How a Real Estate Trust Account Works in Ontario Closings

When you buy or sell a home, a large sum often sits with someone else for a while. A buyer's deposit is usually handed to a brokerage, and closing money may pass through a lawyer. It is natural to ask where that money is, who can touch it, and what protects it.

This article explains in plain terms how a real estate trust account works in Ontario, what protection exists, and when money is released. It is general information, not advice on your own deal.

What a real estate trust account is

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

In everyday terms, a brokerage must keep money it holds in trust for others separate from its own, and it must pay that money out only according to the terms of the trust. How those terms apply to your deal depends on your agreement, so it is worth confirming with a lawyer.

When your deposit goes into the account

A deposit received by the brokerage that is to hold it under the Agreement of Purchase and Sale must be put into that brokerage's real estate trust account within five business days of receipt.

If you are a buyer, keep proof of how and when you delivered the deposit, and ask for a receipt. If you are a seller, confirm with your agent that the deposit has been placed in the trust account.

How the money is protected

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.

There is an important limit. The insurance does not apply where a deal has failed and the buyer and seller simply cannot agree on who gets the deposit. In other words, it protects against loss of the money, not against a disagreement between the parties.

When the deposit is released

When a deal closes, the deposit is dealt with as part of the closing. 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.

This means a brokerage generally cannot simply hand the deposit to whichever side asks for it. If the buyer and seller disagree, the matter may need to be resolved by agreement or by a court, and a lawyer can explain the options.

Trust money that goes unclaimed in a brokerage trust account for more than two years must be paid to RECO, including 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.

Lawyers' trust accounts and what to do next

Closing funds are often also held by lawyers. The Law Society's Compensation Fund typically pays for losses involving trust funds held for real estate closings. It is a last resort, because the claimant must first try to recover the loss from the lawyer or paralegal and from any other sources.

Land transfer tax is also part of closing. It is payable when the transfer is registered, which happens on closing.

• Get a written receipt for your deposit and keep a copy of the Agreement of Purchase and Sale.
• Ask your agent or lawyer which brokerage or lawyer is holding the money and in what account.
• Confirm that the deposit has been placed in the trust account.
• If the deal falls through, do not assume the deposit is automatically yours; ask what signed release or direction is needed.
• Speak with a real estate lawyer early if you and the other side disagree about the deposit.

Frequently asked questions