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- Applying Protocol
The Western Law Societies’ Conveyancing Protocol commonly referred to as “Protocol” was established by the four Western Law Societies in 2001. At that time, it was a new conveyancing practice to expedite the residential mortgage process for lenders, to ensure consumers had continued access to independent legal advice, and to preserve the integrity of the Torrens land registration system in Western Canada. Today, in Alberta anyway, Protocol has been widely adopted as the common closing mechanism for residential real estate transactions. From time to time, questions come up as to the proper procedure and general application of Protocol. Here’s what you need to know.
What is “Protocol”?
Protocol refers to a set of prescribed real estate practice standards available to lawyers that are covered by mandatory lawyers’ insurance programs. If a claim is made against a lawyer arising from application of Protocol, then the insurance program will accept liability on the part of the lawyer up to the maximum annual aggregate policy limit and move quickly to quantify damages. Where one of these claims is made, the levy surcharge and any deductible will be waived, provided the lawyer has followed the practices prescribed in the Protocol.
What is covered by Protocol?
Buyers are covered for a claim resulting in actual loss to a buyer due to an intervening registration which impairs the buyers’ title.
Lenders are covered for a claim resulting in actual loss to a lender due an intervening registration which takes priority over the mortgage; or a claim due to a survey defect which was unknown at the date of advance but which would have been disclosed by an up-to-date Real Property Report with a Compliance Stamp.
It is important to note that a buyer is not similarly protected from such a survey defect. Lawyers are encouraged to advise their clients of the provisions of the purchase contracts and understand the risks of closing without an up-to-date Real Property Report with evidence of municipal compliance.
What are the steps required in closing a Protocol transaction?
The key to closing a Protocol transaction is reading the practice standards, which can be found here. Depending on if you are acting on behalf of the seller or the buyer you will want to take special notice of different sections, specifically Sections D & E.
These processes include:
- Conducting all due diligence and appropriate searches,
- Analysis and identification of existing registrations as either “Permitted Registrations” which the buyer has agreed to accept under the terms of the agreement or “Non-Permitted Registrations” which the seller is obligated to discharge,
- Preparation of mortgage documentation according to the lender’s instructions,
- Ensuring that the lender instructions provide for a Protocol closing and determining the lender’s reporting requirements,
- Confirmation between lawyers acting for the buyer(s) and seller(s) that the closing will be in accordance with Protocol, and
- Calculation of the statement of adjustments, shortfall funds and settlement of the terms of encumbrance discharge.
Protocol does not change the obligations of the parties under the real estate purchase contract.
Closing procedure includes:
- Delivery of closing documents by seller,
- Review of documents and agreement as to appropriate trust conditions and undertakings including those required under the Protocol,
- Cash difference held in trust,
- Mortgage and all related documents will be executed and in registerable form and all other documents required by the lender will be in hand,
- Title search effective as of the “Closing Date” which confirms that title is subject to no registrations other than those already agreed to by the parties,
- Solicitor’s opinion provided and mortgage funds obtained,
- Full balance due on closing paid subject to seller’s lawyer’s undertakings, and
- Transfer and mortgage (plus document registration request and related fees or account information) forwarded to the Land Titles Office for registration forthwith and within two business days.
- Advances available through the SpinII system now allow lawyers to easily see whether there are any documents ahead of them in line at the Land Titles Office that may affect the title to the property. While not a requirement of Protocol, it is prudent practice for all lawyers to prior to releasing funds and submitting documents on the closing date.
- Do not submit documents to the Land Titles Office with the “Last Registration Number” provided on the document registration request form when closing using the Protocol. After confirming from the search of title and search of the queue that there are no additional pending registrations affecting the title, lawyers should not invite a rejection of the registrations which could then invite further intervening encumbrances.
There may be special circumstances that suggest that Protocol is not appropriate even in situations where it is available. Lawyers are expected to use their judgement to not put the program at risk. Examples of high risk scenarios include:
- Property sales where the seller is insolvent or there are a number of writs or CLP’s recently filed against title.
- The sale of properties valued over $1,000,000. Protocol coverage only covers lawyers to the maximum available under their policy. If a claim exceeds the available coverage, the lawyer will be personally exposed for any deficiency in coverage. In situations like this, lawyers may want to consider purchasing excess insurance.
When can you use Protocol?
- Residential real estate transactions (cash, cash to assumption of mortgage, cash to new mortgage when lender provides Protocol instructions, re-financings where the lender provides Protocol instructions).
- Single family dwelling (includes rental and vacation properties not exceeding four units).
- Multi-family or existing condominium units to a maximum of four units.
- Turn-key new homes (in Alberta) where the lien period has expired and/or the lien fund is held.
- Leasehold titles within the National Parks.
- Undeveloped residential lots (not exceeding four lots).
- When parties are signing documents under power of attorney. Although this may be a situation that can raise flags regarding fraud, the fact that documents are signed by way of power of attorney does not affect the availability of Protocol.
- When one lawyer is acting for multiple parties, including the seller, the buyer and the lender (where permitted by lender instructions). There should be some indication on the file that protocol is being followed, and the lawyer will be obligated to acknowledge the protocol undertakings required of the seller’s lawyer.
When is Protocol NOT available?
- Commercial real estate transactions.
- Agricultural properties. What constitutes commercial or agricultural property may not be straightforward and lawyers may need to make a determination as to the nature of the property.
- Sale of condo units by a developer (section 14 Condominium Property Act).
- Properties under judicial sale.
- Mortgages on new construction where the mortgage is a “draw” mortgage.
- When one or more party is unrepresented.
- When the Land Titles System is down and a title search is not available on the date for the release of funds.
For more information, refer to the Protocol and Frequently Asked Questions on the Law Society website or contact the Practice Advisors.
Written by: Jocelyn Frazer, Practice Advisor, October 16, 2015