Failed Closings and Deposit Disputes

Common situations

A buyer cannot complete because financing fell through or the appraisal came in low
A seller refuses to close, or tries to withdraw after receiving a better offer
A disagreement over whether a condition was satisfied, waived or properly ended
Title problems or unanswered requisitions before closing
A dispute over who is entitled to the deposit held in trust by a brokerage
A seller’s claim for the shortfall after the property resells for less

What happens next

Reconstruct the deal. The agreement, amendments, waivers, notices and closing correspondence show who was ready to close and what went wrong.
Establish each side’s position on closing day. Whether a party was ready, willing and able to close, and whether a proper tender was made, often decides the case.
Measure the loss. For a seller, this is usually the price difference on resale and carrying costs, less the deposit. For a buyer, it is usually the return of the deposit and, in some cases, other losses.
Choose the route. Many deposit disputes resolve after a clear demand letter. Others need an action or an application in the Superior Court of Justice. Where a brokerage holds the deposit, it generally stays in trust until the parties agree or a court orders its release.

Remedies a court may grant

Forfeiture of the deposit when the buyer is in default, or its return when the seller is in default
Damages for the difference between the contract price and the resale price, with reasonable carrying and resale costs, and the deposit credited
Specific performance, in limited cases
Interest and legal costs, as the court allows

Timing

Most agreements state that time is of the essence, so the dates in the agreement are applied strictly. The basic limitation period is two years from discovery of the claim, which in a failed closing is usually the scheduled closing date.

Questions we are often asked

What happens to the deposit if the buyer cannot close?

Generally, if the buyer is in default, the seller may keep the deposit and may also claim damages if the property later sells for less. If the seller is in default, the buyer is generally entitled to the deposit back and may claim damages. The answer depends on the agreement and on what each side did before closing.

Can I be forced to close?

A court can order specific performance, but only where damages would not be an adequate remedy. The party asking for it must show it was ready, willing and able to close. In most failed closings the dispute is about money rather than completing the deal.

My financing condition expired. Am I in default?

Possibly. If a condition was waived, or expired without the notice the agreement requires, the agreement may have become firm. The wording of the condition and the dates are decisive, so have the documents reviewed quickly.

How much can a seller claim beyond the deposit?

A seller whose buyer defaulted may claim the difference between the contract price and the resale price, plus reasonable carrying and resale costs, with the deposit credited against the total. The seller must take reasonable steps to resell and limit the loss.

Can I walk away from a deal before closing?

Not without a contractual right to do so, such as an unsatisfied condition. Walking away without one is usually a breach of the agreement, with the consequences described above.

General information about Ontario law, not legal advice about your situation. Time limits can be short; if you are unsure, speak with a lawyer promptly.