Law Times

LAW TIMES COVERING ONTARIO'S LEGAL SCENE | JANUARY 21, 2019 7 www.lawtimesnews.com COMMENT BY KENT ELSON FAR too many Ontarians can- not access justice because they cannot afford a lawyer and do not qualify for Legal Aid. This undermines our legal system and the reputation of our profes- sion. Non-profit organizations could help close the gap by pro- viding affordable legal services like they do in other areas, such as non-profit affordable hous- ing. Unfortunately, non-profits are prohibited from providing affordable legal services. This should change. The Law Society of Ontario is moving in the right direction by allowing lawyers to provide le- gal services through non-profits starting this year. Unfortunately, the Law Society also plans to prohibit non-profits from charg- ing any fees whatsoever. This will unnecessarily undermine the Law Society's reforms by rul- ing out the kind of sliding-scale and other alternative payment arrangements that have proven successful elsewhere. Without this revenue source, the poten- tial benefits will be highly re- stricted. Non-profits provide afford- able services and charge fees in many sectors in Ontario: examples include non-profit af- fordable housing corporations, daycares, universities, language schools, special needs therapy providers, outdoor education providers, and a wide variety of organizations providing af- fordable programming for kids. These and many other non-profits are funded fully or partially by the fees they charge. This model could and should be expanded to legal services to enhance access to justice. Fee-charging non-profits also provide legal services in the United States and play an im- portant role in enhancing access to justice. A study published in 2017 in the New York Univer- sity Journal of Legislation & Public Policy found that non- profit firms charging sliding scale rates are "tipping the scales of justice back into balance by providing needed assistance for some of the millions who cannot obtain services from traditional legal delivery models and can- not afford to hire an attorney at prevailing market rates." It concluded that these organizations "have been quietly filling this role for years, and are serving thousands of clients ev- ery year who otherwise would have gone unrepresented." If it works there, why not in Ontario? Non-profits can help un- derserved populations because they can use foregone profits to benefit clients, supplement rev- enue with foundation funding, hire especially dedicated staff, create institutional continu- ity, and pass on lower costs to clients. More fundamentally, the driving purpose of these non- profits is to help underserved populations. Non-profits need to charge fees in order to address the large volume of unmet legal needs. Government and charitable funding will never be sufficient, especially if this funding can only be used to provide services that are completely free because of a prohibition on fees. Govern- ment and charitable funding will go farthest if it is combined with revenue from alternative fee arrangements. Without fees, non-profits are completely reliant on govern- ment and charitable funding, which can be financially unsta- ble and risky. This kind of fund- ing can disappear quickly. Fees add financial diversification. Non-profits that charge fees are directly accountable to their clients. Fee-paying clients have leverage through the fees they pay and potential future refer- rals. To survive, fee-charging non-profit organizations must keep their clients satisfied and have an incentive to provide good quality services to as many clients as possible. This direct accountability can also drive quality and effi- ciency improvements. Clients are in a unique and important position to oversee the quality and cost of legal work being pro- vided to them. They will likely monitor work product and legal costs even if they are paying far below market rates or through an alternative model. Finally, if non-profits are pro- hibited from charging fees, their clients will be unable to obtain cost awards. This will release their opponents from the risk of an adverse cost award, reduc- ing the opponent's incentive to settle. The Law Society of Ontario considered allowing fees that are restricted to below market rates and/or through models where fees from well-off clients subsi- dize reduced fees for others. It rejected these more restrictive options primarily because they raise too many regulatory com- plications. But these kinds of re- strictions are unnecessary. They are not put on other kinds of non-profits providing services in other sectors in Ontario. For example, non-profit affordable housing providers often provide a mix of market and reduced rent units. The key requirement is that non-profits be operated on a non-profit basis so that any excess in revenue over cost is returned to clients for a public purpose through better services, cost reductions, or otherwise. There is a common miscon- ception that charging fees is inconsistent with non-profit status. As the above examples show, this is clearly not the case. The opposite is true. Charging fees can greatly expand the ca- pacity of non-profits to do good work, improve accountability, and drive quality and efficiency. We should not continue to shut out the many Ontarians who cannot afford a lawyer but earn too much to access Legal Aid or need help in an unsup- ported practice area such as civil litigation. Our justice system cannot guarantee fairness or justice when these people are up against a well-resourced oppo- nent. The Law Society of Ontario deserves considerable credit for raising non-profits as one of the tools to address this fundamen- tal problem. Although it plans to disallow fees in the short term, it also plans to reconsider the fees issue in the future. Hopefully it will remove the fee prohibition so that non-profits can help to make our legal system more just and fair. LT Kent Elson is a lawyer and founder of Elson Advocacy. BY JEFFREY LEM T he Globe & Mail reported in 2018 that "demand for reverse mortgages is soaring" in Canada. This is not en- tirely surprising. Canadian demograph- ics, together with generally robust Cana- dian real estate markets have coalesced to provide the baby boom generation with a lot of home equity, and an appetite to spend some of that value before their mil- lennial children can usurp what's left. Reverse mortgages are one (of many) fiscal tools available to homeowners to monetize some of that locked-up home equity capital. Curiously, many lawyers — including many real estate lawyers — do not really understand what a reverse mortgage is. The reverse mortgage concept is surpris- ingly simple. A senior homeowner bor- rows against the equity in his or her home in pretty much the same fashion as any conventional home equity refinancing (reverse mortgages are not technically limited to re-financings, but for the rea- sons described below, reverse mortgages tend only to be used as standalone re-fi- nancing charges). Once the reverse mort- gage transaction closes, the borrower nev- er has to make any interest or amortized principal payments back to the lender. The mortgage is said to be "reverse" be- cause the money seems to f low from the lender to the homeowner without a dime ever having f lowing back to the lender by way of principal or interest. Of course, it would be naïve to think that the homeowner never pays interest or never repays the principal bor- rowed. Of course, the home- owner has to pay interest and, of course, the borrower has to pay back the principal bor- rowed, but in a reverse mort- gage all such payments are de- ferred — in effect, capitalized into one lump-sum balloon payment due only when the borrower dies or sells. The borrower gets the ex- perience of never having to make any mortgage payments in his or her lifetime, but pays for the thill by having a rapidly growing mortgage debt (and corresponding rapid drain of remaining home equity). In contrast, the same homeowner with conventional home equity financing has the pain of monthly mortgage payments of principal and interest, but also knows that his or her mortgage debt will never grow (indeed, in amortized mortgages, the principal bal- ance regularly shrinks — albeit seemingly at a glacial pace). The business model of the reverse mortgage has an actuarial risk element to it that is not found in conventional home equity financing. Since the principal and perpetually accruing interest under a reverse mortgage are non-recourse to the borrower, and becomes payable only when the borrower dies or sells out of the pro- ceeds of the mortgaged property, lenders run the actuarial risk that some lucky bor- rowers could live a good long time without selling, thereby draining whatever equity may be left in the home (even net of property inf lation over the same period). Imagine a homeowner who borrows un- der a reverse mortgage at 50 years of age, and then has the audacity and fortitude to live in the same home to the ripe old age of 120. In this hypotheti- cal, capitalizing 70 years' worth of interest payments may very well outstrip the equity growth in the home over the same time, even in a robust market, leav- ing the borrower with a windfall and the reverse mortgage lender with a loss when the borrower finally deceases. This is also one of the main reasons why reverse mortgages are typically just marketed to senior borrowers — in Canada, the minimum age for a reverse mortgage seems to be around 55 years old, whereas in the United States, where almost all reverse mortgages are federally insured, the minimum age for federally insured reverse mortgages is 62years old. This also explains why reverse mort- gages seem to be available only at much lower loan-to-value ratios. With conven- tional mortgage lending, a 75 per cent loan-to-value ratio is common (i.e. the homeowner can borrow up to 75 per cent of the value of the property. With reverse mortgages, the loan to value ratio is much lower — typically 40 per cent to 50 per cent (i.e. the homeowner can only borrow up to 50 per cent of the value of the prop- erty). This extra "equity buffer" gives the reverse mortgage lender some comfort that there will be enough equity leftover with which to pay-off the accrued inter- est and principal when the homeowner finally deceases or sells. Therein lies the usual criticism of re- verse mortgages. Many anti-poverty advo- cates, consumer rights advocates, and ad- vocates for the rights of the elderly have al- leged that reverse mortgages end up being inherently predatory, luring seniors into rash borrowing decisions with the visceral appeal of "no payments ever", only to see those elderly borrowers left with unexpect- edly small loan proceeds, rapidly depleting home equity, and an overall higher net cost of borrowing. While there may be a higher cost to borrowing, there is also the actu- arial risk/windfall to account for and, gen- erally, the consumer advocacy criticisms of reverse mortgages seem exaggerated. The proof seems to be in the pudding: demand for reverse mortgages continues to grow in Canada. While HomeEquity Bank's CHIP Reverse Mortgage is still the resounding leader in terms of both longevity (having been available in Canada since the mid-1980s) and mar- ket share, other lenders have entered this space, like Equitable Bank in 2018, and demand across the board continues to grow. So, it might be time to take out a reverse mortgage. Your call. LT Jeffrey Lem is the director of titles for the prov- ince of Ontario and an elected bencher for the Law Society of Ontario. This article ref lects the personal views of the author alone. Speaker's Corner Harness non-profits for access to justice Reverse mortgages can be an attractive option Jeffrey W. Lem The Dirt

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