Deposits Are Serious Business
The Legal Update 2023 BC Financial Services Authority (BCFSA) course featured a section on deposits. The course showcased the importance of treating deposits as serious business. There have been significant legal cases that have set precedents regarding deposits being forfeited by the Buyer. In summary, the days of “trying an offer” thinking that you can get out of it, during the subject removal period, or just walk away and not pay the deposit are long passed.
The following is a summary of the situations a Buyer can find themselves in. This post is intended to raise the red flag of warning. For more information link through to BCFSA Consumer Guide to Deposits.
Brokerage Holds the Deposit
The real estate brokerage of the Buyer’s agent typically holds the deposit “In Trust”. This makes the brokerage a stakeholder, which is a neutral third party. If there is a disagreement over who keeps the deposit, the brokerage is mandated to release the deposit to the court and the court will decide…usually in favor of the Seller, as outlined in the Contract of Purchase and Sale.
Lawyer holds the Deposit
A deposit may be paid to someone other than the brokerage of the Buyer or the Seller. If the contract states that the Seller, the Seller’s lawyer, or the Buyer’s lawyer holds the deposit, then be aware. Anyone other than a brokerage is not a neutral third party and is under no ruling to release the deposit to the court to decide. In essence, a Buyer can instruct their lawyer to return their deposit monies at any time.
Getting your deposit back
Don’t ever count on getting your deposit back from the Seller. If the Buyer wants to try and get their deposit refunded because they believe they have grounds to withdraw from the contract, then lawyer up.
Example 1: Buyer #1 has an accepted Contract of Purchase and Sale. Buyer #1 removes all subjects and then pays a $100,000 deposit. Buyer #1 later withdraws from the contract prior to closing. Seller retains $100,000.
Damages
You would think that forfeiting the Buyer’s deposit to the Seller would be bad enough…but wait, there’s more. If the Seller receives an offer to buy the property at a lower price than you agreed to pay, the Seller has legal grounds to sue you, the Buyer for the difference.
Example 2: The Seller still eager to sell accepts Buyer # 2 offer at $50,000 lower than Buyer #1 offer. The Seller then sues Buyer #1 for the $50,000 price difference. Buyer #1 has now forfeited $150,000 to the Buyer.
Example 3: If after Buyer# 1 offer collapses, Buyer # 3 agreed to pay $75,000 more than Buyer #1, the Seller is not obligated to refund the difference to Buyer #1. The Seller is now $175,000 ahead.
Backing Out Before the Deposit is Due
Even though the Buyer backs out of the contract before the deposit is due, doesn’t mean that the Buyer won’t have to pay and forfeit the deposit.
Example 4:The Buyer and Seller have an accepted, unconditional offer, meaning there were no subjects to satisfy. The Buyer backs out of the contract before the deposit is due. The Buyer said that since the deposit had not been paid, how could it be forfeited? However, the court case proved that the Buyers had agreed to pay the deposit in the contract, and as such, they were held to paying it by the courts.
Backing Out During Subject Removal Period
The Sellers may be confident enough to question why the Buyer has backed out from the offer and may take legal action against the Buyer.
Example 5: Buyer has the condition of Financing in the contract. During the due diligence period, the Buyer has a change of heart and tells their realtor that they could not get financing. The Seller can sue the Buyer and challenge the Buyer to prove that they were not eligible for financing. If the Buyer cannot prove that, the Seller will no doubt come after the Buyer for the Deposit amount.
It is vitally important to demonstrate that the Buyer has done everything possible to fulfill the terms of the contract.
If you think I would be a good fit to work with you and your family, and you are not already working with a Whistler realtor, please contact me. I look forward to hearing from you.
It’s a Good Life in Whistler!
Marion
Marion Anderson Personal Real Estate Corporation
marion@WhistlerSkiinSkiout.com (604) 938-3885