Can't Get a Mortgage Before Closing in Ontario? Your Options

Your mortgage approval was in place, and then something changed. A lender pulled back, an appraisal came in low, a job or income detail shifted, or the paperwork is not done in time. Closing is close, and you are not sure what happens if the money is not there.

This article explains how Ontario law generally treats a buyer who cannot complete the purchase, what the main risks are, and which options may be worth discussing with a lawyer. It does not predict any one outcome, because it depends on your agreement and facts.

Check your agreement first

Start by checking whether your agreement of purchase and sale includes a financing condition and, if it does, when it ends. Whether a condition like that applies to you, whether it is still in place, and what it allows depends on the exact wording of your agreement and on what has happened since you signed, so it is worth confirming with a lawyer. Find the condition, the date it ended and the notice rules, and take them to your lawyer right away.

Be honest with yourself about your timeline. If your lender needs a few more days, that is a very different problem from having no financing at all.

What happens if you do not close

When a buyer repudiates the agreement and fails to close, the deposit is forfeited to the seller without proof of any damage, because the deposit is security for performance and not damages.

If a brokerage holds the deposit in trust, it first deducts the commission owing. The balance owing to the seller may be released only when the transaction is completed or with the mutual written consent of both parties.

The seller may also claim damages. These are typically the difference between the agreed price and the property's value on the date set for closing, though a court may choose a later date and takes into account the seller's duty to take reasonable steps such as reselling. In one case the award included the resale shortfall and carrying costs.

A seller cannot recover losses that reasonable steps could have avoided. The buyer must prove that the seller failed to mitigate and that mitigation was possible.

Options to raise with your lawyer

• Ask the lender what is missing and how long a fix would take, and get answers in writing.
• Look for another lender or a different mortgage product, early enough to meet the closing date.
• Ask the seller whether they would agree to a short extension of the closing date, and have your lawyer confirm how any change should be documented.
• Consider whether you can raise the difference through savings or a family contribution, and keep records of where the money came from.
• Ask whether the seller might be willing to end the deal on agreed terms, set out in writing. Whether that is realistic depends on your situation, so it is worth confirming with a lawyer.
• Find out whether relief from forfeiture could apply if the deal ends.

On relief from forfeiture, section 98 of the Courts of Justice Act lets a court grant relief against penalties and forfeitures. For real estate deposits, courts have asked whether the forfeited deposit is out of all proportion to the seller's damages and whether it would be unconscionable for the seller to keep it. This is not something to assume will help.

Time of the essence and extensions

If time is of the essence, the closing date is strict. If neither party is ready to close on the agreed date, the agreement stays in effect, and either party can restore time of the essence by setting a new closing date and giving the other party reasonable notice.

That means a missed date does not always end the deal on its own, and a seller can give you a new, firm deadline. Treat any notice from the seller's lawyer as urgent and send it straight to yours.

What to do next

• Tell your lawyer as soon as you know there is a problem.
• Collect your approval letter, the lender's emails and any appraisal result.
• Do not make an angry or hurried statement to the seller or realtor that could be read as refusing to close.
• Remember the cash you still need beyond the price. The Financial Consumer Agency of Canada suggests budgeting 1.5% to 4% of the purchase price for closing costs. Land transfer tax is also paid when the transfer is registered.
• Ask what an extension would cost, in interest, moving and legal work.
• Keep everything in writing and keep copies.

A lawyer can look at your agreement, your timeline and your lender's position and tell you which path makes the most sense.

Frequently asked questions