The problem with deposits

Sometimes it doesn’t matter if your realtor is
Moses, sellers can be unreasonable.

For example, in a recent case, sellers wanted a
deposit of $75,000 on the purchase of a small shopping plaza. This is a terrible idea
for any buyer because today no brokerage can release a deposit without BOTH the
seller and buyer agreeing to sign a mutual release and termination.

Which means an unreasonable seller can simply
decide not to sign the mutual release and termination simply because “they don’t
fell like it.”

So how does a buyer get his or her money back?

They don’t.

What the heck?

Nope. It sits in the real estate brokerage’s
trust account ‘til the sun burns itself out unless the buyer sues the
sellers in court, is successful, and gets a COURT ORDER forcing the brokerage
to release the darn deposit. Or they negotiate from a weak position, made
weaker because of this one-sided regulatory rule.

I had a client in Toronto who had to give up half (half!) her
deposit to the sellers to get (part of) her money back because the sellers
said, “We don’t think she tried hard enough to fulfill her conditions,” even
though the agreement said it was up to her in her “sole and absolute
discretion.”

As long as you make reasonable efforts to fulfill
your conditions, you should be able to get out of any agreement.

For example, suppose you have a financing
condition. And you get an offer to finance the deal at say an interest rate of
4.99%. The fact that you got an offer, any offer, is not by itself sufficient.
You might not like 4.99% because you were hoping for 2.99%. So in your sole and
absolute judgment, this offer (of finance) was unacceptable because, maybe, you
cannot afford 4.99%; that is, you had budgeted for 2.99% instead.

But to unreasonable sellers, they can say (incorrectly)
that because you got any offer of
finance, in their opinion, you should have waived your condition/provided them with a
notice of fulfillment of condition.

In litigation, no matter how “right” you think
you are, there is always a risk of a judge finding against you.

It’s a terrible, lopsided system, weighted in
favor of sellers.

If I had my druthers, I would write in deposits
of $2 on all my agreements… because of this.

What’s the solution?

Well, I told my Toronto client NOT to sue; instead she had
her attorney register her notice of termination and mutual release on title as
well as her APS (agreement of purchase and sale) at a cost of about $150 in legal fees so the
sellers could not sell or remortgage their property without first dealing with
this “lien.”

Sure enough, they sold their property a few
months later, and, when their lawyer discovered this issue on title, and after
a temper tantrum, the sellers were more willing to negotiate. Still, my client
lost half her deposit having done nothing wrong.

The moral of this story?

BE CAREFUL BUT BE SMART.

Prof Bruce

ps then on to the next thing!