New solicitor's opinion offers advantages to B.C. lawyers and lenders

Institutional lenders will soon be offered the option of bypassing a building location survey in residential mortgage transactions.

B.C. lawyers who act in mortgage transactions will soon be able to advise an institutional lender client that, when there are no known building location defects on a property, the lender client need not obtain an up-to-date building location survey as a condition of funding a mortgage loan.

This is a change in practice for B.C. lawyers that will be permitted under a new Protocol of the Law Societies of B.C., Alberta, Saskatchewan and Manitoba, which is expected to come into effect on February 15, 2001.

[The preliminary draft of the Western Law Societies Conveyancing Protocol (B.C.) and the solicitor's opinion under the Protocol (protocol opinion) are set out on pages 7 to 8. The Benchers will be asked to endorse the Protocol at their February, 2001 meeting. B.C. lawyers should be aware that there may be future revisions to the Protocol and that the Protocol, as revised, will be published on the Law Society website at www.lawsociety.bc.ca.]

The Protocol allows B.C. real estate lawyers to use a standard form opinion in residential mortgage transactions that, for institutional lender clients, should prove a satisfactory alternative to obtaining a building location survey. How is this so?

If a lender relies on a protocol opinion to fund a mortgage and suffers an actual loss as a result of an unknown building location defect that would have been disclosed by an up-to-date survey, the Lawyers Insurance Fund will, on behalf of the lawyer, accept liability and, as appropriate, pay the cost of repair or any actual loss suffered. Provided a lawyer has complied with the Protocol, paid claims will not trigger any deductible or surcharge for the lawyer, and the lawyer remains eligible for a part-time practice discount.

Financial institutions have long relied on solicitors' opinions to maintain enforceable mortgage security. The Western Law Societies Conveyancing Protocol is intended to help the legal profession enhance its position by offering Canadian financial institutions a more streamlined service.

Under the Protocol in B.C., institutional lenders will have an attractive alternative to requiring a building location survey in residential mortgages — as they can instead rely on a lawyer's protocol opinion as a basis for funding the mortgage loan. Because the risk of loss to lenders from survey defects is small, the impact on the Lawyers Insurance Fund of the extended coverage is expected to be minimal.

When a lawyer also acts for the borrower in a residential mortgage transaction, it is always sound practice for the lawyer to advise of the protections that a building location survey offers the borrower. (Note: Under the Protocol, lawyers are expressly required to give this advice to the borrower.) But the borrower may ultimately prefer to forego a survey to save money, and this becomes an option if the survey is not required by the institutional lender.

In Alberta, Saskatchewan and Manitoba, the Protocol goes much further than in B.C., amounting to a reform of the conveyancing closing process. Currently in the prairie provinces, mortgage funds are not released until after registration of the mortgage, which can result in a delay of several weeks, and purchasers often have to arrange interim financing. This delay is referred to as "the gap."

Under the Alberta, Saskatchewan and Manitoba versions of the Protocol, lawyers will be permitted to issue opinions to allow for the release of funds immediately prior to the submission of mortgage documents for registration, and the insurer for lawyers in these provinces is backing this change in practice.

In B.C., by comparison, most closings, mortgage funding and pay-out to the vendor take place on the closing day. Accordingly, there is no "gap" and no need for a change in closing practice.

All four western law societies plan to work together in the months ahead to promote their respective Protocols to institutional lenders. The support of individual lawyers for the Protocol is also important. B.C. lawyers will wish to familiarize themselves with the steps required under the Protocol and may also wish to meet with their local financial institutions to determine if they will accept protocol opinions.

In cooperation with CLE and the CBA (B.C. Branch), the Law Society is offering educational sessions on the Protocol in early February at meetings of the three CBA real estate sections and at 12 video repeats scheduled throughout the province: see flyer enclosed with this mailing for details. Lawyers will have an opportunity at the section meetings to raise questions and to take away material to assist them in their discussions with financial institutions.