Real Estate Trust Accounts in Ontario: Where Your Deposit Is Held

Before closing, you hand over a deposit, often a large sum. It is reasonable to ask who actually holds it, what protects it, and what has to happen before anyone can touch it.

This article explains how real estate trust accounts work in Ontario, what protection exists, and when a deposit can be released. Your Agreement of Purchase and Sale sets who holds your deposit, so check it as well.

Who holds the money

Money held "in trust" means it is kept for someone else and is not the property of the person holding it. Your deposit is not the brokerage's own money, and a brokerage is required to keep money it holds in trust separate from its own.

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

A deposit received by the brokerage that is to hold it under the Agreement must be put into that brokerage's real estate trust account within five business days of receipt. How the deposit is handled in your own deal depends on your agreement, so it is worth confirming with a lawyer.

What protects your deposit

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. It protects against loss of the money, not against a dispute between the parties.

When the deposit can be released

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 that means the brokerage generally cannot pick a side. If the buyer and seller disagree, the money may stay in trust until they sign a joint release or a court directs what happens. A lawyer can explain the options if you are in that position.

Unclaimed money and lawyers at closing

• 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.
• The Law Society's Compensation Fund typically pays for losses involving trust funds held for real estate closings. It is a last resort: you must first try to recover the loss from the lawyer or paralegal and from any other sources.

Lawyers also play a part at closing. Generally, a transfer of title must be signed for completeness by two different lawyers, one acting for the transferor and one for the transferee. Some transfers, such as transfers within a family or between related parties, may be completed by one lawyer acting for both sides, under the Law Society's professional standards.

Whether your own deposit is held by a brokerage or a lawyer depends on your agreement, so it is worth confirming this with your lawyer before you pay.

What to do next

• Confirm in your agreement who is holding the deposit and when it is due.
• Pay only to the account details your agent or lawyer gives you, and confirm them by phone using a number you already trust.
• Keep your receipt and ask for written confirmation that the deposit is in trust.
• If the deal fails, do not agree to release the deposit until a lawyer has reviewed what you are signing.
• Get legal advice early if you and the other party disagree about the deposit.

Frequently asked questions