mortagefinancing
INABILITY TO GET FINANCING IS NO EXCUSE FOR BACKING OUT OF A HOUSE PURCHASE AGREEMENT
BY PETER S. SPIRO
W
hen real estate prices are hot, optimistic buyers sometimes forget that house prices can change direction quite quickly and decline as well. This occurred in Toronto in 2018 due to the introduction of stricter mortgage rules. Average house prices fell by 10 per cent or more. In some individual situations, the price drop was much larger, as suggested by the damages reported in the present case. Not only did prices fall, but some buyers were unable to secure mortgage financing. Either for that reason, or because they felt they had overpaid, many buyers backed out of purchase agreements in that episode.
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I SUMMER 2021 CMBA-ACHC.CA
CMB MAGAZINE
DEFAULTING BUYER ALMOST ALWAYS LOSES DEPOSIT Canadian common law creates a strong presumption that a buyer who backs out of an agreement will lose their deposit. In addition, if the seller resells at a lower price, the delinquent buyer is liable to pay damages for the seller’s loss. Claims related to the 2018 episode were still working their way through the court system as late as 2021. The case of Burkshire Holdings Inc. v. Ngadi is particularly interesting because the buyer there attempted to advance some fairly bold arguments. Unfortunately for him, none of them succeeded. This should be taken as warning to others who are
in this position, to try to avoid litigation and attempt to seek a settlement.
JUDGE REJECTS THE ARGUMENT THAT THE CONTRACT WAS FRUSTRATED First, the defendant attempted to argue that the drop in the real estate market made the circumstances radically different from what was anticipated at the time the contract was signed, and therefore should allow him to cancel it. This was thoroughly rejected by the judge. As a result of the decrease in value in real property in the GTA, he was unable to secure financing, which resulted in a remarkable
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