Financing Condition Not Met: What Happens to Your Deposit in Ontario

A financing condition lets a buyer back out if the mortgage does not come through. If your lender declines you or the amount is lower than expected, you may be worried about the deposit you have already paid.

This article explains how conditions work, why timing and notice matter, and how the deposit is released. The exact steps are set by your own agreement, so use this as a guide to the questions to ask.

What a financing condition does

A conditional offer does not bind the seller and the buyer until every condition has been fulfilled or waived. A financing condition is one of those conditions. It protects you only if you use it the way the agreement requires. The agreement sets the condition date, what must happen by then and how notice is to be given.

Two outcomes are possible by the condition date. You fulfil or waive the condition, which moves the deal toward being firm. Or you give proper notice that it was not met, which is what allows the deal to end on the agreement's terms.

Giving proper notice

Notice rules come from the wording of the agreement, not from a single standard rule, so read yours closely. Do not rely on a phone call or on your mortgage broker speaking to the seller's side.

• Find the condition date and any time of day stated in the agreement.
• Confirm who must receive the notice and how it can be delivered.
• Check whether the agreement asks for supporting documents, such as a lender's written decline.
• Send notice in writing before the deadline and keep proof it was delivered.
• If more time is possible, ask for a written amendment signed by all parties.

If you are close to the deadline, speak to a lawyer right away. A missed date or a notice sent to the wrong place can leave you bound to a deal you cannot finance.

Getting the deposit back

Your deposit is held by the brokerage in its real estate trust account. A deposit it is to hold under the agreement must be put in that account within five business days of receipt. Brokerages must keep trust money separate from their own and pay it out only according to the terms of the trust.

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. If the financing condition was properly ended, sellers commonly sign the release. A seller who disputes whether your notice was valid may refuse, and the money then stays in trust.

If the seller disagrees

RECO's consumer deposit insurance covers deposits in a brokerage's trust account against events such as theft, fraud, insolvency or misappropriation, but it does not apply where a deal has failed and the buyer and seller simply cannot agree on who gets the deposit. A disagreement over a financing condition falls into that second group.

Where the parties cannot agree, a court direction is one of the two ways the deposit can be released. A lawyer can tell you whether your notice and your efforts to arrange financing are likely to support your position. Courts look at the agreement and the evidence, and results are never certain.

Trust money that goes unclaimed for more than two years, including where it is unclear who is entitled to it, must be paid to RECO after reasonable efforts to find the person entitled. Keep pursuing your release rather than leaving it.

What to do next

• Ask your lender or mortgage broker for a written decline or approval status.
• Gather your agreement, any amendments and every message about financing.
• Have a real estate lawyer review the condition and notice wording before you send notice.
• Ask for a signed mutual release so the brokerage can pay out the deposit.
• Keep a record of dates, because a short delay can change your position.

Frequently asked questions