What happens to my deposit if I can't close?

This is the worst outcome in pre-construction, and the one most worth understanding before you sign rather than after.

It is a breach, not an exit

If you cannot complete the purchase, you have breached a binding agreement. The usual consequences:

You forfeit your deposit. On a $1.1M home at 10%, that is $110,000.

The builder may pursue further damages. If they resell the home for less than you agreed to pay, the shortfall can be claimed from you, along with carrying costs, remarketing costs and legal fees. In a falling market, the claim can substantially exceed the deposit.

Tarion does not help you. Deposit protection covers builder failure to deliver. It does not cover a buyer who cannot close. This is a common and costly misunderstanding.

Why it happens

Rarely recklessness. Usually a combination:

• Rates rose and the qualifying amount fell.
• The home appraised below the purchase price and the gap had to be cash.
• Income changed, job loss, self-employment, leave, illness.
• The existing home did not sell, or sold for less.
• An HST rebate failed and added up to $80,000 to closing-day cash.
• Several of the above at once.

If you see it coming

The single most important thing: act early. Options exist eighteen months out that do not exist eighteen days out.

1. Get a real estate lawyer involved now. Before you miss a deposit, before you tell the builder anything.
2. Explore assignment where your agreement permits it. Selling your position, even at a loss, is usually far better than defaulting.
3. Ask about a mutual release. Builders sometimes agree, particularly if they can resell the lot higher. It may cost you part of the deposit, still better than a judgment.
4. Re-examine the financing. A different lender, a co-signer, a larger down payment, a longer amortisation, an extension request.
5. Do not simply stop paying deposits. That accelerates the default and removes your leverage.

The preventive version

Every protective step happens before signing:

• Buy below your maximum, not at it.
• Stress-test at a materially higher rate and a flat value.
• Hold a reserve beyond the deposit and closing costs.
• Confirm your HST eligibility rather than assuming it.
• Negotiate assignment rights into the agreement if there is any chance you will need them.

That last one is quietly valuable. Assignment rights cost nothing to ask for at signing and are the main escape hatch if your circumstances change. Most buyers never think to request them.

If you are worried about a closing ahead of you, let’s look at the options while you still have them.