Fundamentals of Real Estate Licensing Archives

RECA administers the Real Estate Assurance Fund (REAF), which is also known as the Consumer Protection Fund (CPF) is collected and issued by RECA. The fund protects consumers from unscrupulous industry professionals. Real Estate Assurance Fund has been set up to compensate consumers who suffer a financial loss. This financial loss could be due to Fraud. It covers frauds under Real Estate Practice as well Mortgage Brokerage Practice.

Have a look at the video below to understand the concept –

Basic Requirements to Claim Real Estate Assurance Fund (REAF)

Fraud: A client whose real estate agent have been a part of any fraudulent scheme. For instance, somebody bought a house, but they didn’t get that property or there was something wrong with the property overall. This fund is then issued by RECA to individuals such as these to compensate for the fraud. This type of fraud requires a judgement in the court of law with necessary evidence to prove that the fraud has taken place.
Breach of trust: Any client who was guided by wrong, deferred or a complete lack of necessary information during their contract. This kind of breach also requires a lawsuit in court.
Failure of disbursement or Account of Money held in Trust: In accordance with section 25 of the Real Estate Act, when there is any kind of failure for disbursement of money held in trust (in advance) to secure the deal. For instance, not getting the deposit back which was held for holding the property. As per law, when an offer is accepted, the client should his advance payment of deposit back. The failure of money payback does not require a lawsuit to claim REAF.

How is Real Estate Assurance Fund (REAF) Collected?

REAF applies to Real Estate as well as Mortgage deals. So, if the fraud happened when buying a property or when getting a mortgage, both are covered under the Real Estate Assurance Fund. REAF is ultimately funded by the Real Estate Agents as well as the Mortgage Brokerage Professionals as when they pay RECA fees, part of it goes to maintaining real estate assurance fund.

Maximum REAF Claim Amounts

Assurance Fund compensation is subject to the following maximums:

Real Estate: $35,000 per Fund applicant
$350,000 for all claims against an industry member per event
Mortgage broker: $25,000 per Fund applicant
$100,000 for all claims against an industry member per event

Time Limits for Applying REAF Compensation

Claim based on Fraud or Breach of Trust: 1 year from the date of the Court Judgment to apply for compensation from the Fund.
Claim based on Failure to disburse, or account for Money held in Trust: 1 year from the date on which the alleged loss or damages occurred to apply for compensation from the Fund.

RECA cannot process your claim if you fail to adhere to this timeline.

Restrictions for REAF Claims

The following persons cannot make a claim under the Fund:

Any financial institution (bank, loan corporation, trust corporation, credit union, treasury branch, etc.), whose business includes the lending of money by way of mortgage security or otherwise, or any subsidiary as per section 2 of the Business Corporations Act
Any person who Council’s believes knowingly participated in or was willfully blind to the fraud or breach of trust
Any corporation or other entity carrying on any business or activity specified or described in the Real Estate Act Exemption Regulations

Sample Exam Questions for Real Estate Assurance Fund (REAF)

Example 1:

What does the Real Estate Assurance Fund (REAF) cover?

Errors, Omissions, and Commissions
Errors, Commissions, and Fraud
Errors, Omissions, and Negligent Acts
Fraud Failure to disperse Funds and Breach of Trust

The correct answer here is 4 – Fraud Failure to disperse Funds and Breach of Trust.

Rationale: Real Estate Assurance Fund only covers fraud failure to disperse funds or a breach of trust. Any sort of errors, omissions, or negligent acts, all of these will be covered under REIX. It is a separate Errors and Omissions Insurance that real estate agents carry.

Example 2:

Paul Chang is a Real Estate Associate with ABC Realty. He meets Joe and Betty Hill, who are looking to downsize from their 4-Bedroom House to a Condo. The reason being they’re getting older and not able to maintain the property. Paul lists the property below market value and then brings in an offer from his brother to purchase the property. Once the Hill’s children learn of this, they initiate a Civil Lawsuit against Paul Chang claiming fraud on his part. How do the Hills go about getting compensated for their loss under the situation?

REIX
Errors and Omissions Insurance
Homeowners Insurance
Real Estate Assurance Fund (REAF)

The correct answer here is 4 – Real Estate Assurance Fund (REAF)

Rationale: In this case, we can clearly see that Joe and Betty Hill, who did not understand the value of their property happen at taken for a ride by Paul Chang. He lists the property below market value and brings in an offer from his friend or relative (in this case, his own brother) and wants to make a profit on the property. So here, he is taking an advantage of Joe and Betty Hill’s unawareness and misguides them with low property valuation. Thus, this is a case of breach of trust and fraud, and therefore, the compensation would come from a Real Estate Assurance Fund.

NOTE: REIX could have been applicable only if the Real Estate Agent(here, Paul) would have made an error (an unintentional fault) in deciding the valuation of the property and getting a lesser profitable deal with genuine buyers from the market.

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Home » Fundamentals of Real Estate Licensing

The Real Estate Act of Alberta is the legislation governing residential real estate, commercial real estate, property management, condominium management, and mortgage brokerage licensees in Alberta. RECA administers the Act on behalf of the provincial government. It establishes the framework for regulating 3 different professions: Real Estate, Mortgage Brokerage and Real Estate Appraisers.

The key points to remember about The Real Estate Act are:

It is a statute enacted by the provincial legislature.
It is the law, and it is the responsibility of the Minister of Service Alberta, and it can only be edited by the legislative process, so any changes or amendments that need to be made to The Real Estate Act must go through the legislative process.

The Real Estate Act consists of 4 different components – The Act, The Rules, The Bylaws and The Regulations.

The Act

The Act is divided into 6 different parts and each part focuses on a specific aspect of the legislation. The different parts are RECA which establishes RECA, the Real Estate Council of Alberta and defines its purpose and powers. Each body governs its own category and lays down guidelines for its specific legislation within its power. Some of them are as follows:

The Regulation of Business of an Industry Member deals with the authorizations to trade in real estate, conduct proceedings, which deals with investigations, hearings and appeals regarding the conduct of industry members.
The Real Estate Assurance Fund is designed to protect the public from fraud or breach of trust by real estate or mortgage brokerage industry members.
The Alberta Real Estate Foundation which is established to promote the education of real estate and mortgage brokerage professionals.
General Guidelines provide generic laws and regulate guidelines for all categories.

The Rules

Rules are standards of practice for industry professionals. These deal with things like authorizations, licenses and registrations, standards of conduct and practices of the members, accounting, book-keeping and reporting requirements, errors and omissions insurance which is done through RECA and the fees schedules for various things like licenses, registration and so forth. Since the rules are administrative in nature, these can be amended by the Council.

The Bylaws

Bylaws are a set of administrative guidelines that are adopted by the Council. These specify how RECA conducts and operates its business. These relate to Council members, Council proceedings, and Council administration. They deal with administrative penalties, hearings and appeal panels, and also the Real Estate Assurance Fund. Since the Bylaws are administrative in nature, they can be amended by the Council.

Now, who can make changes or amendments? So, the first one is, to Real Estate Act or The Regulations. Both must deal with the law. Therefore, only the Legislature can make changes to these and not RECA. Whereas the Rules and Bylaws are administrative in nature, therefore these can be amended by RECA.

The Regulations

The Regulations are amendments or interpretations to sections of the Act. There are 2 different types of regulations, ministerial regulations, and exemption regulations.

Ministerial Regulations set the policy for organization and administration of Alberta Real Estate Foundation and Real Estate Assurance Fund, whereas Exemption Regulations deal with granting exemptions to certain people from the Act or certain bodies from the Act, for example, banks, lawyers, et cetera.

The regulations are part of the law, so they are made by Minister responsible for the Act or the Lieutenant Governor in Council.

QUESTION SAMPLES

So, let us move on to some sample questions now, and take a look at what type of questions can we expect on the exam related to this topic.

Example 1:

Which of the following has the authority to create Bylaws governing the Council?

A. The Council
B. Government of Alberta
C. Alberta Real Estate Association
D. All the above

The answer is A, only the Council has the authority to create Bylaws governing the Council.

Example 2:

The Regulations as established by the Cabinet and Lieutenant Governor in Council cover:

A. The administration of the Alberta Real Estate Association and the Real Estate Assurance Fund

B. The administration of the Alberta Real Estate Foundation and the Real Estate Assurance Fund

C. The administration of the Alberta Real Estate Foundation and the Alberta Real Estate Association

D. None of the above

The correct answer is B. The Regulations cover the administration of the Alberta Real Estate Foundation and Real Estate Assurance Fund.

Example 3:

Which of the following may RECA amend?

A. The Rules
B. The Regulations
C. The Act
D. All of the above

The correct answer is A. RECA can only amend the Rules. The Regulations and The Act, they are part of the law, so RECA cannot make any changes to the Real Estate Act or the Regulations.

These are the basics that are required to know about the Alberta Real Estate Act when you are starting up with Real Estate studies.

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