I bought a house, but the deal didn’t close. What happens to my deposit being held by the listing brokerage?

It’s always disappointing when the purchase of a home falls through — for whatever reason that happens.

Before putting down a purchase deposit, you will want to consider two key questions: 1) Is my deposit secure? and 2) Can I easily get it back if the deal falls through?

One of the advantages of working with a real estate broker or salesperson in Ontario is that the deposit you put down on the home comes with protection.

All brokers and salespersons participate in an insurance program, administered by the Real Estate Council of Ontario (RECO), which includes consumer deposit coverage.

There are a number of elements to this protection. When given to a real estate brokerage, a buyer’s deposit must be placed in trust by that brokerage. There are strict legal responsibilities that brokerages have when dealing with buyer deposits, including the following:

    • They are required to deposit the money within five days and maintain it in a designated trust account at a recognized financial institution.
    • They may only disburse the funds held in the real estate trust account in accordance with the terms of the trust.

These responsibilities are intended to ensure that your deposit is kept secure.

So, how can you get your deposit back after your transaction has failed to go through? Again, there are legal considerations.

A brokerage can only release the deposit to the buyer when both the buyer and seller sign an agreement pertaining to release of the funds, or a court makes an order to disburse the funds. There may be exceptions that apply in certain specific situations.

Note that the brokerages involved in the transaction do not have to sign the agreement (sometimes called a release) in order for the deposit money to be disbursed. If both the buyer and seller sign the document, the seller’s brokerage must release the funds as directed, even if the brokerage doesn’t agree.

If the buyer and seller cannot agree on releasing the deposit, the alternative is to go to court to determine who is legally entitled to the funds and then obtain an order from the court for disposition of the funds. However, you should know that the court will investigate why the transaction did not close, and there is no guarantee the court will decide that the buyer is entitled to a return of the full deposit.

That’s why it’s probably best that you try to reach an agreement with the seller to release your deposit, if possible.

Consumer deposit insurance may also provide you with coverage in the event of fraud, insolvency or misappropriation of funds involving the brokerage holding your deposit. If the home sale transaction is to proceed, the insurer may be able to help you and your lawyer to complete the purchase of your new home.

If you have a question for Joe about the home buying or selling process, please email information@reco.on.ca.

Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.

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