As the covid-19 pandemic lingers longer, its impact has crept into almost every aspect of our lives. Banks have dropped their lending rates drastically. Signing up for that lovely house near The Beaches is always a big commitment but now it seems rather tantalizing with the appealing mortgage rates. However, buying a property at this particular moment could carry a significant amount of risks as your employment may also become precarious. On the flip side, selling homes can also be risky business at this moment. The government has prohibited the hosting of open houses, on April 4, 2020, which means if the buyer defaults, reselling the property could be extremely difficult. What is the seller’s recourse if the buyer is not going to carry out the transaction as a result of the pandemic-induced economic downturn?
Even though the influence of this pandemic is almost unprecedented, the market always fluctuates. As unfortunate as it sounds, it is unlikely that the law would treat buyer’s breach any differently than any other times.
What Does The Law Say?
Generally, as long as the deposit is not disproportionate to the purchase price and not unconscionable, the buyer forfeits the deposit to the seller in the event of anticipatory breach or actual breach of the Agreement of Purchase and Sale(APS). In addition, the buyer is obligated to place the seller in a position where the seller should be should the transaction be carried out as per the original terms. This means, the seller could sue the buyer for the difference between the original sale price and the new sale price if the property is sold later on at a lower price.
It is also important to note that if the seller decides to treat the APS as coming to an end, the seller should re-list the property immediately to mitigate the damages. However, for seller’s protection, the seller should make sure that the buyer clearly and unequivocally states the intention to repudiate the APS in writing.
Practically, What Are The Options For The Seller?
First, the seller(in most cases, the seller’s lawyer) should attempt to find out whether the buyer needs an extension in order to complete the transaction. If so, the seller and the buyer would be better off to work out the conditions imposed on the extension and a new closing date.
Second, the seller should make sure that the buyer is aware all the ramifications that will follow as a result of his or her failure to carry out the transaction and encourage the buyer to seek alternative financing options to close the transaction.
In some cases, the seller may be willing to grant a Vendor-Take-Back mortgage to the buyer to assist the buyer with closing.
Third, if the seller is willing to negotiate a new sale purchase with the buyer, it could also facilitate the closing.
When push comes to shove, the seller has to decide whether the seller wants to take the buyer to the court in order to get the deposit back along with all other damages. The seller should be cognizant of the possibility that a desperate buyer may counterclaim against the seller to wriggle out of the deal.
Although it is impossible to eliminate the risks as a result of the current volatile market, there are a few things that sellers could do to minimize the risks of buyer’s default. After all, a lawsuit against the buyer can be lengthy and costly.
First, the seller could minimize the risks by screening the potential buyers. The seller’s agent should make the effort to find out as much information about the buyers as possible and assess the financial situation of these buyers.
Second, the seller should consider the buyer with the shortest closing time frame. Sometimes, this means the seller has to go with the second or the third highest offer instead of the highest bidder. However, a short closing timeline offers more guarantee and protection to the seller.
It may backfire on the seller if the seller incorrectly concludes that he or she is no longer bound by the APS because of the buyer’s “anticipatory repudiation” of the APS. Therefore, it is crucial to keep your real estate lawyer informed as soon as a dispute arises. MEHDI AU LLP has real estate lawyers who can help you with any disputes.
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