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Wirick Fallout - Changes to Real Estate Practice in BC

By Kevin MacDonald         August 7, 2003 

Recently, the bedrock of British Columbia’s real estate legal practice was shaken by the actions of a sole practitioner named Martin Wirick. Without integrity and reliability a lawyer has nothing. Thus, in the spring of 2002, when it was discovered that Wirick had been using his undertakings to create a web of false real estate financings and sales, the lawyers of British Columbia quickly responded.

An undertaking is a solemn promise made by a lawyer that is binding on that lawyer without receipt of any consideration in return. Real estate lawyers in B.C. have come to rely on undertakings as they facilitate payment of money and delivery, exchange or registration of documents, by assuring that a promised act will occur. When Martin Wirick disregarded his undertakings and received funds from lawyers, financial institutions and innocent purchasers without fulfilling his promises to convey good and clear title, the entire practice was undermined.

Not surprisingly, the legal community does not take the Wirick ordeal lightly. The lawyers of B.C. have committed themselves to reimbursing the victims of Wirick’s dishonest acts and make good on their claims, which approach $50 million. Additionally, new rules and practices have been put in place in order to create transparency in real estate transactions, improve the profession’s ability to rely upon undertakings to facilitate the completion of real estate transactions and restore public confidence.

As of March 1, 2003 the Law Society amended its Rules and introduced the "30/30 Rule" pursuant to Rules 3-88 and 3-89 of the Law Society Rules. Under the 30/30 Rule, a lender has 30 days from the closing date (i.e., the date it receives funds) to issue a discharge on a repaid mortgage. The lawyer who receives the discharge is then given another 30 days to process it through the Land Title Office. If, after this 60 day period, the lawyer responsible for ensuring the discharge is obtained and registered has not obtained and filed a registrable discharge of the mortgage, such lawyer’s failure must be reported to the Law Society within 5 days. These new rules apply to all discharges of real property mortgages, including residential transactions, debentures and trust deeds containing a fixed charge on, or interest in, land. The reporting scheme is internet based and the forms can be found on the Law Society’s website.

While it is obvious that the 30/30 Rule is set up to ensure another Martin Wirick does not slip through the cracks, the Law Society has maintained that the primary objective is to compile a database regarding the financial industry’s response time to the processing of mortgage discharges. Lengthy periods of time between closing dates and the dates when mortgages are sometimes discharged contributed significantly to Wirick’s ability to carry on his scam without detection for so long. Therefore, the new rules create a "watch dog" over the entire industry. The Law Society has also stated that adverse inferences, without evidence that an undertaking has been breached, should not necessarily be drawn against lawyers who fail to facilitate the discharge of mortgages within the prescribed time limits.

As the Law Society is doing its part to repair the damage caused by Wirick, the Vancouver Real Property Section of the Canadian Bar Association (BC Branch) has also sprung into action by incorporating "transparency provisions" into its standard undertakings with respect to mortgage discharges. The new Clause 8.4 of the CBA Standard Undertakings provides that, within 5 days of closing, the lawyer charged with the responsibility to discharge the mortgage must provide the lawyer or notary who is relying on him or her in that regard with copies of specific documents demonstrating that payments have been made to existing chargeholders. These standard undertakings are incorporated into the B.C. Real Estate Association’s standard form of Contract of Purchase and Sale in Clause 14.

Although the B.C. Real Estate Association’s standard form of Contract of Purchase and Sale is primarily used for residential conveyancing transactions, it is becoming common for commercial real estate practitioners to utilize such transparency undertakings and provision for such undertakings is now being made in commercial real estate contracts by legal practitioners.

There is no doubt that Martin Wirick and his abuse of undertakings has significantly hurt the reputation and pocketbook of the legal profession as a whole. B.C. lawyers will be paying for years to come. However, the legal community has responded quickly and, as a result, the damage to the public will be minimized and public confidence will hopefully be quickly restored. In fact, there have been some positive results emerging from the ordeal, primarily the tightening up of real estate transaction timelines, the creation of an industry "watch dog" and the increased transparency of undertakings in respect of mortgage discharges.

Those in British Columbia’s real estate industry can rest assured that the Martin Wirick fiasco has been taken very seriously and that the measures being taken by B.C. lawyers will significantly reduce the chance of future damage occurring as a result of lawyers using undertakings for the purposes of handling real estate transactions.

- Kevin MacDonald

 

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