Imagine putting down all of your life savings into a deposit on your dream home. Everyone from the sales teams to your real estate agent assures you it's a solid investment in a hot and getting hotter housing market. This is a smart buy and a deal too good to pass up. Now imagine a year later the home hasn't been built, the developer behind the project has declared bankruptcy, and your life savings in the form of a deposit is gone.
That's what happened to Loraine Adal-Salmon, her husband Anthony Salmon, John Thomas Stevenson and his fiancee Christina Nguyen. They spent last week huddled in a Toronto court, nervously watching their financial future being debated by a total of six lawyers.
Urbancorp Group, a well-established property developer that had been in the market for more than 20 years, had roughly 1,000 homes under construction in the Toronto area as of late 2015. Sure, they had been facing complaints from buyers about construction delays, and yes, they had even cancelled one of their developments in Toronto's King West neighbourhood, but no significant red flags had been raised. Urbancorp was riding high on a hot housing market, and the credibility that came with being one of Toronto's swankiest builders.
Despite significant delays, the Salmons and their two young children were still hopeful about taking possession of the unbuilt townhouse they had purchased from Urbancorp in January 2014. In fact, after placing an $82,000 deposit on the pre-construction property, Loraine had excitedly told her two girls that they would finally get their own rooms.
"The delays seemed normal—our neighbour, a dear friend, had also put a deposit on a townhome, and we were told that delays were a pretty regular thing. I never for a second thought that the home would never get built," Loraine told VICE.
But that's exactly what happened. At the end of April this year, in a move that came as a surprise to many industry watchers, Urbancorp filed a proposal under Canada's Bankruptcy and Insolvency Act, seeking creditor protection (essentially a formal way of saying: I have no money, can you help?). Two weeks later, Urbancorp's CEO Alan Saskin also sought creditor protection, claiming assets and liabilities that amounted to a grand total of zero. One of Toronto's most prominent builders was effectively broke, leaving behind a trail of abandoned developments, and 188 angry home buyers who had lost a cumulative $16 million in deposits.
How did one of the city's biggest builders in a housing market that has been on a steep upward trajectory for the past decade abruptly run out of fuel? According to at least three Toronto-based realtors I spoke to, Urbancorp's showrooms were consistently packed, and pre-construction homes would only last a maximum of two weeks in the market before being snapped up—either by investors looking for a safe haven, or first-time home buyers like John Thomas Stevenson and Christina Nguyen.
"They do a phenomenal job of selling their properties," said Christina. "We had heard that the finishings of their condo developments weren't the best, but the designs were great. It was a very shiny showroom."
Like the Salmons, John and Christina were looking for a space upgrade. Recently engaged, they had plans to start a family, which they felt would not have been feasible in the 700 square foot apartment they occupied at the time. "A friend of ours, who was very knowledgeable about real estate, assured us that Urbancorp was a good buy. We are very organized and we did a whole lot of research before deciding to buy an Urbancorp home." With the guidance of a lawyer and a trusted real estate agent, they eventually placed a $90,000 deposit on a pre-construction townhome at Urbancorp's St. Clair West development.
I asked Loraine Salmon to walk me through every step of the process that led to her signing a purchaser agreement with Urbancorp. It went like this: she and her husband Anthony, having decided to purchase a townhouse in Urbancorp's development at St. Clair West were asked to place a ten percent deposit on a home worth $810,000. They were pleased with the service at the showroom, and were reassured by a realtor that they had met on site, that this was a great investment.
"We knew that the townhomes were being bought up quickly—we were just glad that we managed to find a unit that really suited our needs," said Loraine. A purchaser agreement was signed, a check of $82,000 was handed over to the realtor, and the deal was done. Did she realize at that point in time that the money would go directly into Urbancorp's coffers to be spent before the construction of her home even began? In other words, did she realize that her money was not being held in trust?
"I had no idea that a deposit needed to be held in trust. You have to apparently let them know if you wanted your deposit to be held in trust, if not, they can just spend it," she said.
One would assume there is some sort of legal protection for home buyers who end up in a situation where their developer goes bust? Yes and no. Firstly, under Ontario law, developers are only obligated to hold deposits in trust in the sale of condominium units, and not freehold homes.
According to Lisa Corne, a lawyer at Dickinson Wright who is representing 40 buyers including the Salmons who have lost money to Urbancorp, not only does the law not require developers to provide any sort of insurance for buyers of freehold homes, there is also no provision for the developer to segregate those deposits in a separate fund.
Translation: They can blow that money.
Secondly, there actually is a provincial insurer for new home buyers—it goes by the name of Tarion Warranty, and it was set up 40 years ago by the province to ensure that new home buyers would be compensated in a situation where a home purchase goes awry. But there's a huge caveat attached to that—Tarion's cap is $20,000 for condo buyers, and $40,000 for freehold homes. That dollar amount has been static since 2003, despite the huge surge in property prices in Ontario in the last decade or so.
There are usually three options when buyers hand over deposits in pre-construction freehold homes, says real estate lawyer Mark Weisleder. "First, they can have a lawyer hold their money in trust. Second, they can release the money to the builder and buy their own insurance to cover a potential loss. Third, they can trust the goodwill and reputation of the builder."
Some 188 Urbancorp homebuyers unknowingly opted for option three.
While it is still unclear as to why Urbancorp's coffers ran dry, Howard Bogach, the CEO of Tarion Warranty told me that Urbancorp had been on his radar months before the company officially filed for bankruptcy protection.
"Urbancorp was a builder that had been in the business for a number of years. We definitely noticed there were some performance issues with them. But they then went ahead and raised a lot of money abroad... and I thought they should be able to rectify themselves," he told VICE.
Rectify, is what they did not do. As of Monday, August 29, Ontario Superior Court Justice Frank Newbould ruled that the group of homebuyers demanding a say in Urbancorp's bankruptcy proceedings would be allowed to keep Dickinson Wright as their legal representative but would have to foot their own legal bills.
His justification? "Estate funds should be spent for the benefit of the estate as a whole, not for the benefit of one group whose interests are contrary to the interests of the estate as a whole."
"It is baffling to me, it really really is," says Loraine. "We have been dehumanized. Our democratic rights have been taken away from us."
My 10 minute daily commute to work involves walking up Toronto's Peter Street, the heart of the city's entertainment district. I often feel like I'm walking through one massive construction site dotted with roads, streetcars and people. There are at least three high-rise condominiums under construction, in addition to six occupied condos, and multiple development proposals for condominiums. And that's just on one street.
No one seems to be able to pinpoint a single driving factor behind the property boom in Canada's biggest urban centres: Cheap credit? Foreign money? Rising demand due to urbanization? Perhaps all three. But they can all tell you what is NOT driving the property boom—increasing wages. In 1985, the average home price in Toronto (condos and houses) was approximately $110,000. Fast forward 30 years, and you're significantly set back—the price of a Toronto home has now more than quadrupled to $570,000. By comparison, the average family income in that thirty year period has only slightly doubled—$31,000 to $72,000.
Why is this relevant? Urbancorp, like many property developers in Toronto appeared to be banking on a market that would never let up, and consumers who were riding on the fear of opportunity cost—if they didn't hand out swaths of cash right at that very second to secure a property, prices would only keep climbing, while their wages remained relatively unchanged. It is indeed a deep but perhaps unavoidable injustice in a booming property market where one party, in this case, the builder, wields so much power over pricing, often leaving buyers rushed, ill-informed and subject to shoddy advice.
Ultimately, you could say that Loraine, Anthony, John, Christina and 184 others were victims of a confluence of factors: a builder that failed to disclose its bleeding financials on the glossy brochures it handed out to unsuspecting buyers, a strange provision in Ontario law that lends bias to one set of buyers over another, but perhaps most troubling of all, a raging, bullish property market that showed and continues to show no mercy for caution.
Urbancorp did not respond to the author's request for comment.
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