# Question regarding deal falling through 2 days before closing



## OnceAgain

We sold our home in February of this year. We had a conditional offer that was secure with the exception of the buyers selling their home. Another offer was put in conditional only on financing. We gave the second offer 14 days to arrange financing, which they claimed they did and removed that clause from their offer.
We had a clause in the agreement which stated that we did not have to notify the buyers from the first offer unless the second offer removed that condition. So the people with the first offer eventually backed out as they could not commit in the 48 hours they had when the second offer bumped them.

Now we have 2 days until the house is to close and as it turns out they do not have financing and the person who may have financing is not even the buyer.
No one bothered to check or required proof that the buyers actually even had financing before they removed that clause and firmed up the deal.
Our real estate agent was the rep for the buyers as well.

We are being told by a lawyer that there is nothing we can do and that it wouldn't be worth our while to try and sue.
However we are separating everyone involved in the deal was aware of this. We have both secured and moved into new places as we were assured that everything was in order and we cannot carry a mortgage on top of our rentals and deal with support etc.

Does anyone have any advice or has anyone been through this? 

Any help appreciated.


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## the-royal-mail

I have been through it and know exactly how you feel. Of course, the easy answer is to say "Don't count on it being sold until the closing date has passed and the money is in your hands", but I know that's simplifying things. The laywer is right, there is really not much you can do. Ultimately all the systems and procedures cannot guard against human flaws and s happens. Very sorry this happened to you. This is one of the many things I do not like about RE. Very hard to guard against this.


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## Just a Guy

Get it listed again, and hope the deposit covers your costs until you sell it. You did get a deposit right?


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## OnceAgain

Thank you for your response......
So basically the supposedly binding contract is not worth the paper it is written on?
It just doesn't seem right to me that no one can be held accountable.......


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## OnceAgain

Yes we got a deposit but only $5000 and we were told by the agent that was common.
We will be listing it again...the problem is what to do in the meantime.......


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## lb71

Just a Guy said:


> Get it listed again, and hope the deposit covers your costs until you sell it. You did get a deposit right?


I really hope you got a deposit with that offer. If anything, that should help cover your costs while trying to resell, or to sell at a discount quickly.



> Now we have 2 days until the house is to close and as it turns out they do not have financing and the person who may have financing is not even the buyer.


What does this mean?



> We gave the second offer 14 days to arrange financing, which they claimed they did and removed that clause from their offer.


That's a generous time frame, and should have raised flags. 



> No one bothered to check or required proof that the buyers actually even had financing before they removed that clause and firmed up the deal.


No one is expected to check. People buy houses without any financing conditions all the time. The deposit is supposed to safe guard against the financing falling through.



> Our real estate agent was the rep for the buyers as well.


What did or didn't your agent know?


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## OnceAgain

Thank you all for your responses, we just came back from the lawyer and although we cannot do anything other than register, we can proceed with legal action on damages caused. So something is better than nothing. Whether we do or not we will decide after we know exactly what is going on but we have been advised this deal has not been handled correctly.


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## the-royal-mail

I didn't think you could keep the deposit if the financing was a condition of sale and it fell through.


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## MoneyGal

the-royal-mail said:


> I didn't think you could keep the deposit if the financing was a condition of sale and it fell through.


It's not straightforward. Basic article on the return of deposits: http://www.thestar.com/life/homes/2013/04/18/return_of_deposit_depends_on_circumstances.html


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## OnceAgain

They waived the financing condition back in February... But the deposit still does not become the sellers if it falls through. You have to Get the lawyer to draw up a mutual release to release the money and if the purchasers refuse you go through courts.


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## OhGreatGuru

the-royal-mail said:


> I didn't think you could keep the deposit if the financing was a condition of sale and it fell through.


Except, as I understand it, the purchasers subsequently removed the condition within the specified time frame in the offer.


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## nobleea

the-royal-mail said:


> I didn't think you could keep the deposit if the financing was a condition of sale and it fell through.


If the financing fell through and they had not removed the conditions, then no, you don't keep the deposit.
If they removed the financing conditions, and then at close were unable to get financing, then I would think you keep the deposit.


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## Charlie

It's going to depend on the contract and the jurisdiction.

In BC, on a standard real estate contract, it looks like the vendor keeps the deposit:

http://www.pushormitchell.com/law-l...purchaser-fails-close-real-estate-transaction

Your real estate lawyer should know.


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## Cal

OnceAgain said:


> They waived the financing condition back in February... But the deposit still does not become the sellers if it falls through. You have to Get the lawyer to draw up a mutual release to release the money and if the purchasers refuse you go through courts.


I would lean towards that and try to scare them a little. Make them aware that you are pissed, and have every intention to re coup your financial inconvenience for carrying the house for the next 60-90 days until it sells. They took on the responsibility when they signed off to remove the condition of financing.

Did the lawyer give you more guidance in this regard?

Will you re-list with the same RE agent?

Will you require a non refundable down payment next time (after all conditions have been met)? Or a larger downpayment?


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## marina628

I would not be using the same agent because it seems she/he was sloppy with the paperwork . I would fight for that $5000 deposit because something does not seem right that they waived the financing and now 2 days prior to closing suddenly cant close.Was there surprises on closing costs they were not aware of?


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## MoreMiles

Just tell them that you will sue for the damages of wasting time and lost opportunity. If they dare to waste more of your valuable time and ask for the deposit, they can expect the statement of claim arriving instead a cheque.


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## carverman

marina628 said:


> *I would not be using the same agent because it seems she/he was sloppy with the paperwork *. I would fight for that $5000 deposit because something does not seem right that they waived the financing and now 2 days prior to closing suddenly cant close.Was there surprises on closing costs they were not aware of?


Exactly! The conditions should have been specified right on the Offer to Purchase. Conditions based on house inspection and financing are standard. 
I would think that If I was selling my home and the conditions were specified at time of deposit..(.passing home inspection and approval of financing), 
I would expect that the agent acting for the buyer would inform the agent acting for the seller seller, that the financing had been arranged. Normally financing pre-approval from the banks or mortgage company is good for 120 days.


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## MRT

1. Pre-approvals often mean very little. Realtors ask you to get one so that they have a better idea that they are not wasting their time showing your properties you won't qualify to buy.

Lenders typically do a credit check, and issue an approval for an amount that is based on VERBAL disclosure of income and down payment from the borrower. They do NOT do a full underwrite and verify/document all this info, except in rare cases. It simply is not worth their time, since the vast majority of pre-approvals go nowhere. Already they are absorbed costs by guaranteeing a rate for 120 days...why should they pay their staff to verify info on something that likely will go no further?

I can't tell you how many times the verbal information is either inaccurate or unable to be adequately verified when a pre-approval turns into an actual purchase. Having one is better than nothing, but it most certainly does not guarantee a borrower will be approved for that mortgage amount, especially when you consider that the property eventually being purchased (and the price paid for it) must still must be satisfactory to the lender (and potentially CMHC, who obviously has nothing to do with a pre-approval either).

2. Realtors have virtually nothing to do with the financing process and typically do not obtain proof of financing (many lenders do not even issue formal confirmation, and typically reserve the right to yank financing prior to closing for any material changes to borrower's financial/employment position or to the property). AFAIK, one or two provinces used to provide in the real estate contract that proof was to be kept on file (and still many lenders did not comply). It thus is ENTIRELY up to the buyer to lift their conditions. Read the contract. Financing and inspection conditions are for "the sole benefit of the buyer(s)" and are waved at their discretion. 

You, as a buyer, put in an inspection condition so that you know more about the property before you are in a binding contract. You lift the condition because YOU are satisfied with the result. Ditto for financing. You want to ensure that you have a full mortgage approval before being on the hook to buy. You lift your financing condition because YOU are satisfied that your financing is in order...NOT because any proof has been provided to the vendor (again, in some provinces, this may differ and I don't know what changes may have occurred in the few years since I was in the industry). 

Despite what one poster stated, three days is often not sufficient time to arrange financing and 99% of contracts do not have such a short timeframe. That is highly unusual across the country. Standard is 5 business days, though sometimes longer is negotiated. A short timeframe is fine when a lender can obtain an electronic property valuation, or the deal is CMHC insured and they are responsible for valuation, but it may not be sufficient if a physical appraisal needs to be done or during the busy months. 

So what protection does the vendor have, if buyers can waive conditions even when things are not in order? The deposit! This is held in trust by a lawyer or brokerage pending completion or termination of the contract. If the deal goes through, great...it is part of the purchase funds. If conditions are not lifted in time and the contract is void, then it is returned to the buyer. Otherwise, it is returned upon mutual release...which is where the OP finds themselves now. 

They can either sue to force the buyers to uphold their end of the contract, or they can sue for damages if the vendors are unable/unwilling to do so. The deposit is held pending litigation if they can't negotiate between themselves and sign a release, and there are penalties for lawyers or brokerages who release trust funds when they are not supposed to do so. Again, things differ from province to province (as the link for the BC court judgement confirms - because previously, the vendor did NOT automatically 'keep the deposit' - it was just the case that damages would typically exceed the deposit anyway, so in effect they would keep it).

Bottom line...always try to obtain a sizeable deposit. 5% is not ridiculous, when you consider that a buyer needs that anyway to complete a purchase - if they can't do that, it tells me they are illiquid - They either have little liquid savings or all their worth is wrapped up in their current home or investments - neither of which is going to become MY problem by accepting a small deposit from them! This can admittedly be a problem for vendors when demand is low in their area and they may have to accept an offer with a low deposit, onerous conditions, etc.

Finally, there are many scenarios under which a buyer may have waived financing when it was not fully in place, which can be very risky and stupid, but often they have little choice under our system. Given that people often time things so that they buy and sell on the same day, or a short time apart via bridge financing, there is usually a point where buyers have to lift their financing condition long before their sale goes through. They DO have financing in place, but that financing depends upon their own sale going through too. The buyers here could theoretically be completely innocent victims of THEIR buyer not closing on time/at all, leaving them with no equity to make their purchase happen. Or they could be very negligent themselves, having lifted their financing condition before financing was actually in place, but knowing they would lose the home if they didn't waive the condition when they did (I suspect this was the case?)

Without knowing more, since there are myriad possible scenarios here, I would at least question why there was only a 5k deposit. What was the purchase price? 

As for re-listing with the same agent...they may have no choice? If they signed an agency agreement, they may be contractually obligated to pay a commission to this agent, regardless of whether they stick with them or not.

Again...SO many possibilities. You have to rely on the advice of your lawyer. If you aren't happy with that advice, then go for a free consultation with another lawyer. Unfortunately, we don't have nearly enough info here (never mind the expertise) to provide clear advice for this particular situation.


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## kcowan

The first house we bought had been tied up by a conditional offer that the prospective buyer sell their house and only a $1000 deposit. Only one conditional offer could be accepted, so all the subject to financing offers were not acceptable. We entered an unconditional offer and bought the place (after giving the other prospective buyer 48 hours to remove their condition).

When it came to sell, our realtor presented two identical offers with conditions. We countered with a request for $10000 and removal of any conditions. One of the buyers agreed. So we were moving in 30 days! That was pressure.

(We had decided to become experts at buying and selling because it was the major financial commitment at that stage of our lives. We were glad we did!)


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## carverman

MRT said:


> 1. Pre-approvals often mean very little. Realtors ask you to get one so that they have a better idea that they are not wasting their time showing your properties you won't qualify to buy.


Good to know. 



> So what protection does the vendor have, if buyers can waive conditions even when things are not in order? The deposit! This is held in trust by a lawyer or brokerage pending completion or termination of the contract. If the deal goes through, great...it is part of the purchase funds. If conditions are not lifted in time and the contract is void, then it is returned to the buyer. Otherwise, it is returned upon mutual release...which is where the OP finds themselves now.


Years ago, I was selling a house in Ottawa listed on MLS. My agent came to me with an offer and $1 (cash) deposit pinned to the offer to purchase. My real estate agent told me that even though
the deposit seemed ridiculous, by real estate law, she had to show me the offer..which of course I refused. Just goes to show that there are buyers out there that can waste your time and play
games for whatever purpose.



> Again...SO many possibilities. You have to rely on the advice of your lawyer. If you aren't happy with that advice, then go for a free consultation with another lawyer. Unfortunately, we don't have nearly enough info here (never mind the expertise) to provide clear advice for this particular situation.


It's good to line up a closing lawyer, but most sellers don't until there is a firm offer. I can't remember, but I believe that one realestate broker I have used in the past kept the deposit check in their office, and when the sale finally closed, subtracted the deposit from their commission, notifying the closing lawyer of the fact.


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## marina628

Every time we have purchased a home with a finance condition ,we have taken a copy of our deal to the bank and they have approved the deal to purchase that particular property within the standard 7 day rule.Unless these guys were idiots and assumed the online calculators meant they could have bought the place the 120 day certificates the banks give are good for the offers.There are things that could happen in 60 days prior to closing like job loss or drop in the value of the home .


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## carverman

marina628 said:


> Every time we have purchased a home with a finance condition ,we have taken a copy of our deal to the bank and they have approved the deal to purchase that particular property within the standard 7 day rule.Unless these guys were idiots and assumed the online calculators meant they could have bought the place the 120 day certificates the banks give are good for the offers.*There are things that could happen in 60 days prior to closing like job loss or drop in the value of the home* .


Yes. A job loss or some kind of unexpected financial disaster would more than likely be a deal breaker. If the buyer lived in an apt, at least they wouldn't have to deal with the sale of their present home. If they had a home that they were selling at the same time, and it didn't sell by the possession date of the home they were buying, that would require some bridge financing and paying two mortgages (if that is the case) would certainly be one of the deal breaker reasons..the other would be some kind disaster (flood or fire) to their home put up for sale. The other thing possibly would be CMHC approval/assessment if they didn't have enough for the mortgage that they qualified in the first place. Sometimes a lien can be placed on one's home, for non payment of property taxes or some other legal reason, and that could complicate things because the lien has to come off the proceeds of the home
after real estate commission.


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## lb71

MRT said:


> Despite what one poster stated, three days is often not sufficient time to arrange financing and 99% of contracts do not have such a short timeframe. That is highly unusual across the country. Standard is 5 business days, though sometimes longer is negotiated.


I am either extremely lucky, or have bad memory. I was sure I got my financing approved pretty quickly in the two homes I purchased in my life, but I could very well be wrong. My apologies to the OP.
I'm in the midst of looking for a new home now, so I will report back on the turnaround.


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## MRT

lb71 said:


> I am either extremely lucky, or have bad memory. I was sure I got my financing approved pretty quickly in the two homes I purchased in my life, but I could very well be wrong. My apologies to the OP.
> I'm in the midst of looking for a new home now, so I will report back on the turnaround.


no no...I did not mean to imply that it was not possible or even that it was not typical to be able to arrange financing more quickly. Many deals can be underwritten in well under an hour if all the documents are immediately available and satisfactory, and the lender is able to obtain an immediate electronic valuation or an auto-approval from CMHC (which is quite often the case). 

My intention was more to highlight that the industry standard is to allow five business/banking days from the date of acceptance of the offer (and that even this needs to be extended sometimes)


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## Maybe Later

I think you may find that if you look at your listing contract you may find some of the deposit is owed to the real estate agent.


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## MRT

Why would any of the deposit be owed to the real estate agent? 

AFAIK, a listing agreement provides that the deposit is to first be deducted from any commission payable to the realtor; however, no commission is currently owing. 

The home did not sell and the BUYERS backed out of a binding deal. My understanding is that only if the VENDORS backed out of a binding contract would they indeed still be on the hook for paying their agent.


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## Maybe Later

The realtor's role is to negotiste a deal, which was reached and conditions removed. When the buyers backed out the sellers lost the sale but the realtor lost the commission. It likely varies by region but it wouldn't surprise me to find it part of many standard listing contracts. 

I'm not making a judgement, just sharing my experience.


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## Just a Guy

I talked to my realtor...they don't get any of the deposit. Also, you don't automatically get to keep the deposit, but you are entitled to damages...what that amounts to is what you negotiate or who has the better lawyers...regardless, you are entitled to at least some, if not all of the deposit.

Oh, and even though you may have signed a contract to use the realtor for a period of time to sell your house, there are easy ways to get out of the situation, especially in this case.


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## MRT

Maybe Later said:


> The realtor's role is to negotiste a deal, which was reached and conditions removed. When the buyers backed out the sellers lost the sale but the realtor lost the commission. It likely varies by region but it wouldn't surprise me to find it part of many standard listing contracts.
> 
> I'm not making a judgement, just sharing my experience.


What was your experience? Have you seen, or do you have a copy of, a listing agreement that says the realtor is entitled to a portion of the deposit when the buyers walk away from a binding deal?


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## MRT

Just a Guy said:


> I talked to my realtor...they don't get any of the deposit. Also, you don't automatically get to keep the deposit, but you are entitled to damages...what that amounts to is what you negotiate or who has the better lawyers...regardless, you are entitled to at least some, if not all of the deposit.
> 
> Oh, and even though you may have signed a contract to use the realtor for a period of time to sell your house, there are easy ways to get out of the situation, especially in this case.


Good to hear.

I would find another agent.


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## Maybe Later

MRT said:


> What was your experience? Have you seen, or do you have a copy of, a listing agreement that says the realtor is entitled to a portion of the deposit when the buyers walk away from a binding deal?


Yes


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## MRT

how unfortunate...I would definitely not work with such an agent.


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## lb71

MRT said:


> no no...I did not mean to imply that it was not possible or even that it was not typical to be able to arrange financing more quickly. Many deals can be underwritten in well under an hour if all the documents are immediately available and satisfactory, and the lender is able to obtain an immediate electronic valuation or an auto-approval from CMHC (which is quite often the case).
> 
> My intention was more to highlight that the industry standard is to allow five business/banking days from the date of acceptance of the offer (and that even this needs to be extended sometimes)


I did not take offense to you correcting me. In fact, I appreciate it. If my assumptions or facts are wrong, I would like to be corrected so I don't make the same errors again. 

I was going through some old files on the weekend, and found a copy of my purchase agreement. Lo and behold, there was a condition for financing.... for 5 days. :shame:

I'll edit my original post. We know that 99% of everything on the internet is true and I don't want to be part of the 1%. :wink:


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## financialuproar

OnceAgain said:


> We sold our home in February of this year. We had a conditional offer that was secure with the exception of the buyers selling their home. Another offer was put in conditional only on financing. We gave the second offer 14 days to arrange financing, which they claimed they did and removed that clause from their offer.
> We had a clause in the agreement which stated that we did not have to notify the buyers from the first offer unless the second offer removed that condition. So the people with the first offer eventually backed out as they could not commit in the 48 hours they had when the second offer bumped them.
> 
> Now we have 2 days until the house is to close and as it turns out they do not have financing and the person who may have financing is not even the buyer.
> No one bothered to check or required proof that the buyers actually even had financing before they removed that clause and firmed up the deal.
> Our real estate agent was the rep for the buyers as well.
> 
> We are being told by a lawyer that there is nothing we can do and that it wouldn't be worth our while to try and sue.
> However we are separating everyone involved in the deal was aware of this. We have both secured and moved into new places as we were assured that everything was in order and we cannot carry a mortgage on top of our rentals and deal with support etc.
> 
> Does anyone have any advice or has anyone been through this?
> 
> Any help appreciated.


I used to be a mortgage broker. I wasn't terribly good, but allow me to offer an opinion or two. Everything here is based on my knowledge of Alberta law, FWIW.

1. I worked in a small town, so I got to know all the Realtors well. And most did actually call me and ask for updates throughout the process. Once the financing was in place I'd always call and say it was good to go. I once had a Realtor try to force me to sign something stating I guaranteed the financing had gone through. I didn't, for obvious reasons. Anyway, I agree that the Realtor should have been way more proactive on the financing. At least phone the bank/broker.

2. The OP should be entitled to the deposit. She may have to fight in the court to get it, but this situation is the whole point of the deposit. However, I'm also fairly sure her Realtor would have some sort of right to get paid for their work. Most Realtors won't bother to pursue it though, on account of suing a seller who just got screwed is really bad karma. 

3. You can sue, and the court can force the sale. But that'll cost a lot of time and money. And if the buyer couldn't even come up with financing for a house, there obviously aren't many assets there. 

4. Dual agency is the worst. There are some competent agents who try their best to do it right. Most other agents disclose confidential information to both parties in order to get a deal done. Try to avoid it if possible, or tell your new agent that you'll only pay them a reduced commission if they represent both sides. They'll come out and say "but then I'm not incentivized to market your house that much." Most agents just throw it on MLS and let it do the work for them.


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## agentPawel

There is a common misconception in real estate regarding entitlements to deposits. Real estate trust accounts are governed under stricter rules than attorney trust accounts. As another member has already pointed out, a mutual release must be signed by both the buyers and sellers lawyer. If a mutual release is not signed the deposit remains in the trust account pending litigation.

Unfortunately for the Seller, case law is not in his favor. In order to retain all or part of the deposit, one must prove damage. In past cases in Ontario, judges have sided with the buyer by arguing that because the seller still has ownership of the property, no damages have been incurred. The value of time lost during the process can be attributed to the process.

I am not a lawyer so do consult with a professional, however, I strongly encourage the seller to come to a mutual agreement and sign a mutual release.


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