Your Legal Options After a Toronto Real Estate Deal Fails After Closing

The seller’s attorney calls you on closing day. The purchaser has confirmed mortgage approval, booked the moving company, and the seller has decided to cancel the closing after receiving an offer higher than his asking price. This happens more often than many think. What you do in the next 72 hours will make or break the deal.

Why Toronto Closings Fail

Most deals fall apart because of price swings. As the Toronto real estate market climbs between the time the buyer signs and the deal closes, the temptation for a seller to cancel will increase. 

Many pre-construction condominium buyers who signed sale agreements discovered that their units were worth significantly less than their purchase price. Lenders refused to provide financing to bridge the gap, resulting in lawsuits filed by the developer against a buyer for the loss incurred. There are additional reasons why a closing may fail: 

• A title problem is identified late;
• A financing condition cannot be met before closing;
• The seller cannot provide vacant possession;
• There is a dispute about whether the waiver was properly executed.

The Available Remedies

Specific Performance

Courts view property as unique, and a buyer can seek an order requiring the seller to fulfill their contractual obligations. A buyer must prove they prepared, were willing, and could financially complete the deal on the original date, as courts do not automatically grant specific performance. A buyer who was still attempting to obtain financing on closing day will have a weak claim.

Damages

You can pursue damages equal to the difference between the contract price of the property and its fair market value at the time of default. Additionally, you can pursue carrying costs such as interim rent or rate-lock fees. Developers employ similar reasoning in reverse. They resell the unit, then file a lawsuit against the original buyer for the difference in purchase price and their costs.

Certificate of Pending Litigation

Pursuant to Section 103 of Ontario’s Courts of Justice Act, a buyer can place a certificate of pending litigation (CPL) against the title of the property. A CPL prevents the seller from transferring title to another individual until the lawsuit has been resolved. However, sellers typically attempt to remove a CPL, and a judge will grant the motion where sufficient damages exist to compensate you.

Time Constraints are Non-Negotiable

Ontario provides a two-year statute of limitations commencing from when you became aware of your claim. In reality, these deadlines are substantially shorter. Should a seller successfully close with another party prior to you registering a CPL, you will find yourself pursuing damages rather than recovering control of the property. Gather the following before contacting Toronto real estate litigation attorneys:

• The fully executed agreement of Purchase and Sale and any amendments thereto;
• All waivers, notices and deposit receipts;
• Copies of all email and text exchanges between the other side and their realtor;
• Your lender’s commitment letter and any closing instructions provided by them.

Also review your contract carefully for any ‘time is of the essence’ provisions. In most sale agreements, a missed deadline by either party can end the deal, regardless of how slight such failure appears.

Steps to Follow Should Closing Be At Risk

Should closing be at risk, reduce your status to writing by confirming your funding source, your lender’s instructions to fund your loan, and your lawyer’s availability. Ask your lawyer whether placing a certificate of pending litigation against the property will be beneficial. If your closing has already failed, be sure that you preserve every document available to you. Stop communicating directly with the other party.