Could a foreign government stake a claim on a Canadian property?
That’s a question a couple who entered a purchase agreement on a home in Georgian Bay didn’t want to an answer to. After searching for waterfront properties in the region, they thought they found their dream home until it transpired that the seller is wanted by the Federal Bureau of Investigation. In addition to a warrant being out for the seller’s arrest, the FBI intends to freeze his assets, including the Georgian Bay waterfront home.
The outstanding warrant only came to light after title insurers did their due diligence, says the buyers’ sales representative.
“We found the perfect waterfront property and they were going to do renovations,” said Sabrina Staunton of Royal LePage First Contact. “The lawyers tried to contact other title insurers and they all said no.”
The seller is accused of participating in embargoed trading to Iran, but as far as the buyers were concerned, they wanted no part of the deal and walked away. The seller is threatening to sue the buyer for breaking the agreement.
There is no precedent for a case like this, says real estate lawyer Bob Aaron.
“The question was what happens to the money if the money is paid over to the owner,” he said. “Can the FBI then seize the property itself and say this is the proceeds of crime? One of the issue is it’s the seized proceeds of crime. No title insurance company would touch it. If you can’t get title insurance, it means they’re worried about it too.
“Either the FBI, American government or even Canadian government could come along and say you don’t have title because the ownership of the seller was subject to claim by the American or Canadian government because it was bought with the proceeds of crime, therefore, the buyer doesn’t get a clean title.”
Aaron also notes that the seller won’t get very far suing the buyers because he’ll be arrested in court, even by Canadian authorities.
A home doesn’t necessarily need title insurance, but Staunton estimates as many as 95% of properties have it.
Nevertheless, it is essential.
“Title insurance covers you for any defects of ownership for the property, and covers you for number of other things, but in this case it mainly covers you for defects in ownership,” said Aaron. “If there’s a break in the chain of ownership, or if the seller didn’t pay off any creditors, or if there’s an outstanding claimant, like a spouse or estate somewhere lurking in the woods, it would protect the buyer from the claim. Even the widow of a former owner could say, ‘I have a piece of that property, I want to get paid out.’ What’s worrisome is if the title insurance companies won’t touch it, it’s a big red flag.”