Never walk

Near the banks of the Mighty Jock (as the locals call Jock River) is yet another Mattamy Homes development. Houses here, near Ottawa, were marketed and sold during the heady days of 2% mortgages, then came up for closing after Tiff had started to erupt.

The market turned. Values fell. Some buyers got the willies. It happens. And almost always, newbie purchasers are shocked at what happens as a result.

Apparently a few dozen couples decided they wouldn’t close on new homes after financing costs went up and the market went down. Odds are they figured the biggest loss would be their entire downpayment. Of course, they figured wrong.

“Mattamy has since resold and launched dozens of lawsuits to recover loss of profits,” says a report on Xitter. “One buyer was hit with a massive suit after Mattamy sold house pictured with a whopping $327k shortfall.”

This is allegedly the 3-bedroom home in question. It originally sold for about a million bucks. And bear in mind Mattamy’s cluster of new builds in a former field is about 40 clicks from downtown Ottawa. Nothing’s cheap any more.

The defaulting purchasers were warned by Mattamy last August that not closing would be costly. Then the legals began after the builder resold the unit on November 29th at the then-current market price of $775,000 (it was listed for resale at $799,990).

“At all material times, Mattamy was ready, willing and able to close,” the company’s claim reads. “The defendants defaulted on their obligation under the Agreement by failing to complete the transaction and by failing to pay all the deposits due and owing, and the Agreement was terminated by Mattamy upon the defendant’s default… Upon closing of the resale, there will be a shortfall of $327,524.00 in relation to the purchase price that the defendants had agreed to pay for the property.”

It’s unknown at the moment exactly where this action stands. But if the buyers just walked and if the builder acted reasonably to resell the house and mitigate its damages, they’ll probably be scorched. They would have to find $327,524 to pay in damages, and have no real estate. Or declare bankruptcy, and have no real estate. And in all instances they’d be better off doing whatever was necessary to close.

The law, you see, is crystal.

First, you lose the deposit. Immediately. The seller does not need to prove any damages in order to retain that money – normally in the hands of the listing brokerage or, in this instance, in trust with the builder’s lawyer or marketing agent.

Second, the defaulting buyer will be responsible for losses incurred by the seller. The list is long. The intent of the law is to put the vendor in exactly the same financial spot as if the original deal had closed. The seller is not obligated in any way to consider an amended offer after a contract is signed, nor would making a reduced bid that’s rejected lessen the financial pain of default.

Damages are based on the seller getting exactly what the contract promised – the same sale price. If the buyer walks and the vendor has to relist and find a new sucker, the difference between the original contract and the new selling price is what the defaulters will be faced with – plus all the money the delay cost the seller.

Those extra damages include: Realty taxes since closing date; utility bills and insurance premiums since the same date; any appraisal costs; realtor commission associated with the failed transaction plus commission paid on the subsequent resale; legal fees for the default, correspondence, filings, the law suit and court costs; staging; maintenance costs for the property for the period between the two closings; plus interest charges or financing costs to carry the property until it ultimately sells.

In short, it’s a potential disaster. Sane people will never, ever walk away from an agreement of purchase & sale. And rational buyers will always have an offer reviewed by their lawyer prior to submitting it, or include a clause in the agreement giving their legal counsel a defined period of time to have a look and approve.

Beyond that, do whatever you can to rescue a deal rather than litigate the fallout of failure. Find the money to close – from the mortgage dude, from the Bank of Mom, from your savings and retirement funds. It is almost always cheaper to close – and get an asset you can live in – than to default and end up with nothing but a Hoovered bank account and (probably) a relationship disaster. If you buy a place and the appraisal comes up short, it’s a risk you embraced and must live with. Be ready for it. Ask the seller to take back financing for a year in the form of a VTB to cover the shortfall. It will be in everyone’s interest to work it out.

We should expect more stories like these. Inventory is going up. Mortgage rates are sticky. Economic sentiment sucks. Prices are wobbling. And a house that looked dreamy to you on paper in 2021 might now seem to be a stinky dead albatrosses.

But at least it’s your carcass.

About the picture: “Here’s Flora,” writes Tommy in BC, “thirteen months and no longer a hellion. She’ss living the “golden” life out in the Slocan Valley (Kootenays). If you cheer her on, she’ll do a solid ten high speed tail chase revolutions, but only because she knows you think it’s funny. Thanks for being a warrior of democracy. You are also a Zen master of patience with the dreaded comment section.”

To be in touch or send  a picture of your beast, email to ‘[email protected]’.