Ottawa real estate lawyer: What happens when a deal goes sideways?

I have been practicing for 13 years and close between 200 and 300 deals a year.  Occasionally deals won’t close.  Here are some of my perspectives on what happens next:

Buyer

Typically if the vendor (seller) in the transaction can’t close it’s because they don’t have enough money… i.e. the property is “underwater.”  Typically this means that the vendor was in arrears of their mortgage and had to pay legal and administrative fees or has a court judgement against them.  The transaction is in a shortfall and the vendor has to pay in order to close.  They have no money.

What to do:   I would ask the lender to reduce the amount of the mortgage payable and take a promissory note.  This will allow the deal to close and the lender can pursue the homeowner in a  separate action.  Typically lenders will agree to this because their remedy is to go power of sale, where they will generally get less money for the transaction than if they allow this one to go through.

The buyer should minimize their expenses and keep their costs down because the vendor has no money.  Without assets and with a lender already taking a note for the shortfall it will be difficult for the buyer to recover their losses.  The lender won’t reduce their mortgage discharge amount to indemnify the buyer, in the majority of cases.

Vendor

If the buyer can’t close the deal its usually because they can’t get a mortgage in place.  The lender may have gotten spooked and backed out, their could be allegations of fraud, etc.  The buyer can’t get their mortgage and there is no money.

What to do:   Agree to a brief extension with a per deum of $100/day to cover the additional costs of the delayed closing.  If the buyer can’t get financing within 2 weeks then re-list, depending on the advice of your agent.  The buyer will be on the hook for any shortfall resulting from their failure to close.

These are just a couple of examples to give you a sense of what happens when a real estate transaction goes south.  It is important to have a good real estate lawyer on your side in the event that things don’t work out as planned.  Although real estate transactions are fairly standard there are a lot of situations where things don’t go according to plan.  Having a good team of professionals – realtor, mortgage broker, home inspector, lawyer – they can save you literally tens of thosands of dollars and make sure your real estate experience is as pleasant and smooth as possible.