Len 00:02
Welcome. My name is Len Lane, and I am the founder and president of Brokers for Life Inc., and we are Dominion Lending Centres in Western Canada. The topic of our podcast will be about what we consider to be Real Life Mortgage Solutions. Welcome back. I’m not sure what episode this will be. I think it’s around 45 of the last two seasons, or four seasons actually, of our podcast. Today my guest is Gordon Kallio. He is a real estate lawyer in Barrie. A longtime family connection, believe it or not. Third generation probably. Right? So I read your article a while ago that kind of spurred this on to talk more about it. You were talking about resolution and co-ownership disputes and it was, I was reflecting on my own children and inheriting their grandmother’s home with other people. I just kind of wanted to get some, some kind of sense of what you were talking about in the article about the Partition Act.

Gordon: [00:01:02] Thanks for having me on, Len. It’s a pleasure to be on your podcast here. Yeah. My article was based on the Partition Act in Ontario, but I imagine there’s something similar in Alberta as well. Essentially, there’s a lot of disputes around real estate as is, and it’s not a very liquid asset to have. It was important that there was some sort of legislation to get owners out of sort of being bound. Right? So it can happen when one one owner isn’t pulling their weight with the property, right? You might have had a verbal agreement that said, we’re going to pay for half the expenses, half the mortgage, that sort of thing. And so it just gives a way to sell the property. Partition means dividing the property versus the sale is sale to a third party. But as you know now a lot of real estate, you can’t partition it anyways, right? It’s a, if it’s residential especially, but if it’s a farm or something, you might be able to partition the farm. But yeah, more commonly now it’s just the sale of a sale of the property to a third party without their… without that party’s consent. But oftentimes you get that consent after doing the filing anyways. They kind of come to the table and they realize this is going to cost me more money to try to defend, and there’s not many defenses to it.

Len: [00:02:10] And it’s funny, I was just Googling some info on the transfer of land that’s happening, right? So it’s, the baby boomers are going to leave about $17 trillion worth of real estate in the markets, and some of it will obviously pass down. Some of it will get sold, of course, but a large portion of it, especially second properties, which the government is after to collect taxes on as well. Is that a bigger part of what you’re seeing, where Mom and Dad or Grandma and Grandpa have left the family cottage up in the Muskokas to the family? Is that some of what’s happening as well?

Gordon: [00:02:46] Yeah, yeah, a lot of cottages were also owned by multiple family members. So sometimes there’s an estate aspect to it, and then it just… a lot of disagreements. Right? Because how are you going to use one building. Right? If there’s 3 or 4 families now, sometimes more than that, trying to use the cottage and trying to divvy up time. Kind of like a timeshare. Who’s going to be responsible for what expenses and that sort of thing? And then on top of that, you also have that large capital gains bill that you were talking about as well, with the government getting their hands on those assets. On part of the assets, at least. So how are you going to pay for that? Are you going to finance the property? Are you all just going to split the bill with pay it out of cash, cash reserves that you already have. So there’s a lot of potential for disagreement that leads to it. And even with parents going on title with children over the boom that kind of happened there. What happens if there’s now a disagreement between the parent and the child, and is the parent locked in and joint several? Now that they’re retiring, how can they get out of being a co-owner just in general?

Len: [00:03:47] Yeah, and that’s an interesting part of our market as well with mortgages. We saw lots of that, some in Ontario, some here as well. Not as much because the affordability was considerably better in Alberta, at least. But it’s… we’re seeing that question get asked a lot how to, how do I get off title now that it’s five years later, seven years later, ten years later, whatever? But it is tricky to do because the other person has to qualify for the whole mortgage by themselves now. Hopefully over that amount of time that their life is improved or, or something longer into their careers and, and they actually have the income to take over the mortgage. But yes, we get asked that question, how do I get off of this title? You know.

Gordon: [00:04:30] For lack of better term, you don’t want to sue your own child and say, well, now you’re out of a house, right? Because the whole point was that they’d have somewhere to live. But it… Partition Act, it’s kind of a last resort, right? When they’re at least if you’re negotiating and they’re able and they’re willing to discuss with you and come to an agreement on what the market valuation and stuff, then you don’t really need the Partition Act. You don’t need the application. But it’s kind of a last resort. We’ve tried for six months to a year to negotiate and now nobody’s happy. And how can we how can we find a resolution? Right? But yeah, the qualifying for a mortgage solely, it’s very difficult, especially for people around my age to accomplish.

Len: [00:05:09] It’s going to be interesting to see as well because of course Toronto proper, not too bad. The values haven’t come down too much, but we’re seeing numbers coming out of Scarborough and other places around Toronto that are down 25% as well. So if there is… trying to get out from underneath, that is going to be probably tough to do regardless if you don’t have a lot of equity in the property already. So taking mom and dad off of the title or aunts and uncles is going to be an interesting scenario where there’s not enough value in the property, maybe coming down the road that will allow someone to put another mortgage onto that house. So, Partition Act around for quite a while. Some of the other resolutions that you’re seeing how much. Is mediation becoming a common issue for this as well?

Gordon: [00:06:02] Yeah. So you can oftentimes when you start the application you can… when you go for your first hearing, you can get an order for a timetable. And usually within that timetable we like to suggest mediation as happening. So you have the court ordered mediation essentially. However, usually I find that once you bring that application, they come to the table and they realize there’s really not many defenses to it. It’s just kind of what’s the market value? They might bring their realtor to give a valuation. You might bring yours and you kind of find a middle ground. But yeah, essentially once the parties come to retain me for the Partition Act, mediation sometimes isn’t the best answer. But it is better to have the guided mediation, right? As opposed to them just sitting down at a kitchen table together and trying to hash it out, because that leads to further disagreements. But yeah, if we’re there with them for mediation, then it often helps because we tell them to put the swords away and let’s just figure out numbers.

Len: [00:06:59] Right. And in the end, I guess that’s really what it boils down to is the numbers that are there and things that they can work with. So part of your scope of work, obviously, I see you also get involved quite a bit with power of sale litigation.

Gordon: [00:07:13] Yeah, yeah. So more so on the lender side, borrower side. There’s not many defenses to the power of sale. So it’s really just to buy time. If you think in a couple of months I’m going to get a mortgage, but I need to buy time so that they don’t kick me out of my house, the sheriff doesn’t come and boot me out. But yeah, it might. I think it’s different in Alberta, but here in Ontario they have full, lenders have full recourse. So foreclosure isn’t really a thing. It’s the power of sale where they can any and all losses that they incur, they can claim against you. And then the borrowers have a judgment that you can file with the sheriff, get a writ of execution, and then potentially even garnish wages. But, you know, I still see writs from the 1990s during the last kind of real estate fiasco. I like to call it the downturn, right? So that it can linger. Those writs of execution can linger for a very long time.

Len: [00:08:02] Yeah, that’s interesting because yeah, definitely different in Alberta. They used to call it Jingle Mill, where you could just turn in the keys and walk away and have no liability. There was a point in time up until probably about ten years ago, where someone could assume a mortgage in Alberta without ever qualifying for it. Yeah, exactly. Wow. Right. So take it over. Walk away. Here’s a thousand bucks. And I saw lots of that happen where it was one of our fiascos, depending on oil was going that year. So there are different rules right across the country when it comes to all of this. It’s always interesting to see what’s developing, I guess. And with the downturn in the market in Ontario. I’m not sure what’s happened in cottage country, whether or not that those prices are coming down or if that’s… I’m sure there’s some change going on in some of those markets as well, right? So.

Gordon: [00:08:55] I think they are starting to come down when I drive through the Muskokas to get to get to Renfrew, I see quite a few power of sale signs, usually on like vacant lots, but if you see properties for sale that are around $5 million, there’s probably an issue, right? Because usually if you’re buying that property, you’re holding it for the rest of your life. So it’s something’s… the winds of change are coming. Right? So values I think are just going to drop quite significantly. But it’s at that full recourse that kind of, I think, staggers things right because it’s not as good for consumers. Consumers would be better if you could just do the foreclosure like you said, drop the keys off and walk away. But here the bank’s not as in a rush to sell it and get what they can out of it.

Len: [00:09:42] Right. And that’s what I always tell my clients though. What if what if this happens and go, well, the bank’s not really in the real estate business. They’d rather not own your property. They’d rather collect interest. Right? So it’s in the long term that that that’s kind of their goal is to make that work for as long as they can until they have to own the property. Right? So it’s always…

Gordon: [00:10:01] The banks too, right? I just had a call today about a development near a ski resort here where they had a during the… when it kind of came down the market in 2022, one of the developers gave an interest-free mortgage for 18 months. And then after the 18 month mark, it went to a 4% interest for the remainder of the term. And the potential client said that they can’t make those payments. What’s going to happen? Right? So it’s… even developers are going to have to get into the power of sale game.

Len: [00:10:28] And that’s interesting because you said on empty lots that you saw the power of sale, and that means people were looking at it as speculation to maybe build something down the road and speculators will have a hard time. We have lots of good friends that own some of the bigger MICs in Canada. So one of the things they always have to do in these times is adjust their books. So they were lending up here and the value was there, but now the value is down here. So they’re… they have to go through those. And we hear that there are some rather large MICs that are going to be concerned about their book of business, especially in the Toronto area because values have come down that much, right? So outside of real estate, it looks like you have some other interests as well. But tell me what CSU hockey is. I read a little bit, but yeah.

Gordon: [00:11:15] So I’m looking to get into kind of the advisor role for hockey players. So either as an agent or a family advisor, I guess it doesn’t matter as much anymore with the changes to the NCAA rules. But yeah, just helping kids find their path to get to essentially a free education. Right? Get that scholarship either through the OHL where they can get a scholarship agreement to play there and then go off to Canadian university, maybe help them find a role in lower league pros after that in Europe or North America or now that you can do the OHL, you can get that scholarship agreement and then you can also try your hand at moving on to the NCAA. But yeah, just helping kids find their path. I find there’s a lot of misinformation and there’s a lot of contract involved in it, right? So before you sign that player card to go off to the OHL get that scholarship agreement. I always heard horror stories of kids that were, they were really good at 15 or 16, they go to the OHL and they forego that scholarship agreement. And then the next thing you know, they’re 20 years old and they never got drafted to the NHL. They don’t have anything on the table, and now they don’t have that potential to go off to Canadian university or college and have that paid for.

Len: [00:12:27] Right. Yeah. Mm. Interesting that it’s such a high-priced industry I think that, what is it 0,000 is what the entry level income is in the NHL or something like that. Right? So it can be very attractive. But at the same time, if there was an article a long, long time ago where they, the reporters always had the worst interviews with the guys in the NHL, sometimes because they were like grade nines, they had no high school, hardly, and just went out and played hockey all their lives. Right? Not the same today, that’s for sure. So yeah.

Gordon: [00:13:01] Things are changing. Like even the Flames’ new guy, Barack there. He’s apparently pretty smart. He’s graduated high school early. So it’s… things are changing, right? It’s cool to be smart now. So it’s good. It’s better conversation. And they have an understanding that they need an education too.

Len: [00:13:16] Right. And hopefully part of the education is a business course or two in there as well. Right? It’s definitely big bucks. Yeah.

Gordon: [00:13:24] There’s always horror stories of players that go bankrupt, right, through bad investments and and bad advisors. Sometimes the advisors go to jail.

Len: [00:13:32] Yeah, I’ve met a lot of them over the years. A lot of them were Oilers. And so, some had made very bad investments. But overall they did okay in the end, I’m sure. So, any other topics you’d like to talk about?

Gordon: [00:13:46] Yeah. Like, just like the Partition act I guess, it’s just very like you said, it comes down to numbers, right? What works for people and real estate in general, like if you have a… to avoid the Partition Act, if you have a good co-ownership agreement that can save a lot of headaches. Right? Because it can deal with the exit strategy. What happens if something changes in somebody’s financial ground, right? So I think to avoid the partition Act, if you have a good co-ownership agreement. You know, it might cost you $2,500 in legal fees at the outset of your investment. But, you know, if you get that done, it can save you 10, 20, $30,000. Like my most recent one, it was fairly, fairly amicable in the negotiation after we got involved. Before that, they had their pitchforks out at each other. But he’s already spent 25, $30,000 and we’re just nearing the end. Right? And that’s not including the transfer fees to… because we ended up negotiating that he would take over ownership of one of the properties, and the neighbouring one would go to the other parties. That’s not including those legal fees, right? That’s another $2,000 right there. So $2500 can save you 20, $30,000.

Len: [00:14:54] Yeah. And that’s the land transfer tax in Alberta? Or in Ontario as well?

Gordon: [00:14:59] There’s no… yes there is, but it’s, this one, we’re dealing with an estate. So there was like five owners. So there’s not as much but it can, right? So yeah, there’s land transfer tax on top of that as well. And then there might even be capital gains for the estate. Right. Because if it’s a cottage property then you know they’ve got to talk to an accountant for sure and figure out what, what sort of taxes they have. But yeah, the land transfer tax, there’d be a portion of that. Luckily, two of the people that are becoming the owners of this one are first time homebuyers. So it’s the children, so the grandchildren essentially, that are going to take over the estate property. Right? So it’s going to be transfer them at least they’ll get a little bit of a discount. But we haven’t, I haven’t crunched the numbers to see if it completely negates the land transfer tax yet.

Len: [00:15:47] Right. My niece lives and has bought several times in Toronto and she was in Vancouver before that and recently just moved to Dublin. But it’s like, yeah, the land transfer tax the first time you see that on something that’s a couple almost over $1 million right, for an apartment. And you kind of go like, oh, that’s expensive. And then Toronto of course has their own on top of the provincial ones. So, same in BC. BC is one of the first $200,000, I believe it is. And then 2% of everything after that up to $4 million. So you can get a little pricey if you’re into the higher end markets for sure. Yeah. The accounting part is important too. I don’t think most people think about that. What are your tax liabilities on all of this? That’s a whole nother podcast by itself, I’m sure, that with all the changes that are always coming from CRA, it’s always interesting to see where all of that will go.
Thanks for listening today. I hope you found the information that we provided to be useful in your mortgage journey. And remember, you can always find our associates at www.brokersforlife.ca/associates. Have a great day.