Breach of Contract by Buyers
Oftentimes, unwitting buyers and sellers enter into Agreements of Purchase and Sale in an unprepared manner; with one side to the transaction unable to close for any number of reasons. Buyers typically do not include conditional financing arrangements in their offers, for fear that they will not be successful in attaining an accepted offer and binding agreement with the seller as the GTA real estate market has been fierce over the past few years; however, this often comes back to haunt them.
Buyers entering into binding agreements with a seller, who are unable to subsequently obtain financing, and thereby default on the agreement, will subject themselves to potentially significant damages for breach of contract. The non-defaulting seller will be entitled to retain the deposit or more of the total purchase price of the property), and any other costs that are a natural consequence of the breach (i.e., if they are able to re-sell the home at a lower price), the defaulting buyer will be on the hook for the shortfall.
We have negotiated with numerous buyers and sellers for extensions to Agreements of Purchase and Sale. Buyers are most typically requiring extensions to purchase agreements due to their inability to obtain financing to close transactions. With the recent softening of the GTA housing market, many purchase agreements that were entered into several months back are at purchase prices above the market price of the property at closing. Accordingly, tier one banks are appraising the value of the home at a price lower than the purchase price, and accordingly, are not willing to provide mortgage loans sufficient to cover the balance of the purchase (above the equity down payment).
In the circumstances, buyers are seeking out alternate financing from secondary lenders, which can often come at prohibitive interest rates, to finance the difference between the value as appraised by the banks at closing and the purchase price of the property according to the Agreement of Purchase and Sale.
Rather than take on high-interest financing, many buyers opt to forego the deal altogether, thereby forfeiting their initial deposit and subject themselves to future claims from non-defaulting sellers for damages. If you are involved in a real estate dispute, whether as a buyer or seller, it is advisable to consult with an experienced lawyer in Toronto prior to signing any further documents. Goldstein Law is available for a free consultation today.