Options Following a Defaulted Transaction in Ontario
Question:
Buyer can't close on time (needs another month) and has given a $15,000 deposit with their original offer. They have exhausted all resources in every scenario. IF THEY DON'T close, does my seller get to keep the deposit? Answer:
Actually, there are several different issues here. Is the deposit sufficient? It probably is if the property is worth about $300,000, otherwise it would be wise to move it up a bit. Get it in the 5% range.
Buyers’ Credibility Issue
If the Buyers are “good people” and really just need one more month, then why not consider extending the transaction for 30 days. All deposits are non-refundable, so you don’t need to add anything in that regard. Grant the request and increase the deposit, if you can.
If you are not really sure about the Buyers, then extend, but you will need some terms: consider increasing the price, have the first deposit roll out right now to the Sellers (that will help with the bills if they are stuck), quick release of the second deposit without going to Court (Directions already signed and held in escrow) is another option.
Assuming the Buyers are either potentially weasels or you have absolutely no information about them, then permit the transaction to go into default. Re-list, don’t sign anything, let the deposit sit. Re-sell the property to Buyer #2. Keep Buyer # 1 in the loop because Buyer #1 has a vested interest in the outcome. Consider using a short term VTB if that’s all that’s needed.
Mutual Releases are NOT required in order to re-list. You could be in a real jackpot yourself if you think this or you say this.
The Seller gets to sue for the difference in sale price (the deficiency), carrying charges between first closing and second, additional resulting costs, expenses and legal fees. The deposit will be applied to this and there will ultimately be a Judgment for the balance.
Assuming great news, you sell for more money with a quick closing so that the Seller is actually “in” money, then, you still get to keep the deposit. That was the minimum amount that was agreed.
There was a link to a Bob Aaron article from 2006. That’s over 11 years ago. However, it’s still good law. Actually, it’s not any different than it was at the time of Confederation in 1867. Good then, good during the entire 20th century, and good in 2006 when Bob wrote the article. For some reason, people don’t like to believe that this is what the law really is. So, they go to Court. The last time was the Ontario Court of Appeal in April 2017. You know what they said? “Same old, same old, nothing new here!”
Each case is slightly different. That’s on the facts alone. Would you sue, move on, drag it out etc. The law is static here. Only the facts vary.
I have cases for Buyers, and we are going to get the deposit back, and I have cases for Sellers and we are going to get damages plus the deposit.
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