It is well known that when you purchase a home, you will be required to provide a deposit. The deposit does not go directly to the seller but rather will be held in the seller’s real estate broker’s trust account pending the completion of the sale. This is a good faith deposit to allow the seller to feel comfortable and satisfied that you are serious about purchasing his or her home.
Usually, the purchaser has conditions before the deal becomes final, the most common of which are that the purchaser will be able to obtain financing and a home inspection. These conditions are usually for between 5 and 10 days, by which date the purchaser must waive the conditions or else the deal will be voided. If within the prescribed period of time, the purchaser cannot meet the conditions after making good faith efforts to do so, the deal is cancelled and the buyer gets his deposit back.
But what happens to the deposit monies that the purchaser paid if the purchaser waives the conditions thereby firming up on the purchase and then for some reason can’t close on the purchase on the agreed upon closing date? The purchaser could lose (forfeit) his deposit to the seller.
The law is that the purchaser will usually lose his deposit if it is the purchaser who defaults on the contract by being unable to close provided that the seller is ready, willing and able to close the transaction. The seller does not have to prove any loss in order to keep the deposit monies, only that the purchaser was the one responsible for the failure to close and the amount of the deposit was proportional in respect of the value of the home being purchased.
There is some hope for the purchaser if he put down a very large deposit in that pursuant to section 98 of the Courts of Justice Act, the court may provide relief to the purchaser against a penalty or forfeiture if the court is of the opinion that the amount of the deposit is disproportionate to the value of the home being purchased. If such is the case, the seller will receive what the court considers a reasonable amount and the remainder would be returned to the purchaser.
Although I will not deal with this issue in this article, the purchaser may also be on the hook for more than just the deposit monies. If the seller has to put the house up for sale again and receives less than the original amount that the defaulting purchaser had agreed to buy it for, the defaulting purchaser may be responsible to pay the shortfall plus other costs incurred by the seller by having to sell the house a second time including, but not limited to, any additional commissions, additional mortgage payments, property taxes, legal fees for aborted sale, the cost of financing if the seller has bought a new house and has to finance it with alternative bridge financing because he didn’t receive your money with which he would have paid a down payment on that new house he was buying, interest, etc.
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