It is heartbreaking to watch a vulnerable homeowner sit across the table from you, with tears in their eyes, and tell you that they paid $20,000.00 for a water softener which doesn’t work.
So who are these door-to-door salesmen—and it is always men, by the way—who are getting homeowners to sign expensive contracts for plumbing, electrical, or HVAC equipment of dubious quality, and how do they do it?
I call it the Ontario HVAC Scam, and it exploits loopholes in the laws regarding consumer protection, civil litigation, and the real property registration system. And it costs unsuspecting Ontario homeowners millions of dollars.
This questionable business model targets vulnerable homeowners, such as the elderly or newcomers to Canada, with deceptive and high-pressure sales tactics. It has grown into an industry of significant size, and appears to be largely immune to half-hearted attempts to regulate it.
The scam works this way: rental companies use high-pressure sales tactics to dupe homeowners into renting HVAC, plumbing, or electrical equipment at massively inflated prices. They then assign the rental contract to an associated financing company who registers a notice of security interest or other instrument—effectively, a Lien—against the house, without telling the homeowner. When the homeowner goes to sell or refinance their house, they are shocked when their lawyer tells them about the Lien. They are even more shocked when the finance company sends the payout statement, demanding payment of $10,000.00, $15,000.00, or even more. All to "buy out" a rental contract for an air conditioner or water softener, the retail value of which is likely no more than $2,500.00. In many cases, this is after the homeowner has already paid thousands of dollars in rental fees before "buying out" the contract, which makes the disparity between fair retail value and the amounts charged even more obscene.
The finance company does not pluck these payout numbers out of the air. They choose the highest number that is still low enough that it would typically cost more to take them to court. Faced with the prospect of significant legal fees, homeowners usually stomach the bill and pay out the Lien. They end up handing over thousands of dollars more than the equipment is worth to pay out contracts which were obtained through illegal marketing practices, all for home equipment which they likely didn't need in the first place.
The Tepid Regulatory Response by Provincial Governments
Faced with this unique consumer protection issue, the provincial government has responded not by making it harder to register Liens against residential properties, but by making it illegal to sell certain home equipment door-to-door. The Government of Ontario banned the door-to-door marketing of prescribed equipment, such as furnaces, hot water heaters, and air conditioners, effective 1 March 2018. Other provinces have enacted similar bans.
In this author’s practice, I have observed that these regulatory changes have not diminished the prevalence of this business model. The actors in this industry have simply switched to renting out equipment which are not banned under the regulations. In recent cases I have seen, these companies have registered Liens purporting to secure an interest in electric optimizers, thermostats, doorbell cameras, and even blown-in attic insulation.
Some naively hoped that banning door-to-door sales of home equipment would curtail this business model. It hasn’t turned out that way. These bans have been mostly ineffective precisely because they do not target the central weapon in this scam’s arsenal, which is the Liens themselves. The companies who profit off this predatory business model do not care what method was used to sell the equipment to the homeowner. They don’t even care what type of equipment it is. From their perspective, the most important thing is having a Lien on title to the residence so that when the homeowner goes to sell the house, they can hold up the sale until their demands to pay out the Lien are met. Tell them that they cannot sell furnaces door-to-door, and they simply switch to selling “electrical optimizers” door-to-door. It doesn’t matter what they sell, as long as they can register a Lien against the house.
The Courts Have Stepped In to Protect Homeowners
As this business model has continued to flourish in Ontario suburbs, homeowners have turned to the courts and found success. In particular, a number of instructive cases have come out of the Ontario Small Claims Court. In Balagula v Ontario Consumers Home Services a homeowner paid out the HVAC Liens in the context of the sale of his house and then sued the rental company for the return of the payout monies. He was successful and the decision was upheld on appeal by the Divisional Court. In Skymark Finance Corporation v Toraman, a financing company sued an immigrant couple, who had limited facilities in English, for rental payments of more than $8,000.00 under a contract for the rental of a water filter, the fair retail value of which was no more than $1,200.00. The Court found that the price of the rental contract was “exorbitant”, rescinded the rental contract as unconscionable, and dismissed the action. And in Utilebill Credit Corp. v Apex Home Services Inc., an award of $10,000.00 in punitive damages in favour of a homeowner against Utilebill Credit Corp., the financing company, was upheld on appeal by the Divisional Court. In every single reported case which deals with this sector, the courts have ruled against the rental company and/or the finance company and in favour of the homeowner(s).
When homeowners have taken matters into their own hands and advocated for themselves, they have found that relief has been available to them through the courts, rather than through any avenue of regulation or enforcement on the part of the government.
For all the stories of heartbreak which have surfaced so far, the Ontario HVAC Scam has far from run its course. There are likely thousands of homes in Ontario with these Liens. As these elderly homeowners move out of their houses and into long-term care, they and their children are going to be in for an unpleasant surprise when they try to sell the house. They will discover the Lien, the financing company will squeeze the homeowners for an unrighteous payout, and they will wonder how so much of the equity in their house was eaten up by a rented water softener.
A version of this article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.
About the author
Dennis G. Crawford is the founding lawyer of OntarioHVACscam.com, which offers a cost-effective retainer to eligible homeowners to have “HVAC liens” deleted from their property.
Any article or other information or content expressed or made available in this Section is that of the respective author(s) and not of the OBA.