Buyers and sellers of real estate should always ask their lawyers in advance who will have access to their money, Bob Aaron writes.

As Ontario’s real estate market continues to modernize, the growth of digital tools like third-party payment services and electronic funds transfer systems has prompted the Law Society of Ontario to issue a Notice to the Profession expressing its concern about how money is being transferred in real estate transactions.

Traditionally, the transfer of funds in real estate transactions has been done by courier delivery of certified cheques from the buyer’s lawyer to the seller’s lawyer, or direct deposit into his or her bank account. The process is governed by strict Law Society regulations.

Now, instead of the buyer’s lawyer dealing directly with the seller’s lawyer for the transfer of funds, the buyer’s lawyer is able to give the client’s money to a third-party provider which controls the transfer of funds, pays off the seller’s mortgage and any tax arrears, and sends the balance to the seller’s lawyer.

The service acts as a conduit doing all the things that lawyers presently do with the money, and charges a separate fee for doing it.

These third-party systems like SureFund, a division of Teranet, are being promoted as a faster, more secure way to transfer money during home closings. The problem, however, is that control is partially ceded to the platform provider, and in the process, it has raised the concern of the Law Society.

The Law Society’s warning highlights these issues with third-party platforms:

• Privacy and security: Lawyers are being cautioned to consider the service provider’s terms of use, including any risks that may arise with respect to the client’s privacy and security.
• Confidentiality: Privileged client information cannot be disclosed to the service provider without specific written instructions from a buyer or seller, since the service provider may be subject to government regulatory reporting requirements. If a lawyer will be using a third-party payment service, informed consent from the buyer and seller must be obtained.
• Waiver of solicitor-client privilege: For many reasons, buyers and sellers may not want their confidential information disclosed to the federal government. Lawyers are exempt from disclosing client information, but if they use third-party payment services, the Law Society warns them to ensure they obtain their client’s written waiver of privilege.
• Insured losses: Real estate clients have to be informed by their lawyers that professional liability insurance may not be available for certain losses arising from the use of electronic funds transfer systems if the process goes off the rails. If that happens, lawyers may not always be sure who is responsible — the lawyer, the platform or the bank.

Cybersecurity is always a risk in any online funds transfer. These new platforms store sensitive personal and financial information. In an era of frequent data breaches, there may not be enough transparency around how platforms protect client data or how they would respond in the event of a hack.

Clients may also be concerned about the lack of fee transparency. They may be surprised to learn that they are being charged $60 or more for the use of these platforms — on top of all the other fees, taxes and expenses.

In my opinion, this adds a totally unnecessary expense to a real estate transaction, needlessly increasing the costs for buyers and sellers. It’s a solution in search of a problem.

Growing reliance on digital payment platforms raises important issues about cost, control, security, accountability, and what happens if something goes wrong.

Buyers and sellers of real estate should always ask their lawyers in advance who will have access to their money.