No matter how much you wish the purchase or sale of a property will be smooth, there are many reasons why a transaction may not be completed. The failure to satisfy a condition like financing, inspection, rezoning approval or even the sale of a buyer’s current home can play a role.

So what happens if your deal goes south?

The Real Estate and Business Broker Act, 2002 (REBBA, 2002) requires a brokerage to designated a trust account at a recognized financial institution. The trust funds must be separated and apart from money belonging to the brokerage. All trust funds must also be deposited in the account of the brokerage named in the Agreement to hold the deposit. The Act also requires that a deposit received by the brokerage must be deposited in that brokerage’s trust account within five business days of receipt.

So what happens to the deposit if things go wrong?

Brokerages are trustees of a consumer’s money and have a legal duty to observe a high standard of care and to act impartially when dealing with a deposit. Breach of trust is an offence and may create a civil cause of action against the brokerage. So the deposit is generally released back to the buyer by a brokerage in a timely manner.

However, in the case of a failed transaction, a brokerage should only disburse the deposit in two circumstances:

1.       In accordance with a release or direction signed by all parties to the Agreement (this is called a Mutual Release by the seller and buyer) or;

2.       Upon receipt of a direction from the Court (Court Order)

The scenario #1 is the most common in reality. Your real estate agent must make sure the proper documents are signed and witnessed.

Scenario # 2 is rare, however it can happen if the seller refuses to sign the mutual release, for whatever reason (either valid or invalid). Sometimes the seller may feel that the buyer is trying to get out of the deal for insufficient reasons.