Condo buyers caught off guard by sky-high closing costs
CBC News
11 March 2016

Scarborough condominium buyers say they are scrambling to come up with thousands of dollars in closing costs that they believe were not made clear when they agreed to purchase their units. If they don't pay, they run the risk of losing their brand-new homes.

The buyers at 1328 Birchmount Road say they have been caught off guard by the costs that have piled up, including developer's charges, lawyer's fees, the land-transfer tax and other charges.

In some cases these costs are adding up to between $20,000 and $30,000, or more, and the buyers are struggling to come up with the cash.

"I am on low income, I did use all my life savings," buyer Ali Abdulbaki told CBC News. "We had to struggle and beg people to borrow the money. It's not that easy to go and beg people for money, you know,"

Abdulbaki is not alone.

Residents of a condominium on Birchmount Road said they were caught off-guard by high closing costs and are now scrambling to pay. (CBC)

The developer recently sent letters to residents informing them of their closing costs, and told them they have to pay or risk losing their deposits. They would also be forced to move out of the units.

What's more, these bills arrived just days before closing.

fee of $27,800

"Our closing is March 2, I got an email from my lawyer on Feb. 29 with this fee of $27,800," said resident Spiros Karagiannis. "I'm like, 'I don't have the money for that.'"

Karagiannis said he was told his closing costs would range from $10,000 to $12,000.

Resident Nemala Shelbam received a bill for nearly $30,000. She had expected her closing costs to be about $7,000.

The bills sent residents scrambling to find the money, including taking cash advances on credit cards.

"I have to sell off everything: my GAC, investments, all my savings. I closed up my accounts," Shelbam said. "I asked every single friend and family. I begged them for money."

Other residents were going to ask for more time, but that would have added to their costs. When Abdulbaki asked for a one-day extension, he says he was told it would cost him an additional $5,000.

Developer Van Lapoyan, president of VHL Developments, said that condo buyers knew the costs were coming and "now it's time to pay." (CBC)

When asked about this, developer Van Lapoyan, president of VHL Developments, said that sounded high for an extension penalty and vowed to investigate.

‘Now it's time to pay’
As for the buyers' concerns about surprise closing costs, Lapoyan said they knew these costs were coming, including the development costs, which are set by the city.

"When we launch the project, we don't know what the development charges we're going to pay at what time," Lapoyan said.

In some cases, buyers negotiate a cap on development charges when they sign their purchase agreement.

‘No, you don't want it, walk away.’

In the case of this development, some buyers tried, but the developer turned them down, saying he would be on the hook for any charges over the cap.

"We said, 'No, you don't want it, walk away.' They didn't walk away," Lapoyan said. "They wanted the unit and we delivered. So now it's time to pay."

A real estate lawyer who reviewed some of the buyers' contracts said everything looks legal, but buyers should be better informed.

"It's not fair because it doesn't tell the purchasers what it's going to cost them to buy that condo unit," said Audrey Loeb of Toronto firm Miller Thomson.

Purchasers need to know all costs, including closing costs, up front so they know if they can afford to buy and live in the unit, Loeb said.

Would-be buyers should negotiate their closing costs in advance, she said, or least push developers to be more up front about them.

When it comes time to sign an agreement, Loeb advises taking along a lawyer who specializes in real-estate transactions, specifically condos.

Updates:
Closing costs should be included in condo prices, lawyer says
CBC News
Ministry of Consumer Services to consider unexpected costs as it develops new regulations.

There are calls for more protection for condominium buyers after a group of new Scarborough homeowners said they were surprised by tens of thousands of dollars in closing costs.

Earlier this week, about 40 residents of 1328 Birchmount Road got together to compare the letters they had received outlining the closing costs on their new units.

Some said they had been expecting costs of between $5,000 and $12,000. Instead, they received bills for between $20,000 and $30,000, and as high as $60,000, just days before their closing dates.

The situation has some calling for closing costs to be included in a condo's "sticker price," which is similar to airlines, which are now required to advertise fares that include taxes and fees.

In addition to developers' fees — which the city sets and developers then recoup — closing costs can include utility connection fees, legal fees and, for some, the land transfer tax and HST.

Audrey Loeb, a real estate lawyer who specializes in condos, says developers don't include closing costs in the advertised sale price because they are not required to.

"There should be no surprises," Loeb told CBC News this week. "The government should require that these charges be included in the purchase price."

an “information gap”

David Orazietti, Ontario's Minister of Consumer Affairs, acknowledged that there can be an "information gap" between developers and buyers when it comes to the advertised sale price and the closing costs.

"They want to attract people into their condo development, they want them to buy it," Orazietti said this week.

"And so, if they can lower the upfront price by adding fees later where they can recover some of those costs, that in many cases seems to be what they're attempting to do in the way they've worded their contracts."

Ontario's Condo Act was updated in December 2015, and the province is in the midst of establishing two new condo authorities, Orazietti said: one to oversee condo managers and another that will establish a conflict-resolution framework to settle disputes over fees and other issues.

Ministry staff have "taken note of the concerns expressed by these condo purchasers who faced unexpected closing costs," Orazietti said in an email to CBC News on Friday. Staff will consider these concerns as they develop new regulations under the Act, he said.

The minister is advising all would-be condo buyers to seek professional advice so there are "as few surprises as possible" in their contracts.

‘It's the government they have to pay’
Developer Van Lapoyan, president of VHL Developments, says buyers are aware that the closing-cost bills are coming.

Those costs include things that his company is not responsible for, he said. Developers' fees, for example, are set by the city.

"It's the government that they have to pay," Lapoyan told CBC News.

"Whatever they're paying, just to be clear, none of it is coming to my pocket. It's all expenses incurred that we're just recovering. We're not making money off it."

Meanwhile, at 1328 Birchmount, the residents are now struggling to come up with the money they owe.

Toni Bougharios moved into the building with his family last October. Like many of his neighbours, he's a first-time buyer.

"I had to call my dad to provide that money for me," he said, adding that he didn't sleep for a few nights after receiving his bill.

"I did not have enough experience about that. This is my first home and nobody told me about that."

Residents are scrambling to borrow money, empty their savings accounts or take cash advances from their credit cards.

"I had to sell off everything: my GIC, investments and all my savings. I closed up all my accounts," resident Nemala Shelbam said. "I thought I could manage it, and at the end of the day I couldn't manage anything."

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