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Buyer Loses $100,000 Deposit by Failure to Rely on Title Insurance

In this case the buyer, who had agreed to purchase a $1.5 million residential property from the seller, discovered just prior to closing that there was an open building permit on the property. She advised the seller that she wanted to terminate the contract, and requested the return of her $100,000 deposit.

However, the seller pointed out that the agreement of purchase and sale expressly allowed for such permit-related issues to be addressed through title insurance, and insisted that the deal could proceed. At 3:55 p.m. on the afternoon of closing, the seller’s lawyer accordingly faxed the buyer’s lawyer a letter confirming that the title insurance company was prepared to provide title insurance for the buyer in the circumstances, and that it was prepared to close the transaction as scheduled.

Unfortunately, the buyer’s lawyer did not see that fax when it arrived, and wrongly concluded that the deal was dead because of the open permit issue. She confirmed this in a fax to the seller’s lawyer just after 4 p.m. In fact, had she seen the fax promptly (rather finding it, as she did, after 6 p.m. that same day) the necessary title insurance could have been arranged within a few minutes, by phone.

The deal did not close, and the buyer purchased a different property shortly afterwards. She applied to the court for the return of her deposit, claiming that the seller had been in breach.

The court found it was actually the buyer, not the seller, who had breached the agreement of purchase and sale. The seller’s contractual obligation to “obtain” title insurance had been fulfilled once it secured the commitment from the title insurer to insure over the open building permit. It was not necessary for the seller to actually purchase the insurance policy; this would have necessitated the involvement of the buyer as policy-holder in any event.

With that commitment as to title insurance in place, the seller’s contractual duty was fulfilled; the buyer had no right to unilaterally terminate the agreement at that point. Instead, the agreement remained in force until the 6 p.m. closing, and pending that deadline both buyer and seller had a duty to act in good faith and do whatever was necessary to fulfill their respective obligations. But rather than do so, the buyer and her lawyer had made premature assumptions instead: they had wrongly concluded that the deal would not close, and had let the clock run out. This was all in breach of the buyer’s contractual duties; her $100,000 was accordingly forfeited to the seller. Thomas v. Carreno, 2013 (ONSC).