IS IT RIGHT FOR AGENTS TO TURN A BLIND EYE TO SIGNS OF GROW-OP?

Fred and Ginger (not their real names, of course) are looking for a
Toronto home within their budget. They thought they had found the
ideal house in the Kennedy Rd.-Eglinton Ave. area of
Scarborough.

One of Canada's major banks listed the three-bedroom bungalow for sale
at $289,900 through a reputable real estate brokerage. It is described
as "Detached bungalow with private drive ... Attention Handymen,
Contractors! House needs Work."

Aware that the house was being sold under a bank's power of sale due
to a mortgage default, Fred and Ginger put in an offer at $275,000.

Attached to the offer was the bank's required schedule stating that
the house was being purchased "as-is." Only one clause was added by
the would-be buyers: a warranty that the house had never been used as
a marijuana grow operation.

The offer was rejected by the bank and the unhappy couple was about to
resubmit it without the warranty when Ginger discussed the matter with
her employer, a friend of mine.

He called me in a panic to ask for my advice. I did a quick electronic
title search, which revealed that the house had last been sold in
January for $333,000 and the bank in question has a mortgage of
$333,000 registered against it.

I asked a few questions about what the house looked like inside. I was
told it had a funny smell, no appliances, black marks on the wall
seams and wiring sticking out in odd places.

I emailed my friend a grow-op PowerPoint presentation I had prepared a
while ago and he showed it to Ginger. The photos in the presentation
show many of the typical indicators that a property has been used as a
grow-op.

When Ginger saw the pictures, she immediately realized that the house
had been a cannabis grow-op, although there was no disclosure of that
fact.

When she asked the real estate agent for confirmation, she was told
that the "vendor didn't know."

The question, which came to mind when I heard this, was whether it is
acceptable for agents and sophisticated sellers like a bank to be
wilfully blind to the painfully obvious red flags indicating a
do-it-yourself horticultural operation.

The Real Estate Council of Ontario is charged with regulating trading
in real estate, in the public interest. On its website
(www.reco.on.ca), the council states, "Brokers and salespersons are
obligated to disclose any material fact about a property or its
history they are aware of that could affect a person's decision to
buy."

The key words here are "that they are aware of." Brokers and agents
are responsible for being familiar with the marketplace, so they are
presumed to know the signs of a grow-op. RECO's website provides a
list of indicators that a home may have been used as a grow-op:

Mould in corners where the walls and ceilings meet

Unusual number of roof vents

Fresh paint on window frames to cover damage caused by
humidity

Circular marks on basement floors where pots once stood

Evidence of tampering with the electric meter

Unusual or modified wiring

Brownish stains on the underside of beams or arches that bleed down a
wall

Concrete masonry patches

Patterns of screw holes on the walls

Fireplace alterations

Denting on front doors (from police ramming the door)

Should agents be required to disclose that a house or condominium was
or might have been a grow-op if they notice any of these indicators?

Or should they disclose the fact only if the seller confirms that it
was a grow-op?

Would the public interest be better served if RECO amended its rules
to require disclosure of material facts about a property that the
agent is or should be aware of that could affect a person's decision
to buy?

I'd be interested in your thoughts by fax or email.

Bob Aaron is a Toronto real estate lawyer whose Title Page column
appears Saturdays.