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consequences are not limited to the loss of your Deposit

Where a buyer fails to close, in most circumstances the deposit will be forfeited to the seller.  In brief, the consequences for the purchaser who fails to close are as follows: the purchaser will likely forfeit their deposit; the purchaser may also be liable for the difference in value between the purchase price agreed upon in the Agreement Of Purchase And Sale and the re-sale price the seller can obtain, less the amount of the forfeited deposit; the purchaser furthermore can be responsible for the seller's costs until the re-sale, for example, gas, hydro, taxes, etc. as well as interest and other consequential losses the seller suffered if the seller was relying on the money from the purchase to buy another property.

In an ideal world you will always be able to complete your contractual agreements. However, there are scenarios where a buyer simply cannot close due to no longer being able to obtain financing, job loss, divorce etc.

• You should in almost all cases try to close the deal. Even if that involves seeking the help of friends and families to bridge the gap.
• See if the seller is willing perform a seller take back mortgage. This will often be in the sellers best interest as the cost of going to court over not closing can be high.
• Consider alternative financing arrangements.
• If under no circumstances the buyer can close the buyer may wish to consider trying to negotiate a mutual release. A seller cannot obtain the deposit without the buyer’s consent or a court order. As a result, the buyer has some leverage with their deposit. Depending on the size of the deposit and the sellers potential losses the buyer may wish to try to consider negotiating a mutual release in exchange for consent to the deposit. This can be a valuable tool to defaulting buyers when the market undergoes a significant drop however, many sellers will refuse to accept.

what Sellers can do if the buyer has failed to Close or believes the buyer wont Close

• Have your lawyer perform a property search. It will be important to see if the purchaser has a property with equity. This can be used as a means of satisfying any judgment you win.
• Consider providing some form of financing to the purchaser.
• Consider extending the closing if it appears the issue can be resolved with an extended closing. In exchange for the extended closing you will likely want a bigger deposit. This will provide you further funds in the case the buyer fails to close the transaction.
• If the buyer is going to fail to close the transaction begin taking steps to reduce your losses. Hire a lawyer should to help you in making sure timely and accurate steps are taken in reducing your losses. A failure to do so can be extremely expensive.

WHAT you CAN DO AS A BUYER

Ideally you would include a clause in the Agreement Of Purchase And Sale that makes your offer conditional on the your ability to get the necessary financing to close the transaction.  In a competitive real estate market, this is not always an option available to the buyer but, in this dynamic market that is changing fast and sellers are becoming more open to conditional offers.

This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal advice, please see a lawyer.