If a buyer’s mortgage falls through, what happens to the deposit?


Dear David: What happens if a buyer submits an offer without a financing condition and the bank doesn’t approve their mortgage? Assuming the offer is accompanied by a deposit cheque, does the buyer lose their deposit if they are unable to close? – WONDERING

DEAR WONDERING: The issue of deposit cheques must be weighing on people’s minds this week, as several readers have asked similar questions!

As buyers look for ways to make their offers stand out in our competitive market, many are opting to eliminate conditions that were once standard, like financing. A buyer who chooses to go this route is typically pre-approved, which means their bank has confirmed its willingness to lend them a set amount of money, based on their finances and the property they buy.

When that buyer submits an offer, the seller will likely ask them to deliver a deposit cheque, either with their offer or within 24 hours of it being accepted. Once an accepted offer has been signed, the listing brokerage will hold the deposit in their trust account until the sale closes.

If the buyer’s bank doesn’t approve their mortgage, things can get sticky. Often the buyer will look for an alternate lender or ask family/friends to help with the purchase. If the buyer can’t secure alternative financing and is unable to close on the transaction, the seller is not automatically awarded the deposit. Instead, the following should take place:

  1. The seller should re-list the property as soon as possible, so it can be re-sold
  2. The buyer should inform the seller as soon as possible that they are unable to close

There is no “get out of jail free” card for a buyer who fails to close, and there may be more on the line for them than just their deposit. If the property sells at a lower price the second time around, the initial buyer may be responsible for any shortfall in the sale price, along with additional resale expenses. Meanwhile, the seller is obligated to mitigate any damages by getting their property back on the market as soon as possible. Once deposited in the listing brokerage’s trust account, deposit funds can only be released if the sale closes, if a mutual release is signed by both the buyer and the seller, or if the funds are dispersed by a judge.


Financing doesn’t fall through very often, so please don’t lose sleep worrying about it. Whether buying or selling, if you’re unable to close on a deal, it’s critical you speak to your Realtor and seek legal advice immediately, to fully understand your obligations. #Advice #AskDavid #TheNegotiator

David is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying your home. Moving? Get it right. Ask David today! Call or text 519-577-1212.