Deposit refunds are not always automatic. But there are ways to help ensure that they are processed smoothly and promptly.
An Agreement of Purchase and Sale (APS) may not be completed as planned for several reasons, including unsatisfied conditions pertaining to arranging satisfactory financing, home inspection or the sale of a buyer’s current home, to name the most common in most city or suburban markets. When such efforts fail to materialize, you might wonder about the return of the deposit that you submitted with your offer.
By law, the funds are usually held in the listing brokerage's real estate trust account, and there are only a couple of ways to obtain deposit refunds from that account.
Included in the APS is a conditional clause which permits the buyer, for example, to obtain a mortgage with terms satisfactory to the buyer within normally five banking days (or by a fixed date), failing which the deposit shall be returned to the buyer. This may seem abundantly clear that the buyer's money will be given back to them if the condition isn’t waived.
However, in rare cases, while reviewing a conditional clause in an APS, the courts have imposed obligations on the party who was to satisfy a particular condition, in this example, the buyer. For this reason, though uncommon, sellers can dispute deposit refunds. This translates into an issue of entitlement to the deposit, which would likely have to be resolved by the courts. For example, if a seller believed that the buyer failed to make sufficient effort to satisfy the condition, the seller could object to a deposit refund.
All real estate brokerages are required by law to maintain a properly designated trust account at a recognized financial institution. And all trust funds delivered to an Ontario brokerage, designated in an APS to be the holder of the deposit funds, must be deposited in this trust account within five business days of receipt of the funds.
And yes - there are ...
A brokerage may only disburse deposit refunds from its real estate trust
account in accordance with the terms of the trust. This is important for consumer protection and regulation of trading
in real estate. Breach of trust is a serious offence under the Criminal Code of Canada. A violation could also create a civil cause of action against the trustee - the
brokerage. Thus, deposit refunds are treated very seriously, and always by the book. So, as a buyer, don't expect any special treatment, even if you're a friend of the Broker of Record.
Brokerages, as trustees of a consumer’s money, have important responsibilities, including a legal duty to observe a high standard of care, and to act impartially when dealing with potential beneficiaries of a trust. The proper course of action in the case of a failed APS is to disburse deposit refunds according to a mutual release or written direction signed by the parties to the APS, which are the seller(s) and buyer(s).
The only other way to make a deposit refund is pursuant to a court order. If the parties to the APS are or become involved in a court action, an arrangement could be made for the deposit refund monies held in trust to be paid into court. But it's best to seek advice from a lawyer in this regard.
How can you be most assured of obtaining a prompt deposit refund after your purchase goes south?
First of all, I suggest that you submit the funds in the form of a bank draft or certified cheque. Why? Because if it's a normal cheque, the listing brokerage will likely have to postpone a refund until it clears. By the way; normally, cash is not acceptable to the brokerage. And secondly, to help avoid a seller contesting a deposit refund, do your absolute best to fulfill all the conditions in your offer. Cold feet won't guarantee you'll get out of the deal, or even your money back.
Fore more information, visit The Real Estate Council of Ontario (RECO) or your local counterpart.
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