Real Estate Litigation Articles

No need for third-party hand in closing funds

By Bob Aaron
Toronto Star contributing columnist.

Bob Aaron

Proposed scheme full of unanswered questions on money safeguards, timing of transfers and discharging prior mortgages.

A new business to transfer funds in real estate purchases and sales is being proposed in Ontario.

The plan is to take control of all closing funds, move the money from the buyer’s lawyer to the seller’s lawyer and charge consumers a fee for the service.

For more than 200 years in Ontario, closing funds have been exchanged directly between lawyers without any third party involvement or unnecessary additional fees. Certified cheques for closing proceeds are couriered to the seller’s lawyer, or are deposited directly into his or her bank account.

But now, a large corporation thinks it has built a better mousetrap and has proposed taking over the role as money transfer agent to the Law Society of Upper Canada.

It’s a solution in search of a problem.

Late last month, real estate lawyer Sid Troister announced the proposed venture to a conference of more than 1,500 real estate lawyers.

“I have become aware,” he said, “of a new business getting off the ground in Ontario and that is the funds transfer business. As I understand it, these businesses will be the escrow agent for all money involved in a real estate transaction and will take control of all closing funds.”

He explained that instead of the buyer’s lawyer dealing directly with the seller’s lawyer on a purchase for the transfer of funds, the buyer’s lawyer will give the client’s money to a third party, whom he called the money conduit.

The buyer’s lender will also advance the mortgage money to the transfer company and not to either lawyer.

Direct control of the funds will be removed from the lawyers and placed in the hands of the transfer company. It will release the funds when both lawyers say that the deal is closed and registered.

Presumably, the money conduit will see to the payments to discharge mortgages, tax arrears, liens, and other payables. The money conduit will do all the things that lawyers presently do with the money and it will charge a separate fee for doing it.

This will add a totally unnecessary expense into the real estate transaction and increase the costs and complexity of the process for Ontario buyers and sellers.

As a real estate lawyer, I like to know that my clients are counting on me personally to control and hold on to their money and not give it to anyone but the party entitled.

Real estate lawyers care about doing what is right for clients and acting in their best interests. We act as the quarterback of the real estate deal and control our clients’ hard-earned money until we are ready to exchange it for a property. It does not mean giving it to someone else to do our jobs for us. We are strictly governed, controlled and insured by the Law Society. Who will regulate the money conduit?

The proposed scheme raises endless questions about money safeguards, delay, timing of funds transfer, identifying funds when multiple transactions are closing at the same time, discharging prior mortgages and liens out of closing funds, sequential transactions when money from a sale is being used by the seller on a subsequent purchase, unnecessary additional costs to clients without any value added to the transaction, confidentiality, security of funds, and lawyers’ ability to comply with Law Society record-keeping requirements.

Real estate lawyers are highly regulated and insured by the Law Society when it comes to handling client trust funds. I’m very concerned about a third party handling client funds.

And I strongly believe this proposal needs to be shut down before it gets off the ground.

Bob Aaron is a Toronto real estate lawyer. He is Certified by the Law Society of Ontario as a Specialist in Real Estate Law.

He can be reached by email at, phone 416-364-9366. Visit his website