Who Gets the Deposit When an Ontario Home Sale Falls Through?

A home purchase has collapsed, and now the buyer and the seller both think the deposit is theirs. Meanwhile the money is sitting somewhere you cannot touch, and nobody seems able to say when it will move.

This article explains where the deposit is kept, who can release it, and what happens when the two sides disagree. Whether a deposit is returned or forfeited depends heavily on the wording of your Agreement of Purchase and Sale and the facts of how the deal ended, so a lawyer should read your documents before you take a firm position.

Where the deposit is held

Where your deposit is held depends on the terms of your Agreement of Purchase and Sale, so check what yours says. Every brokerage must keep a trust account in Ontario, deposit 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 that brokerage's real estate trust account within five business days of receipt. The money is not the seller's yet, and it is not simply the buyer's either. It is held for whoever ends up entitled to it.

Returned or forfeited: what decides it

There is no single rule that says a deposit is always returned or always lost. The answer depends on why the deal failed and what the Agreement says about it. Common questions include whether a condition was properly fulfilled or waived, whether a party missed a deadline, and whether one side refused to close.

Conditions matter in particular. A conditional offer does not bind the seller and the buyer until every condition has been fulfilled or waived. If a condition was never satisfied or waived, the deal may have ended in a different way than if a firm deal was broken. Exact dates, notice requirements and wording are worth checking line by line.

• Read the conditions clause and any amendments or waivers you signed.
• Check the dates and times for each condition, and how notice had to be given.
• Look at what the Agreement says about the deposit if the deal does not close.
• Keep every email, text and document showing what each side did and when.

How the deposit is actually released

Even if you are sure the deposit is yours, the brokerage cannot simply hand it over on your say-so. 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.

When you cannot agree

If both sides refuse to sign, the deposit generally stays in trust. This can feel unfair, but it protects both parties. Eventually the dispute is resolved by agreement, or by a court direction.

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 is not a way to settle a disagreement: it does not apply where a deal has failed and the buyer and seller simply cannot agree on who gets the deposit.

If the other side is claiming more than the deposit, the dispute can go beyond the deposit itself. A court that can order specific performance may award damages in addition to, or instead of, specific performance. Whether that is realistic in your case is a question for a lawyer.

Unclaimed deposits and what to do next

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, and the brokerage must first 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. A stalled dispute should not be left to drift.

• Collect the Agreement, all amendments, waivers and notices.
• Write down the timeline of how and when the deal ended.
• Ask the brokerage to confirm in writing that the deposit is in its trust account.
• Do not sign a release until you understand what it gives up.
• Speak to a real estate lawyer before you send a demand or refuse a release.

Frequently asked questions