“The more you lose, the more you make”.

This contradiction-in-terms seems to hold true for Toronto developer Urbancorp.  A recent article in the Financial Post (National Post, 17/12/16) by P. Kuitenbrower is entitled “Developer could reap #$31 Million from bankruptcy”.  It has prompted much head-scratching. It’s a headline which would have caused our grandparents to roll over in their graves. How can someone profit from his own financial meltdown?  How can a developer use deposit money of his clients (freehold home deposits are uninsured), how can he make off with the loot for an undisclosed purpose, and resurface from bankruptcy later, possibly a millionaire?

It gets crazier.

Another article published a few days later in the monthly magazine Toronto Life (Jan. 2017 issue) by S. Kupferman covers the same real estate disaster and is entitled: “Screwed. Anatomy of a Real Estate Disaster”.

We read on pg. 54 of this article:

Ontario law offers no formal support system to pre-construction purchasers who have been burned by a developer.”

Whaaat? Isn’t that like saying there’s no formal support for bank clients robbed of their deposits? It seems in Ontario developers can make off with their customer’s cash and leave them to flap in the wind, trying to connect on-line to understand what’s happened to them.  Tarion Warranty Corporation, the industry regulator, gave Urbancorp purchasers this helpful advice via their media spokesperson: “Get a lawyer“. Unfortunately, few other than Tarion executives, can afford legal fees of $500-$800+ an hour, and $30,000+ retainers.

What was Tarion’s role as regulator and licensor of builders under Ontario law, and as a “consumer protection” monopoly?

The article from Toronto Life explains, pg. 53:

When developers fall short of their obligations, there’s one organization that’s supposed to keep them honest: Tarion, the private, not for profit corporation that enforces Ontario’s New Home Warranties Plan Act.  By 2015 Tarion had started to worry about Urbancorp’s troubles. The staff met with the company several times and asked to send in a forensic accountant to review Urbancorp’s books, but as a non-government corporation, it had no formal investigative power. Urbancorp was free to refuse – and it did.”

If you’re a regulator asking to send in a forensic accountant, then you already know quite a lot.

Consumers have been telling their MPPS of all parties – for years – that Tarion is not effective as the province’s regulator of builders. It’s a watchdog with no teeth. The Urbancorp example shows the watchdog will go away with its tail between its legs when a builder says “boo”. No way they want a forensic accountant snooping around their business.

Could this lack of regulatory effectiveness have anything to do with the fact there are 8 builders on  Tarion’s board who may favour builder-friendly polices? Could it have anything to do with the Tarion CEO’s compensation of close to $800,000, with a 60% bonus component based on undisclosed criteria? (see The Toronto Star investigative article, 03/10/16 “…Millions in Salaries...)

Consumers have been telling Queen’s Park elected officials for years that a regulator with no transparency and accountability to the public is ineffective. A regulator largely controlled by the industry it’s supposed to regulate is a train crash in slow motion.  To make matters more murky, builders and developers are the largest donors to the two main political parties in Ontario. Political parties may be trying to look the other way to avoid stepping on the toes of their biggest donors. Large, powerful industries don’t like to be regulated. Seems they don’t like forensic accountants either.

Tarion’s CEO says he didn’t get any love from Urbancorp’s Israeli investors either. In the Toronto Life article he states:

“The investors in Israel never bothered to inquire what Urbancorp’s status was with Tarion “, says Howard Bogach, the watchdog’s CEO. “Had they inquired, we would have told them there were concerns.”

“Concerns”? Why wasn’t Tarion pro-active in red-flagging the financials they claim to have been so worried about? As a huge government monopoly with over $400+ million in investment income, they had less to lose than consumers who put up their life savings. On Tarion’s Builder Directory on their website there was no mention of Urbancorp’s shaky financials, dubious cheques, or shoddy construction raised by mainstream and social media by spring 2015.

Urbancorp’s foreign investors didn’t call Tarion? If they had, they may have gotten the same brush-off answers consumers get: “this is a live issue“, “we’re looking into it”,privacy concerns, we can’t disclose“, “we lost the tapes“…

Knock on doors” is the advice Tarion executives give to consumers who want information on builder track records. In the final paragraph of the Toronto Life article, one of the unfortunately duped purchasers says, “Maybe I’ll do a bit more research into the builder next time“. But research where? If he’d checked Tarion’s website for Urbancorp’s track record, there were no red flags there, even though Tarion says it scrutinizes each builder’s financial records annually before renewing licenses. Did Tarion keep their “worries” and “concerns” about Urbancorp to themselves, to the detriment of the public?

Tarion’s lack of transparency in builder records has been highlighted in the press since July 2013 and underlined by former Minister MacCharles as an important “cornerstone of consumer protection“.  Another article on Tarion (31/08/2016) in the Toronto Star is entitled “Consumers Lack Faith in Tarion’s Builder Records” and raises this concern again. No meaningful action.

Knocking on doors is often useless since many homeowners fear negatively affecting their sales values by talking about construction defects, some have been muzzled by settlements, others have on-going litigation, or say they feel intimidated by builders for speaking out.

It’s the job of the provincial building licensor/regulator to red-flag shaky financials of builders and shoddy construction. As long as Tarion is a watchdog heavily run by the builders it’s supposed to regulate, there may unfortunately be more Urbancorp-like disasters.

Justice Douglas Cunningham was hired by the Ontario government in Nov. 2015 to conduct a review of Tarion. The review has not yet been released, as of this writing. The Premier knows a review is not legislation. She has for years refused, as did her predecessor McGuinty, to vote in favour of bills to reform Tarion. She shuffles ministers on this portfolio every year or so, resulting in too little time to understand the complexities of this opaque monopoly and its multiple roles.

A review could be shelved by the governing party, if they think that’s politically expedient for them, or they could commission yet another review. We as volunteer consumer advocates hope for the best outcome for Ontario’s new home buyers in this “consumer protection” review.

As a well-known journalist once said, politics can change your life.  For many consumers affected by this faulty government policy, it sadly has.

2 Comments

Filed under Uncategorized

2 responses to ““The more you lose, the more you make”.

  1. niclal

    The cozy relationship between Tarion and builder is not new …it is a well glued bond with strong evidence over a long period of time put forth by the victims; but not mentioned in this article is the curious and equally dubious relationship that also seems to exist between the LAT and Tarion. There is mounting evidence that homeowners resorting to the LAT on a denied claim as suggested by common Tarion practice, come out dumbfounded , injured and simply more discriminated against !!!!! Consumer protection ??? no people, there is none in this context !!!

  2. This is an Excellent analysis of the state of the Ontario New Home Warranty Plan in Ontario. Ms. Captijn has a strong grasp of the many forces at play when it comes to the administration of the ONHWP legislation. Thank you Barbara for your dedication to educating and advocating about this issue. Mr. Cunningham I hope you are listening and the forces at play with you are to help provide Ontarian’s with better consumer protection.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s