What happens to my purchase agreement if my builder goes bankrupt before closing?

Builder insolvency is a serious risk in new construction. If your builder becomes insolvent before you take possession, Tarion's deposit protection warranty should cover your deposits up to the current prescribed limits, provided your builder was registered with Tarion when you purchased.

To make a claim, you submit a warranty claim to Tarion and follow their process. Tarion may either help complete the home through another builder (if the project is viable) or issue a deposit refund up to the protection limit. If your deposits exceed the protection limit, you become an unsecured creditor in the bankruptcy proceedings and recovery of the excess is uncertain.

Beyond deposits, your right to complete the purchase — or any remedy you have — will depend on whether a trustee in bankruptcy, receiver, or new builder takes over the project. Outcomes vary widely depending on the stage of construction and the financial health of the project overall.

If you learn your builder is in financial difficulty, contact a real estate lawyer immediately. Time-sensitive decisions about preserving your rights in any insolvency proceeding can significantly affect your outcome. Do not wait to see what happens.