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NOTE: Real estate professionals who have limited experience in foreclosure transactions should seek guidance from their managing broker. This is a complex area of real estate where unforeseen hurdles can cause serious problems for the real estate professionals and the public.

  • In many cases, the party that has conduct of sale in the foreclosure requires that many of the standard clauses in a Contract of Purchase and Sale be amended. The amended clauses are generally contained in a Schedule to the contract. The Schedule may provide, for example, that the buyer is purchasing the property on an ‘‘as is, where is’’ basis as of the completion date. Real estate professionals acting on behalf of buyers should review the Schedule of amendments carefully with the buyer to ensure that the buyer understands the implications of the amendments on their purchase.

Once a property is subject to foreclosure proceedings, any party who may be potentially affected by the foreclosure proceeding may apply to court for conduct of sale. Real estate professionals need to be careful as the court can order any party it sees fit to have conduct of sale, with the right to list or sell the property in a certain manner. This type of order could have the effect of denying a registered owner from listing a property or, perhaps, voiding an existing listing agreement. This court appointment allows the party having conduct of sale to put the property up for sale and it may prevent anyone else from listing the property (even the owner).

It is important all real estate professionals recognize that where they have a listing on a property that may be subject to foreclosure proceedings, their listing may be voided by a court order at any time. It is also important to note that the court process involving the manner in which offers are presented in court and the court’s consideration of offers may differ considerably from the real estate professional’s usual practice. Real estate professionals are urged to be careful when acting for buyers and sellers to ensure that any offer, subject to court approval, is in acceptable form, including the manner in which the potential buyers wish to be shown on title (tenants in common or joint tenants). It is costly to have an Order Approving Sale amended after it has been pronounced. Real estate professionals should also have their buyers and sellers consult their lawyers about dates — both as to court approval and completion — as the time required to have orders for sale approved may have increased as a result of changes to Rules regarding foreclosure practice. Real estate professionals should also be alerted to the fact that orders of the court could be appealed to a higher court.

Duties of Disclosure under Court-Ordered Sales

Real estate professionals should be aware that the Schedule ‘‘A’’, which typically forms part of Contracts of Purchase and Sale for court-ordered sales, often contains a clause that may read as follows:

The purchasers expressly agree that neither the seller nor its agents or representatives have any liability, responsibility, duty or obligation to disclose to the purchasers any information or knowledge that they have with respect to the condition of the lands and premises or any latent or patent defects thereto.

The wording of this clause may change, depending on who has drafted the Schedule ‘‘A’’, however, the intent of the clause remains the same; to relieve the seller and the seller’s agents and representatives from any liability or responsibility for disclosure to the purchaser, about defects that may exist in the property. Real estate professionals are reminded that, despite any clause such as the example above, contained on a Schedule ‘‘A’’ or otherwise included in a Contract of Purchase and Sale, real estate professionals are not able to contract out of their obligation of written disclosure of latent defects, as required under section 59 of the Real Estate Services Rules (“Rules”). Section 59(2) of the Rules sets out a real estate professional’s positive obligation, when providing trading services to a client who is disposing of real estate to ‘‘… disclose to all other parties to the trade, promptly but in any case before any agreement for the acquisition or disposition of the real estate is entered into, any material latent defect in the real estate that is known to the real estate professional’’. Section 52 of the Rules requires that the disclosure be made in writing, prior to the acceptance of an offer.

Further, section 59(3) of the Rules requires that, in the event that a client instructs a real estate professional to withhold disclosure, the real estate professional must refuse to provide further trading services to or on behalf of the client, relating to the trade. It is important that real estate professionals explain to all of their seller clients the real estate professional’s obligation to disclose known material latent defects, to a buyer, prior to any agreement being entered into. This explanation to sellers is particularly crucial in court-ordered sales where a seller may be relying on a clause, like that set out in our example, to relieve the real estate professional of his or her obligation of disclosure. Real estate professionals must ensure that their sellers are advised and fully understand that real estate professionals cannot contract out of their obligations of disclosure under section 59 of the Rules, and if they are instructed by a seller not to disclose, they must withdraw and cease acting for that seller.