Question: What Happens if You Cannot Close on a House in Ontario?
Answer: If you cannot close on a house in Ontario, you are in breach of contract. You will likely forfeit your deposit and can be sued by the seller for damages, including any loss in value if the property sells for less, plus legal and carrying costs.
What To Expect When You Cannot Finalize a Home Purchase
You found the perfect house. You made an offer, the seller accepted it, and you signed the Agreement of Purchase and Sale. You arranged your moving truck and started packing boxes. Then, something changes, and you realize you cannot complete the transaction. This situation is stressful and creates significant uncertainty. Many buyers wonder what happens if you cannot close on a house in Ontario. This is a serious problem with major financial and legal consequences that you must understand.
Failing to close on a property is not a simple matter of walking away. The agreement you signed is a legally binding contract. Breaking that contract exposes you to substantial risk. The seller, who has acted in good faith, has legal rights to protect their interests. This article explains the process, the potential penalties, and the actions a seller can take if a buyer defaults. We will outline the financial losses you could face and the legal path the seller may pursue to recover their damages. Understanding these outcomes is the first step in managing the situation.
The Legally Binding Purchase Agreement
The Agreement of Purchase and Sale (APS) is the central document in any real estate transaction. Once you sign this agreement and all conditions are waived or fulfilled, it becomes a firm contract. Common conditions include securing financing or a satisfactory home inspection. When these are removed, you are legally obligated to complete the purchase on the specified closing date. You must provide the balance of the purchase price to the seller. In return, the seller must provide you with a clear title to the property.
A firm agreement does not offer an easy exit. Simply changing your mind or experiencing buyer’s remorse is not a valid reason to break the contract. The law expects you to honour your commitment. If you fail to do so, you are in breach of contract. This breach gives the seller the right to seek legal remedies against you. The entire legal framework of real estate transactions depends on the integrity of the APS. Knowing the serious nature of this document is critical before you sign it.
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The Initial Financial Consequences of Defaulting
When you cannot close on a house, the first financial hit is almost always the loss of your deposit. You provide this deposit as a sign of good faith when you make an offer. If you fail to complete the purchase, the seller is typically entitled to keep this money. The seller can claim the deposit even if they eventually sell their home to someone else for a higher price. The deposit is considered security for the performance of the contract, and your failure to perform results in its forfeiture.
Losing your deposit is often just the beginning of your financial troubles. If the seller’s losses exceed the amount of the deposit, they can sue you for the difference. The deposit money will be credited against the total damages awarded by a court, but it does not cap your liability. For example, if your deposit was $50,000 but the seller’s total losses were $80,000, they could sue you for the additional $30,000. It is a common misconception that you will only lose your deposit. The reality of what happens if you cannot close on a house in Ontario can be much more costly.
The Seller’s Right to Sue for Damages
After a buyer defaults, a seller has the right to take legal action to recover their losses. This process involves suing the buyer for breach of contract. The goal of the lawsuit is to put the seller in the same financial position they would have been in if the sale had closed as planned. The court will look at all the costs the seller incurred because of the buyer’s failure to complete the transaction. These damages can add up quickly and become a substantial financial burden for the defaulting buyer.
The seller can claim several types of damages. The most significant is often the difference between the original sale price and the price they eventually get from a new buyer. If the market has declined, this amount can be large. The seller can also claim carrying costs for the property while they try to re-sell it. These costs include mortgage payments, property taxes, insurance, and utilities. Finally, the seller can claim additional legal fees and real estate commissions related to both the failed sale and the subsequent one. The seller must try to minimize these losses by attempting to sell the property promptly for a reasonable price.
Protecting Yourself from a Failed Closing
Preventing a failed closing starts long before the closing date. Careful planning and due diligence are your best defence. Ensure your finances are in order before you make an offer. Get a firm mortgage approval from your lender, not just a pre-approval. A firm approval means the lender has reviewed your financial documents and appraised the property. Understand your budget clearly and avoid making any large purchases or changing jobs between your mortgage approval and your closing date. These actions can jeopardize your financing.
Using conditions in your offer provides a crucial safety net. A financing condition gives you time to secure your mortgage and allows you to walk away without penalty if you cannot. A condition on the sale of your current home protects you if you need the funds from that sale to complete the new purchase. If you find yourself in a position where you might not be able to close, communicate immediately. Inform your real estate lawyer and your agent right away. They can explore options like requesting a closing extension from the seller or seeking alternative financing. Proactive communication is always better than silence.
Final Thoughts on Failing to Close
Failing to close on a house purchase is a serious contractual breach with severe consequences. It is not a step to take lightly. The moment you sign a firm Agreement of Purchase and Sale, you accept a legal duty to complete the deal. If you default on this obligation, you will likely lose your deposit. You also open yourself up to a lawsuit from the seller for all the damages they suffer as a result of your breach. This can include the loss in property value, carrying costs, and extra legal and realtor fees.
The impact can extend beyond your own transaction, causing a chain reaction that affects other buyers and sellers. To protect yourself, be certain of your financial stability before you make a firm offer. Work with experienced professionals, including a real estate agent and a lawyer, who can provide proper guidance. They will help you include protective conditions in your offer and ensure you understand all your legal duties. A home purchase is a major commitment. Entering into it with full awareness and preparation is the best way to ensure a successful closing day.
