The real estate market in Ontario is going through a big shift, the home values are fluctuating, and the interest rates have increased exponentially over the past 5 years. The banks are also becoming more stringent in their mortgage qualifications. Because of these factors, it is becoming more and more common where a buyer signs an Agreement of Purchase and Sale to purchase a home and realize they are unable to qualify for mortgage. Hopefully your real estate agent ensured the inclusion of a financing condition in your agreement, but that is not always the case. In the absence of a financing condition, a buyer would be found in breach of the Agreement of Purchase and Sale if they are unable to complete the purchase on the scheduled closing date.
Contrary to popular belief, the buyer’s deposit will not be automatically released to the seller. It will be held in the Listing Brokerage’s trust account until they receive a signed mutual direction to release from both parties, or more likely, the seller obtains a summary judgment court order to be entitled to the deposit.
However, the deposit is not the only liability the buyer may face If the buyer breaches the Agreement of Purchase and Sale, they may be held liable for far more than just the deposit. Depending on the facts of the case, the seller may sue the buyer for carrying costs of property starting from the date of scheduled closing up to the date of closing. Carry Costs may include, but not limited to, storage fee, moving fee, mortgage interest and/or penalty, lender fee, and utilities and they can amount to thousands of dollars.
In addition to the carrying costs of the property, the buyer may also be held liable for any difference in the purchase price of the property between the purchase price of their Agreement and the new purchase price, once the seller eventually seller their home to another buyer. A seller is responsible to ensure they mitigate their losses reasonably so this can vary significantly, from thousands to hundreds of thousands of dollars.
As a buyer, your options are limited if you are unable to close on the property and do not have a financing conditions to terminate the agreement. You may negotiate a reduction in purchase price, an extension to arrange alternative financing such as private mortgage, or a mutual release. However, all of these options must be authorized and agreed upon by both parties, and it is unlikely that the vendor will agree. We recommend that you notify your real estate lawyer immediately if you are unable to close as scheduled.
This WARDS LAWYERS PC publication is for general information only. It is not legal advice, nor is it intended to be. Specific or more information may be necessary before advice could be provided for your particular circumstances.
