What Happens When A House Doesn't Close?

This is not a step-by-step guide per se, but rather some real life scenarios & how they did (or might) play out.

This post was inspired by a home in Oshawa that sold firm in May of this year & was due to close in August - but didn’t. In September it resold for $85,000 less than what it had sold for in May. 

To be clear, I wasn’t involved in either the May or September transactions, but I have been involved in a situation like this twice before representing the buyer, once when my client benefitted from another buyer’s breach & the other where my client was the one who breached the contract.

Let’s talk first about how things went down for my client who breached his Agreement of Purchase & Sale contract in 2017.

His financing fell through at the last minute. His lawyer & the seller’s lawyer negotiated a 3 week extension. In exchange for that extension a new closing date was negotiated & the following "penalties":

  • an additional deposit, to be paid immediately
  • an "Irrevocable Direction" was agreed to by all parties which stipulated that the original deposit + the additional deposit would be released to the seller immediately if the buyer failed to close the transaction on the new closing date.

Long story short, that's exactly what happened...and I consider my client lucky because his losses could have been so much worse! This happened back in 2017, which was the last time we had a declining market & the house ended up selling for less money the 2nd time around.

Despite this, my buyer client only lost $20,000. The seller's losses were covered by that $20,000 & everyone moved on.

Typically until there is a new firm & binding deal, the extent of the damages cannot be determined; however due to the circumstances in this particular case, & therefore the way the Direction was written, it released everyone from liability after the forfeiture of the deposits & BEFORE the house went back on the market.


But when I say the losses could have been worse, let’s look at exactly how bad it could be – some or all of the following may be applicable:

  • The original deposit
  • Any difference in selling price between the 1st contract & 2nd contract
  • Financing costs on the current mortgage and on any bridge financing the seller may have undertaken for the time period between when the house was supposed to close & when it actually closes
  • Additional carrying costs such as property taxes, utilities, insurance, costs to maintain the property, for that same time period
  • Other costs like staging the property again, moving fees, storage fees, legal fees – including court costs to sue the defaulting buyer
  • Other impacted closings – if there are other transaction that were unable to close as a result of this one not closing, the chain reaction of damages can be significant
  • Commission – the seller’s obligation to the listing brokerage for commission can be included in the damages


If there was any negotiating around a closing extension then there may also be: 

  • A further non-refundable deposit
  • A negotiated non-refundable fee

A quick search in the CanLII database( which provides access to court judgments from all Canadian courts), will bring up many judgments (in favour of the seller) in the 6 figures for homes in a variety of price points...just type in "buyer fail to close"

 Largest award to date for "buyer failed to close" is $1.215M


If closing cannot be negotiated, a smart seller would:

  1. not sign a Mutual Release (which signs away their right to go after the defaulting buyer for damages) and 
  2. hire a skilled litigation lawyer to take over from the real estate lawyer at the 1st sign of trouble.


A litigation lawyer would prepare a case & present the seller’s damages to the court & in the best case scenario, a Summary Judgment would be awarded in the seller’s favour.


Once there is a Court Order, the deposit can be released. This is 1 of 3 ways a deposit can be released from a Trust Account (typically the listing brokerage’s), the other 2 are by the deal closing & by a Mutual Release signed by all parties.


If the deposit does not cover the total damages awarded in the Summary Judgment then the outstanding balance would need to be collected from the defaulted buyer. Which is not as hard as it may sound. The Judgment is given to the Sherriff who has the authority to seize any of the defaulted buyer’s assets including bank accounts, initiate wage garnishments & even force the sale of their existing house (there’s a process & timelines involved in this) in order to pay off the Judgment.


Summary Judgment is fairly quick & simple if there are no “triable” issues. If the case goes to trial then the process will take longer, cost more & the outcome may be less certain that all damages will be recouped..


Some Key Take Aways:

  • The Agreement of Purchase & Sale is a legally binding contract
  • The courts don’t care about the impacts of  interest rates or market conditions or inflation
  • Long closings in a declining market are a BAD idea
  • Sellers must be able to show the courts that they did their best to mitigate damages which means among other things, the property was relisted immediately & the listing price/strategy is defensible
  • Get a 2nd opinion from a litigation lawyer if your real estate lawyer says “it’s not worth going to court for, sign a mutual release and just re-sell it” A recent judgment (Sept22) cost the seller just 2.6% of the judgment value to go after their defaulted buyer
  • Appealing a low appraisal and/or accepting a price reduction to get a property closed could be the better/smarter way to go depending on the buyer’s financial situation – if they don’t have any assets then taking them to court is not going to help the seller


Whew! This got very long & involved & there’s a lot to digest here!


Stay tuned for Part 2 where I discuss how my buyer clients were able to take advantage of another buyer’s breach…


Until next time,

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