Deposit Stuck in a Brokerage Trust Account After a Failed Deal in Ontario

Your agreement of purchase and sale has fallen apart, and the deposit is sitting with the brokerage. You may have asked for it back, or the other side may have asked for it, and the brokerage has said it cannot simply hand it over. That can feel like a delay without a reason.

The reason is that the brokerage holds the money for others, not for itself, and it has strict rules about how it can let it go. This article explains how those rules work, what deposit insurance does and does not do, and what happens if nobody claims the money. It does not say who is entitled to a particular deposit, because that depends on the agreement and the facts.

Reading it will help you understand what to expect and what questions to bring to a real estate lawyer.

Why the brokerage holds the deposit in trust

Under the Trust in Real Estate Services Act, 2002, s. 27(1), every brokerage must keep a trust account in Ontario. It must put all money it holds in trust for others into that account, keep it separate from its own money, and pay it out only according to the terms of the trust.

A deposit that the brokerage is to hold under the agreement must be put into the brokerage's real estate trust account within five business days of receipt. That five-business-day rule comes from the older regulation under the former Real Estate and Business Brokers Act, so the current section number under the Trust in Real Estate Services Act, 2002 should be confirmed before anyone relies on it by number.

Because the money is held in trust, the brokerage is not free to decide who deserves it. It must follow the terms of the trust.

How a deposit can be released when a deal fails

When a deal fails, the brokerage should release the deposit only under a release or direction signed by all parties to the agreement, or under a court direction.

In practice, this means:

• If the buyer and seller agree on where the money goes, they can both sign a document saying so, and the brokerage can act on it.
• If one side will not sign, the brokerage generally cannot pay out on one person's say-so.
• If the disagreement cannot be settled, a court direction is the other route.

Which outcome is correct for your deal depends on the agreement and what happened, and that is a question for a lawyer.

What deposit insurance covers and what it does not

RECO's consumer deposit insurance covers deposits held in a brokerage's real estate trust account against events such as brokerage theft, fraud, insolvency or misappropriation. It pays up to $200,000 per claim and up to $4 million for all claims arising from a single event, at no cost to consumers.

It does not apply where a deal has failed and the buyer and seller simply cannot agree on who gets the deposit. A disagreement between you and the other party is not an insured event, so the insurance will not resolve it.

What happens if nobody claims the money

Trust money that goes unclaimed in a brokerage trust account for more than two years must be paid to RECO. This includes money where it is unclear who is entitled to it.

Before paying it over, the brokerage must make reasonable efforts to find the person entitled. A brokerage does not have to send RECO unclaimed trust money totalling less than $25.00, although it may choose to.

Once the two years pass, unclaimed money is paid to RECO rather than staying in the account. If you think money is owed to you, keep your contact details current with the brokerage and your lawyer.

What to do next

• Find your signed agreement of purchase and sale, any amendments, and the receipt for the deposit.
• Write down the dates: when the deposit was paid, when the deal failed and what each side has said since.
• Ask the brokerage in writing whether it is holding the deposit in its trust account and what it needs in order to release it.
• Keep all emails, texts and notices about why the deal ended.
• Speak with a real estate lawyer before you sign any release or direction, because the brokerage may rely on one signed by all parties to release the deposit.
• Do not assume deposit insurance will help if the issue is only who is entitled to the money.

Frequently asked questions