Litigation Law Newsletter, Volume 1, Number 4: Deposits for Home Purchases

April Focus

Deposits for Home Purchases

Whether you’re an owner selling your residence, or a buyer purchasing a residence, deposits are required.  The deposit gives the vendor some measure of security in case of default by the buyer. 

But what happens if a real estate transaction goes sideways?  How does a party retrieve the deposit?  The answer to this question is not as simple as it seems.

Retrieving the Deposit

Deposits are usually held by one of the party’s real estate agents, in trust.  This means that unless there is a resolution between the parties or a court order, the real estate agent cannot release the funds under any circumstance.  For example, suppose a vendor claims entitlement to a $100,000 deposit because of default by the buyer.  The vendor cannot simply ask the real estate agent to release the funds from trust.  Instead, the vendor must bring a court application unless the buyer consents to the release of the funds.  However, given that litigation is expensive, often both parties will try to work out an arrangement in order to avoid expensive legal fees. 

Settlement Is Usually Preferable

In Ontario, a successful party is generally only entitled to receive 60% of his legal costs from the other party.  Thus, if a party incurs legal fees of $50,000 and was successful at court, the party who was unsuccessful at court would be responsible to pay the successful party $30,000, representing 60% of the $50,0000 incurred.  Looking at it another way, the successful party will still have to pay $20,000 of his $50,000 legal expenses.  Therefore, if a buyer defaults on his obligations under the contract, as in my example above, I would typically recommend the vendor to try and settle with the buyer for a minor amount to avoid the legal fees that would otherwise be lost.   This would also allow the vendor to retrieve the funds much sooner than if he proceeded by way of a court application. 

While I am hopeful that you will never find yourself in this spot, disputes arise often.  It is important to know your options when things go off track so you can make the most of a difficult situation. 

Wishing everyone is safe and healthy during these trying times.