Will home buyers willingly pay an extra $148 to help lawyers close their purchase transactions?
The question arises in the wake of the launch by First Canadian Title Company Ltd. (FCT) of EasyFund, a web-based money transfer system. Its stated goal is to streamline the workflow of real estate closings.
The system operates by co-ordinating the electronic movement of funds between lawyers and banks during real estate transactions.
I first wrote about this program in May after news of the venture was announced at a conference of real estate lawyers. The name of the sponsor was not available at the time.
Currently, real estate lawyers courier certified cheques to each other, or deposit funds directly into each other’s trust accounts. EasyFund instead will receive money from buyers’ lawyers and securely hold it until the transactions close and the funds can be released.
The system requires both lawyers to be registered with the program. The cost of participating in EasyFund for each transaction is $67.80, including HST. This amount is paid by the buyers or shared between buyers and sellers.
In addition, when the buyer’s lawyer receives funds from the client and the new mortgage lender, that money must be wired from his or her trust account to EasyFund at an additional bank charge of $80, bringing the total additional cost to $147.80.
When I wrote about this venture in May, I called it a solution in search of a problem.
EasyFund’s stated goal is to help lawyers “run a more profitable business” and to fill “a gap in the real estate transaction process.”
It’s a mystery to me where this supposed gap is and why buyers should have to pay an additional $148 in expenses so their lawyers can be more profitable. I’m also at a loss to explain why lawyers need to hire a third party to move closing funds when the current system works so well.
I understand that the Law Society is presently studying EasyFund to ensure that it complies with its regulatory requirements.
In addition to these challenges, EasyFund will jeopardize the activities of the Law Foundation of Ontario by removing funds from lawyers’ trust accounts.
Every year, the foundation receives about $38 million in interest on lawyers’ mixed trust accounts. It spends the money in the public interest by funding law schools, legal aid clinics, tenants’ associations, women’s shelters, class action litigation, community legal education, pro bono law, and access to justice programs for all Ontarians.
While the bank interest generated from individual real estate transactions for a short period of time is relatively small, interest on the cumulative “float” of minimum balances across the legal profession allows the Law Foundation to support dozens of these worthy causes. That is now at risk.
I’m also concerned about an American-owned insurance company operating as a quasi-bank in Ontario. FCT is not a member of the Canada Deposit Insurance Corporation.
EasyFund’s promotional brochure says it will ensure that transaction payments will be made in a timely manner, but offers no guarantee of prompt delivery of funds. Based on my experience, many real estate transactions close at the last minute as the 5 p.m. deadline approaches.
The introduction into the mix of an additional party to receive and disburse funds could slow things down and place transactions in jeopardy.
Sandeep Johal, a Brampton real estate lawyer, expressed the view of many of my colleagues when he told me last week, “EasyFund is going to take longer.”
If, as I expect, his attitude represents most real estate lawyers, EasyFund will have a difficult time getting off the ground.
Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at email@example.com, phone 416-364-9366 or fax 416-364-3818.
Visit the Toronto Star column archives at http://aaron.ca/toronto-star-columns.cfm for articles on this and other topics.
TO SEARCH FOR MORE ARTICLES ON THIS OR OTHER TOPICS USE THE SEARCH FEATURE AT THE TOP OF THE PAGE.