ND PARALEGAL SERVICES

Real Estate Deposit Disputes

Breaking the Escrow Lockout

REAL ESTATE LITIGATION

A real estate deposit dispute usually starts when an Agreement of Purchase and Sale (APS) fails. Buyers often assume that if a condition like financing or a home inspection isn’t met, their deposit will be returned instantly. However, if a seller feels a condition was waived incorrectly or used in bad faith, they may refuse to sign the Mutual Release out of leverage or frustration.

Conversely, if a buyer simply walks away from a deal due to cold feet or changing markets, the seller has a right to pursue the deposit as a partial remedy for their losses. Until a court intervenes, the real estate brokerage cannot pick a side and must keep the funds locked in their trust account.

Common Causes of Deposit Stalemates

Most frozen property trust accounts stem from a few predictable real estate transaction issues:

Financing Conditions Fall Through

The buyer acts in good faith but fails to secure a mortgage. Despite providing timely notice, the seller refuses to sign a release, claiming the buyer didn’t make a genuine effort to get a loan.

Buyer Unilaterally Walks Away

Faced with a changing real estate market, a buyer refuses to close on the property without a legal excuse. The seller can then claim the deposit to cover the costs of re-listing and any drop in sale price.

Deficient Home Inspections

A home inspection reveals costly hidden defects, and the buyer exercises their option to back out of the transaction. The seller may dispute the severity of the findings to try to keep the deposit money.

Status Certificate Issues (Condominiums)

A review of a condo corporation’s status certificate reveals a low reserve fund or an impending special assessment. The buyer terminates the deal, but the seller claims the cancellation was unreasonable.

How We Handle Your Deposit Claim

We help you resolve the dispute through every step of the process, aiming to extract or forfeit the trust funds as efficiently as possible:

1
Formal Demand Letter

We send a professional notice to the opposing party and their brokerage, laying out the legal reality of the failed deal and establishing a firm deadline to sign the release out of court.

2
Filing the Court Claim

If the opposing party refuses to cooperate, we draft a Plaintiff’s Claim outlining the terms of the agreement and the breach to secure a formal order from a judge.

3
Settlement Conferences

We represent you at the mandatory settlement conference, using the terms of the agreement to push for a resolution without the time and expense of a full trial.

Frequently Asked Questions

No. Real estate brokerages in Ontario are strictly bound by provincial trust regulations. Even if the paperwork clearly shows one party is in the right, the brokerage cannot make that judgment. They are legally required to hold the funds until they receive a Mutual Release signed by both parties or a formal court order.

Ontario’s Small Claims Court handles claims up to a limit of $35,000. If your deposit is slightly over that limit (for example, $38,000), you can choose to waive the amount above $35,000 to keep the case in Small Claims Court. If you wish to claim the full amount, the case must be filed in the Superior Court of Justice, which requires a lawyer.

Generally, a seller can re-list their home once the closing date has passed and the deal has clearly fallen through, as they have a duty to minimize their losses. However, the deposit will remain frozen in trust separately until the legal dispute is resolved by agreement or a court order.