Homebuyers risk losing unprotected deposits of up to $150,000 after GTA developer denies licenses

Hasmukh Patel and his wife thought a brand new townhouse in Richmond Hill, Ontario would be the perfect place to retire in a few years.

But less than a year after signing a pre-construction purchase agreement, the Etobicoke couple’s plan, which included borrowing $250,000 through a line of credit to pay their down payment , turned into a nightmare.

Ideal Developments’ 72 townhouse project – Boss Luxury Towns – was canceled last fall after the developer was accused by the Ontario Homebuilding Regulatory Authority of operating without license and was subsequently denied a license by the provincial oversight body.

Since then, the project’s secured lenders have entered into receivership proceedings to sell the development land near Yonge Street and Bond Crescent to recover their loans. If the sale is approved by the court on Tuesday, Patel and other freehold home buyers have been told there will likely be no money left to pay off their deposits.

“I’m basically killed, because what am I going to do now?” says Patel. “All my life with my pension money, with my wife’s pension money, everything will go to the bank.”

Millions of unprotected deposits

The 61-year-old is one of 29 buyers who, according to CBC News, have put down a combined $5.7 million deposit on two canceled Ideal Developments townhouse projects where construction never went ahead. start. Their individual deposits range from $120,000 to $250,000.

The group of buyers stands to collectively lose $2.8 million because Ontario’s home warranty program only protects a maximum of $100,000 for freehold property deposits – and unlike condos , the promoter is not required to hold deposits in trust.

For Patel, that could mean losing $150,000 and delaying retirement indefinitely.

“My wife can’t work. I have to do something,” Patel told CBC News. “Every month I pay $700 in interest for the money I borrowed from the bank.”

In an email, Ideal Developments founder Shajiraj Nadarajalingam told CBC News that the developer could not comment on this story because property issues are before the courts.

“I will say that we will continue to do everything we reasonably can to assist buyers with their interests in the subject properties,” Nadarajalingam said.

Boss Luxury Towns, a 72-home townhouse project by Ideal Developments, was canceled last fall after Ontario’s Homebuilding Regulatory Authority refused to grant the builder a permit. (Ideal developments)

It used to be rare for pre-construction projects to collapse, but it’s happening more and more often because the Greater Toronto Area’s booming real estate market has drawn new developers to the lot, lawyer says Toronto real estate veteran.

“There’s so much money to be made,” John Zinati said. “That’s when you have a greater likelihood of these types of situations where a builder may not have the experience to handle the financing and build the project properly.”

CBC News previously reported on Ideal Developments in March 2021, when pre-construction buyers of another project in Richmond Hill discovered the developer had transferred the land to another company that did not plan to honor their purchase and sale agreements. But in this case, the agreements concerned condominium units where the deposits were protected.

Developer charged with alleged illegal sale

In August 2021, Patel’s subsidiary behind the project – Ideal (BC) Developments Inc. – was the first builder to be charged by the Home Construction Regulatory Authority (HCRA) since the watchdog began its activities in February 2021.

Developer faces 10 counts of alleged illegal sale for entering into purchase and sale agreements without permits for freehold homes in the Boss Luxury Towns project and without being enrolled in the Home Guarantee Program. Ontario through Tarion Warranty Corporation.

None of the charges have been tested in court.

A month later, the HCRA refused to grant a license to Ideal (BC) Developments, refused to renew the licenses of two other subsidiaries and renewed the license of Ideal Developments Inc. by stipulating that it would only use the license to complete construction of a luxury custom home in Markham.

The Boss Luxury Towns development property is now being sold in receivership proceedings. If the sale is approved on Tuesday, there will likely be only enough funds from the proceeds to repay Ideal Developments’ secured creditors. (Nicole Brockbank/CBC)

Ideal Developments and its subsidiaries are appealing the HCRA’s licensing decisions to the License Appeals Tribunal, which has not yet scheduled a hearing in the case.

Agreement on conclusion with large deposit buyers say

Patel agreed to put down a $250,000 down payment for his townhouse in May 2021, as he said if he did, the developer had promised to give him a $200,000 discount on the purchase price at the close.

The offer is an “extreme example” of why Zinati says potential buyers should have their purchase and sale agreements reviewed by a lawyer before signing the dotted line.

Real estate attorney John Zinati recommends having your purchase and sale agreement reviewed by a lawyer and researching the developer before signing the agreement. (Supplied/John Zinati)

“The lawyer would have said – or should have said – ‘Look, there’s something wrong here,'” Zinati told CBC News. “You are incentivized to produce a large deposit, which is not secure, on the idea that you have a discount.”

Patel isn’t the only one to say he was sold on his townhouse based on the $200,000 deal.

Yen-Hui Fa put down a $250,000 deposit in March 2020 for a unit in the Ideal Richmond Towns development because he said he had been promised the same discount.

But like Patel’s project, the Richmond Towns development at Major Mackenzie Drive and Lennox Avenue was canceled in October last year after the developer’s licenses were not renewed.

No construction, but depot disappeared

“They should be held accountable,” said Fa, a first-time home buyer. “There has been no kind of construction and yet they won’t return my deposit.”

Yen-Hui Fa paid a $250,000 deposit for a townhouse in Ideal Developments’ Richmond Towns project because he says he was promised a $200,000 discount at closing. (Greg Bruce/CBC)

After trying for months to contact the developer to recover his deposit without success, Fa sued the developer and Nadarajalingam in Ontario Superior Court in February to recover his deposit of $250,000 plus $300,000 in damages. related to alleged negligence that led the promoter to lose its licenses.

“There’s a lot of uncertainty,” Fa told CBC News. “I have a girlfriend, we want to get married and also start a family, but now everything is on hold because we lost $250,000.”

In its defence, Ideal Developments’ subsidiary for the project and Nadarajalingam said there was no obligation to hold the Fa deposit money in trust. After Ideal’s license was not renewed, the court filing indicates that the developer’s mortgage on the property went into default and the mortgagee put the property up for sale.

Construction on Ideal Developments’ Richmond Towns project in Richmond Hill, Ont., did not begin until the development was canceled last fall. (Ideal developments)

“Trust funds were used for development costs (which included consultant fees, marketing and sales costs) and land port costs (such as mortgage payments and property taxes). , Ideal MM is unable to return Plaintiff’s deposit,” reads the defense brief.

Once secured creditors start trying to sell the development land to collect what’s owed to them, unit buyers find themselves in a tough spot, said insolvency attorney Matthew R. Harris.

Little recourse for buyers: lawyer

“There’s no easy answer,” Harris said. “Individuals may consider taking action against a particular company or individual, but it is generally unlikely that there is anyone to sue at this stage.”

He told CBC News that while it may seem unfair to buyers who have put down large deposits, if the big lenders didn’t have security through mortgages on the development property, they wouldn’t lend. money and there would be no funding for them. types of projects in the first place.

To protect yourself, Zinati said to make sure your deposit is secure, have a lawyer review the agreement for red flags, and do your homework on the builder.

“We’re actually telling customers to go knock on some doors and ask people who have purchased from this builder before about their experience,” he said.

“You want to know who they are before you do such a big deal.”