Agent Fails to Disclose “Marihuana Grow House” to Own Client
This is difficult to believe but it’s true. This matter came on for consideration by the Discipline Committee of RECO. The Buyer was illiterate. He could not speak, read or write English. You might think that would be a problem. Well, for one agent that spelled “opportunity”.
Here is a brief summary of the relevant facts with my commentary in Italics throughout:
1. Wilma Waters, was registered as a Salesperson under the Act with the Brokerage ABC on May 9, 2012.
She’s new. But, she’s still an adult.
2. In or about March 2013, Ozzie, the Buyer engaged Brokerage ABC, through Ms. Waters, to represent him in buying a residential property.
Obviously, Ozzie trusts Wilma. They speak the same language.
5. Ozzie was not present with Wilma for part of the negotiation process. With Ozzie’s oral instructions and agreement given by telephone, Wilma initialled both a price change and a change to the irrevocable clause contained on the APS, contrary to Sections 4 and 5 of the Code of Ethics to the Act (the “Code”), and Section 38 with respect to the duty to prevent error and misrepresentation.
Nowhere on the APS did Wilma indicate she was initialling the document on behalf of Ozzie. Ms. Waters did not at any relevant time have a Power of Attorney to sign or initial a transaction document on behalf of Ozzie.
This isn’t the time to start “winging it”.
6. Barney Rubble, the Listing Agent had disclosed the following on the Listing information:
“Remarks for Brokerages: Please Call L/A Before Preparing Offer, Attached Schedule “B” Must Be Included With The Offer And Disclosed To The Buyer.”
Usually, this spells trouble.
7. “Schedule “B” to the APS included the following disclosure (“Schedule B”):
The Buyer acknowledges that prior to the present ownership the use of the property and buildings and structures thereon may have been for the growth and manufacture of illegal substances and acknowledges that the Seller and the Listing Brokerage make no representations and/or warranties with respect to the state of repair of the premises and the Buyer accepts the property and the buildings and structures thereon in their present state and in an “as is” condition. The Seller represents and warrants that during the time the Seller has owned the property, the use of the property and the buildings and structures thereon has not been for the growth or manufacture of any illegal substances. (the “Grow Op Disclosure Clause”).
They think it’s a grow house, or it was a grow house.
8. Prior to an offer being made, Wilma contacted the Barney and asked about the Remarks for Brokerages. Barney indicated this seller had purchased the property from a financial institution under Power of Sale, that there was “potential of illegal use” or, in the alternative the Property “may” have been used as a marijuana grow house.
Wilma already knew that Ozzie didn’t want a Grow Houses! But, that didn’t seem to matter.
9. Wilma attached Schedule B, including the Grow Op Disclosure Clause to the Offer, and Ozzie’s Counter Offer and APS.
Schedule B, including the Grow Op Disclosure Clause, was in English.
Schedule B, including the Grow Op Disclosure Clause, was initialed by Ozzie.
This is actually something of a problem. Remember, Ozzie doesn’t speak, read, or write English. Having him write his name to signify nonsense is silly. It doesn’t make any sense.
10. At some point prior to making the Offer for the Property, and before Ozzie initialed Schedule B, Ozzie indicated to Wilma that he did not want to buy any property that had been a “murder house” or that had ever been used for the growth and/or manufacture of illegal substances, including marijuana.
Why not just follow Ozzie wishes? That’s simple enough! No Grow Houses!
11. Wilma did not take sufficient steps to disclose before Ozzie made the APS that the Property had been previously used for the cultivation of Marijuana, contrary to Sections 4, 6(1) and 21(1) of the Code, and Section 38 in respect of the duty to prevent error and misrepresentation.
She is going to have to speak to him in his language which was Mandarin. She is going to have to write that down in Mandarin. She is going to have to confirm everything in Mandarin. He doesn’t speak, read or write English.
Wilma indicated, although Ozzie does not acknowledge this, that she referred Ozzie to a lawyer for the purpose of checking the property history and it does not appear that he did so.
Sure, she probably said this in English!
Wilma did not confirm in writing that she had so referred her client, contrary to Sections 5 and 6(1) of the Code, and Section 38 in respect of the duty to prevent error.
12. The APS was conditional on Ozzie obtaining satisfactory financing and a satisfactory inspection report.
An inspection of the Property was carried out on behalf of Ozzie by a professional property inspector, on or about April 16, 2013 (the “inspection”).
You would at the very least think that this is the opportunity to have a close look.
13. Ozzie attended at the Property for the inspection.
Upon arrival, Ozzie met Wilma’s spouse along with the inspector. But no Wilma!
The spouse did not at any relevant time register to trade in real estate.
This is very basic, very basic. No one should miss this point. Wilma has to show up. Hiding is not good, and she can’t delegate real estate trading to friends and relatives who are not in the business. Again, this is basic. You don’t have to be “in the business” to know this.
Wilma authorized her spouse to attend the inspection and provide access to the Property, unaccompanied by a Registrant, contrary to Sections 4 and 5 of the Code.
Again, Wilma decided that her husband could trade in real estate. RECO does that. Wilma does not have that authority.
14. On or about April 16, 2013, Ozzie signed an Amendment to the APS prepared by Wilma, deleting the conditions to the APS (the Waiver/Amendment”).
This is a problem if it’s in English which I assume that it was.
The inspection report did not make any findings indicating the Property’s previous use as a marijuana grow house.
OK, this is strange. Where did the inspector come from? Were all the signs hidden? Did Ozzie get the inspector? I doubt it. But, obviously the inspector (assuming that he is legit) didn’t know about the “history”, otherwise he would have covered himself in the report.
15. At some point on or before April 18, 2013, Wilma requested of the Listing Representative that he provide a Remediation Letter.
She indicated this was required by the financial institution to which Ozzie had applied for a mortgage to buy the Property.
Wilma finally seems to be on the right track. She is just about to start protecting her client, rather than protecting her commission.
In response, on or about April 18, 2013, the Listing Representative e-mailed Ms. Waters a letter dated August 10, 2012, from the City Public Health confirming the Property’s previous use for a marijuana grow operation, and that the City Public Health had accepted that remediation measures at the Property had been completed.
How good was that report? Was there an actual inspection? Did the City actually sign off on this issue?
16. After the conditions to the APS had been removed, Ozzie was told in the course of applying for a mortgage about the Property’s previous use as a marijuana grow house.
Everyone in the whole wide World, including most children who are over 7 years of age know that this is the wrong time. It’s too late. But, Wilma’s commission is intact.
According to Wilma, the Mortgage Broker handling Ozzie’s application indicated to Wilma that Ozzie’s application had been “processed” but the “interest rate … will be a little bit higher than before because the [Property] had some problems”.
Anyone in the business, in fact, I should probably say everyone (including Wilma) knows that it will be difficult, if not impossible to finance a former marihuana grow house. Most people should just avoid it, unless they are professional contractors or experienced investors.
Wilma did not obtain the Remediation Letter and provide it to Ozzie and/or his mortgage broker for use in Ozzie’s mortgage application before providing Ozzie with the Waver/Amendment for his signature, contrary to Sections 4, 5, 6(1) and 21(1) of the Code, and Section 38 in respect of the duty to prevent error.
So, she either got it late or not at all. Nevertheless, it was never provided.
17. Wilma is responsible under the following sections of the Code:
4. A registrant shall promote and protect the best interests of the registrant’s clients.
Conscientious and Competent Service, Etc.
5. A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgement and competence in providing those services.
Providing Opinions, Etc.
6(1) A registrant shall demonstrate reasonable knowledge, skill, judgment and competence in providing opinions, advice or information to any person in respect of a trade in real estate.
21(1) A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earlies practicable opportunity, shall disclose the material facts to the client.
(In respect only of the duty to protect error and misrepresentation)
Error, Misrepresentation, Fraud, Etc.
38. A registrant shall use the registrant’s best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate.
Wilma be ordered to pay a penalty of $10,000.00 by January 31, 2017.
Wilma was ordered take the Real Estate Institute of Canada “REIC 2280 Legal Issues in Real Estate” and the “REIC 2270 Consumer Behaviour and Negotiating” courses, and provide RECO with confirmation of successful completion of all the above mentioned courses by January 31, 2017.
This particular case appears to be one of deception. If that’s the case, then the fine is far too low.
The fine should be at least equal to the amount of commission that Wilma would have generated on the purchase. That would be a deterrent.
Also, we don’t know from the report whether or not Ozzie was able to close the deal. If that were the case, then I think that would have been in the Report, but that’s not clear.
While there are many issues, let’s deal with two: 1) the non-English speaking client, and 2) disclosure to the inspector. There’s no advice of general interest that can be directed to someone who makes a decision to deceive.
1) the non-English speaking client
This happens enough. You will need an Interpreter. You will need a witness. You will likely need the lawyer on board early, hopefully one who can speak to the client in their own language.
The documents need to be explained in the client’s language. That means, convert them, line by line, word by word. There are software programs which will do this.
Now, the next step is getting the client to sign. Have them execute a Power of Attorney in favour of someone who speaks English.
For internal purposes, have them sign and initial the documents converted into their own language. This will be a useful backup later on, if something goes wrong.
Usually, there is a “trusted friend, relative or colleague” who can sign the documents as Attorney for the client. It should not be someone from the Brokerage (at least, that would be better).
2) disclosure to the inspector
If there is information, positive or negative about the property, pass it along to the inspector. Don’t hold onto it. Don’t believe that if the inspector doesn’t find anything, then everything is OK.
In this case, we had a former grow up. The information was withheld. This doesn’t help the client. The inspector should have been extra vigilant. But, I doubt that that was the case. Disclose it. The Agent, and the Inspector are both working for the client. Concealment is a breach of one’s fiduciary duties.
Brian Madigan LL.B., Broker