Member knows or ought to know is false or misleading)
  7. By-Law 702, Article 35(engage in an act or omission which would be regarded as unprofessional)

Penalty

At the penalty hearing, the Industry Member agreed to a permanent cancellation of their licence to practice real estate in Nova Scotia and agreed not to ever reapply; and the member agreed to pay $40,000 in hearing costs within 15 months of the decision.

When Can You Sign For Someone Else?

Industry Members can sign for consumers only when they have been given power of attorney to do so. Industry Members who wish to sign for another Industry Member (for example, during an absence) can do so only with written authorization.

In either case, the Industry Member still signs their own name, not the name of the person who authorized them. Signing someone else’s name is fraud, which is a criminal offense.

Cooperation with the Commission

Cooperation with a Commission investigation is not optional. The Real Estate Trading Act states in Section 17(3) “Every person who is the subject of an investigation pursuant to this Section shall cooperate with the investigation.” Failure to do so will result in being charged with breaching this section of the Act in addition to any charges that may result from the complaint.

Forgery

Forgery is the creation of false documents, which is an indictable offense under the Criminal Code of Canada.

Case Overview: Failure to Disclose Septic Problems and Disgraceful, Dishonourable, or Unprofessional Conduct

An Industry Member listed and was selling their own personal residence, which was on well and septic. The property sold and shortly after closing the new owner was mowing the lawn and discovered a possible septic problem. In discussions with their neighbours it became apparent that the previous owners were aware of the problem. The new owners then contacted a local contractor that did septic system work only to discover that the contractor had done tests for the previous owner several years before that and determined that the septic field was not operating properly. The seller argued that the problems were related to poor lot drainage and not a failure of the septic field.

The buyers placed a complaint with the Commission and took the sellers to Small Claims Court. The Adjudicator awarded the buyers $4,974, which was half the cost of the new system. This was based on the age of the house and that the buyer will have the benefit of the value of a brand new system. The Adjudicator found that the PCDS provided by the seller was misleading.

Results

The Industry Member agreed to the following charges in a Settlement Agreement:

  1. By-Law 702, Article 10 (not disclosing any material latent defects)
  2. By-Law 702, Article 35 (engaging in an act or omission that would be considered disgraceful, dishonourable or unprofessional)

Penalty

The Industry Member agreed to pay restitution to the buyers in the amount of $3,500 and a fine of $1,000. The Commission does not normally use restitution as a penalty, but in this case because the seller was an Industry Member it was deemed appropriate.

Septic Tanks: A Potential Material Latent Defect

Wastewater contains bacteria and viruses that can cause dysentery, hepatitis A, and a host of other diseases. Exposure to wastewater from backups of a septic tank, or from wastewater ponding on a property, can cause headaches, abdominal cramps, fever, nausea, and vomiting.

Contamination is by no means limited to that property. Neighbouring wells may also be polluted by a failed septic system. Excess nutrients released by septic systems can cause excess algae growth, which damages fish habitat by removing oxygen from the water.

While human health and ecological concerns abound, of equal concern to the homeowner are the social and economic costs. It can cost between $10,000 and $25,000 to replace a failed septic system, and a poorly operated system will reduce property values and make it difficult to sell your home.

Case Overview: Failure to Put Agreements in Writing, Failure to Make Viewing Appointments, and Failure to Disclose Intent

A property was listed for sale by one Industry Member at a Brokerage and another Industry Member at the same brokerage offered on the property, which resulted in an accepted offer. The transaction was done as Limited Dual Agency. The house was vacant and between the time of the accepted offer and the closing date the heat went off and the pipes in the house froze causing considerable damage. The damage and resolution of the damage was discussed and agreed to by the parties to the transaction and the listing salesperson, but were not stated in writing. Also, the Industry Member who was the buyer, entered the house on several occasions without an appointment.

The Commission took the position that the brokerage should not have entered into a Limited Dual Agency transaction as the buyer was an Industry Member working for the brokerage. The brokerage was not in a position to represent the seller in this transaction, so the seller should have been treated as a customer or given the option to get independent advice. Both salespeople and the broker were at fault for not correcting this. When the damage occurred to the house, as a result of frozen pipes, the agreed resolution of the damage between the seller and the Buyer/Industry Member should have been confirmed in writing in detail so it would be very clear should issues arise later. Both salespeople failed to do this. The buyer/Industry Member did not make appointments to enter the property after the transaction had been negotiated, but used their access as an Industry Member for that brokerage to visit the property for personal reasons as the buyer. Lastly, the buyer/Industry Member did disclose in the Agreement that they were licensed, but did not disclose what their intentions were for the property.

Results and Penalties

The three Industry Members involved all agreed to Settlement Agreements and the following charges and penalties:

  • By-Law 702, Article 2 (not protecting the interests of their client and not treating all parties to the transaction fairly)
    • Broker - $500 fine
    • Listing Salesperson - $400 fine
    • Buyer/Industry Member - $400 fine
  • By-Law 702, Article 11 ( not ensuring all agreements are in writing)
    • Listing Salesperson - $400 fine
    • Buyer/Industry Member - $400 fine
  • By-Law 702, Article 21 (not disclosing their intent for purchase)
    • Buyer/Industry Member - $400 fine
  • By-Law 702, Article 27 (not avoiding controversy with other Industry Members)
    • Buyer/Industry Member - $400 fine

Get it in Writing

The Commission By-Law 702, Article 11 states that Industry Members are to ensure that all agreements are in writing, using clear and understandable language, expressing the specific terms, conditions, obligations, and commitments of the parties to the agreement. In this case, failure to do so resulted in fines for both Industry Members involved in the transaction and a fine for the broker.

Make Appointments

In this case, an Industry Member was purchasing a vacant property and visited the property several times without making an appointment. Even if a property is vacant, Industry Members may find themselves liable if something happens to the property and it is discovered that they were there without permission. Bottom line: Make an appointment with the listing Industry Member when you want to visit a house, even if it is vacant.

Disclose Intent

Industry Members must disclose their status as a licensed person AND their intentions for the property to all parties to the transaction.

Case Overview: A Case of Unfair Treatment

An Industry Member was the seller of their own lots in a small oceanfront development. The Industry Member entered into a Limited Dual Agency Agreement with the buyer. Due to waterfront and environmental issues the approval of the lot was difficult and the buyer, after considerable time and expense, cancelled the transaction. The buyers complained that they were not treated impartially throughout the process. The Commission believed the Industry Member to be fully aware of the environmental issues/ complications and also believed it was inappropriate for the seller/Industry Member to carry out a transaction that they were personally involved in, as a Limited Dual Agent.

Results

The Industry member was charged with breaching By-Law 702, Article 2 (not dealing fairly with all parties to the transaction)

Penalty

The Industry Member agreed to the charge and a fine of $1,000 through a Settlement Agreement.

Industry Members Selling Their Own Property

Industry Members cannot sell their own property through Transaction Brokerage (formerly Limited Dual Agency). One of the fundamental principles of Transaction Brokerage is fair and impartial treatment of both parties to the transaction.

If a property is owned by an Industry Member, it is not possible (or believable) for that Industry Member to ignore their own best interests and act in a purely impartial manner.

Case Overview: A Case of False Signatures

An Industry Member had a property listed for sale. During the listing period the price was amended once and the listing date was amended twice with extensions. After the listing expired and the seller listed with another brokerage, the seller discovered that the original listing had been extended twice without the seller’s approval. A complaint was later received from the seller that they had not authorized these extensions. During the investigation the Commission was provided with several documents that contained the seller’s signatures. These were later determined to be false documents.

Results

The Industry Member, in a Settlement Agreement agreed to breaching the following:

  • RETA Section 22, 1a and 1b, (unprofessional conduct that was harmful to the best interests of the public and fraudulent)
  • By-Law 702, Article 11, (not ensuring Agreements are in writing and that signed copies to be provided to the parties)
  • By-Law 702, Article 35 (engaged in an act or omission which would be regarded as unprofessional

Penalty

The Industry Member had their licence suspended for 30 days and was fined $1,000.

Amendments to Agreements

When an agreement is amended, Industry Members must use the applicable amendment form and have all parties to the agreement sign the amendment form. Simply changing the dates on the existing agreement is sloppy and unacceptable, even if they are initialed and signed by the client(s)/customer(s).

Industry Members are never to sign for a client unless the client has given them power of attorney to do so. To do otherwise is a fraudulent act.

Case Overview: Failure to Document an Agreement in Writing

The Commission received a complaint from a seller about a sale that was lost as a result of Industry Members not documenting the transaction properly in writing. The buyer was represented by a broker at one brokerage and the seller by the broker at another brokerage. An initial offer was made in writing, followed by a series of verbal offers and counter offers. The parties came to a final agreement verbally. The Agreement was not documented in writing. Almost a day later, the buyers and their broker met and the buyers decided not to proceed with the purchase.

Results

After investigating the matter, the Commission charged both brokers. The broker representing the seller agreed to a Settlement Agreement. The broker representing the buyer went through a Discipline Hearing and was found guilty.

Penalty

The seller’s broker agreed to breaching Section 29 of the RETA (every offer to purchase real estate obtained by a licensed person shall be in writing) and agreed to a fine of $500.

The Discipline Hearing Panel found the buyer’s broker guilty of breaching the following:

  1. RETA Section 29 (every offer to purchase real estate obtained by a licensed person shall be in writing)
  2. By-Law 702, Article 11 (ensuring Agreements are in writing and in clear and understandable language)
  3. By-Law 702, Article 35 (shall not engage in an act or omission that would be regarded as unprofessional)

The Discipline Hearing Panel ordered that a fine of $500 and hearing costs of $6,234.66 be paid within 90 days of the date of the decision.

Get it in Writing Part II

In this case, the brokers involved in the transaction failed to document the transaction in writing. As a result, the deal collapsed and there was nothing either broker could do to stop it because in the absence of written agreements, there was nothing to prove that the transaction was negotiated and agreed upon.

Had the agreement been in writing and signed by all parties, the buyers would have had to go through with the purchase or lose their deposit.

The Nova Scotia Real Estate
Commission
is the regulator of the
Nova Scotia real estate industry.

Contact Us

Nova Scotia Real Estate Commission

601-1595 Bedford Highway
Bedford, NS
B4A 3Y4

p: 1.902.468.3511 or
1.800.390.1015

f:  1.902.468.1016 or
1.800.390.1016

e: For licensing information
licensing@nsrec.ns.ca
For complaints
compliance@nsrec.ns.ca