Real Estate Trust Account in Ontario: Where Your Deposit and Funds Go

When you buy or sell a home, a large amount of money changes hands before the keys do. Your deposit is usually held by someone other than you or the seller, and your closing funds pass through a lawyer. Understanding where that money sits, and who can move it, takes much of the worry out of the process.

This article walks through the two main trust accounts you are likely to meet, the brokerage trust account and the lawyer's trust account, and explains what protections exist and what happens if the deal fails.

Two trust accounts, two jobs

A trust account holds money that belongs to someone else. In a typical purchase you will meet two. The brokerage holds the deposit after the offer is accepted. Your lawyer holds closing funds, such as your down payment balance and mortgage proceeds, around the closing date.

The deposit in the brokerage's trust account

A brokerage must deposit a deposit it is to hold into its real estate trust account within five business days. It may pay the deposit out only in accordance with the terms of the trust. Because regulation numbers can change, it is sensible to confirm the current rule with your lawyer or RECO.

On a completed deal, the deposit is normally credited toward the purchase price on closing. The details depend on the wording of your agreement, so read the deposit clause carefully and ask your lawyer to explain it.

When a deal fails

If buyer and seller dispute who gets the deposit, the brokerage cannot simply pick a side. It can release the deposit only under a mutual release signed by both, or under a court order. Until then the money stays in trust.

Consumer deposit insurance does not settle that kind of argument. RECO's insurance responds to brokerage theft, fraud, insolvency or misappropriation of funds. It does not resolve a disagreement between buyer and seller about who is entitled to the deposit. If money has been held for two years with entitlement unclear, it must be paid to RECO.

• Do not sign a mutual release until you understand what you are giving up.
• Keep all emails and documents about why the deal failed.
• Get legal advice early, since the outcome depends on the agreement and the facts.

Your lawyer's trust account on closing

Law Society of Ontario By-Law 9 governs lawyers' trust funds in real estate deals, including mortgage proceeds and closing funds. Client money received in trust generally goes into a trust account, with a minimum of deposit by the end of the next banking day. Funds unrelated to legal services cannot be paid into trust.

For electronic trust transfers on closing, By-Law 9 requires a Form 9A before the transfer and a Form 9C signed by a person with signing authority. Funds for a transaction held in a Teranet e-reg trust account may stay no more than five days. Because By-Law 9 amendments are in progress, your lawyer will work from the current version.

Lawyers must keep trust receipts and disbursements journals and client trust ledgers for ten years plus the current year. They must also keep enough in trust at all times to cover their obligations for client money.

What to do next

• Ask who will hold your deposit and confirm it was deposited to the brokerage trust account within five business days.
• Send closing funds only by the method your lawyer gives you, and confirm payment details by phone before sending.
• Give your lawyer enough time to prepare the electronic transfer forms.
• If the deal is in trouble, do not assume the deposit is lost or returned. Check the agreement and get advice.
• Remember that deposit insurance is not a way to resolve a buyer and seller dispute.

Frequently asked questions