Legal, Title & Closing
What Happens If You Can't Close on a Home
Cant close on a house in Canada? You could lose your deposit or face a lawsuit. Here's what happens if you can't close and how to respond on closing day.
If you can't close on a house in Canada, you are in breach of the Agreement of Purchase and Sale. The seller can keep your deposit, sue you for damages, or, in limited cases, ask a court to order you to complete the purchase. If your mortgage financing fell through, you also risk losing money already spent on inspections, appraisals, and legal fees. Closing is a legal obligation, not a preference — and the clock matters.
What "Not Closing" Actually Means
Closing day is when the title transfers to you, your lender advances the mortgage funds, and the seller is paid. If you don't complete on the agreed date, the contract doesn't quietly expire — you default. Two situations cause almost every failure:
- You can't get funded. Your lender withdraws its commitment, an appraisal comes in low, a condition isn't met, or your down payment falls apart.
- You walk away. That is a straightforward breach, and the seller's remedies apply in full.
What protects you is the financing condition in your offer. While it's still in place, you can usually back out without penalty. Once you waive it — or if your offer never had one — you are committed to closing. This is the practical difference between a mortgage pre-approval and a firm approval: a pre-approval is not a promise of funds.
The Deposit Is the First Thing at Risk
Your deposit sits in trust with the listing brokerage or a lawyer. In many provinces, if you fail to close, the seller's default remedy is to keep the deposit as liquidated damages — agreed compensation for the breach. Because deposits are typically a meaningful slice of the purchase price, this is rarely a small loss.
Whether a seller can keep the deposit and pursue more depends on the wording of the agreement, your province's rules, and whether the deposit is a genuine pre-estimate of damages rather than a penalty. Those are legal questions, so speak to a real estate lawyer licensed in your province before you decide anything.
The seller's main options
- Keep the deposit and release you. By far the most common outcome.
- Sue for damages. If the home later sells for less, the seller may claim the shortfall plus ongoing carrying costs such as mortgage interest, property taxes, and utilities.
- Specific performance. A court order forcing you to complete the purchase and pay. Courts grant this only in narrow circumstances, but it is a real risk.
Why Financing Falls Through at the Last Minute
Funding problems almost always come from something changing after approval. Lenders re-verify your file before advancing funds, and any of these can sink it:
- Income or job changes. A layoff, a move to contract work, or a probationary period can void the commitment.
- New debt. Taking on a car loan or running up credit cards before closing can push your GDS and TDS ratios past the lender's limits. See how lenders measure affordability.
- Down payment problems. Unsourced deposits, gifted funds that arrive late, or an RRSP Home Buyers' Plan or First Home Savings Account (FHSA) withdrawal that lands after the deadline.
- A low appraisal. If the property appraises below the purchase price, you must cover the shortfall in cash. CMHC mortgage default insurance protects the lender on default — it does not cover that gap.
- Qualifying rules. Federally regulated lenders apply the stress test: generally the higher of your contract rate plus two percentage points or the published qualifying-rate floor, under OSFI Guideline B-20. Confirm the current floor with OSFI or your lender, or run the numbers with our stress test calculator.
What Else You Stand to Lose
The deposit is the headline, but other money is exposed too.
| Cost | Usually recoverable? | Notes |
|---|---|---|
| Deposit held in trust | Rarely | Often kept by the seller as damages |
| Home inspection | No | Already paid to the inspector |
| Appraisal fee | No | Paid to the lender or appraiser |
| Legal fees | No | Your lawyer's work is already done |
| Bridge loan costs | No | Interest and fees continue if the chain breaks |
| Moving and storage | No | Often non-refundable if already booked |
If you were relying on the sale of your current home, a failed purchase can also trigger penalties on that side of the chain — including an interest rate differential (IRD) charge if you break an existing mortgage early. That cost is explained in the penalty for breaking a mortgage early.
How to Lower the Risk Before Closing Day
- Keep your file frozen. Don't change jobs, take on credit, or move large sums without telling your lender or broker.
- Document every dollar of your down payment and closing costs well in advance. Review your mortgage documents so you know exactly which conditions must be met.
- Confirm funding timing. Ask your lawyer how funds are wired and when they must arrive. Understand what happens on closing day so nothing is left to chance.
- Keep a cash buffer. A reserve covers a low appraisal or a small shortfall without derailing the deal.
- Buy with a financing condition whenever the market allows. It is your single best protection.
If You're Already in Trouble: Your Options
- Tell everyone immediately. Your lender, lawyer, and realtor need to know now, not on closing day.
- Ask for an extension. Sellers sometimes agree in exchange for a fee or a higher price, especially if the market has softened.
- Find alternate financing. A B lender, a private lender, or a co-signer may bridge the gap, though rates and fees will be higher.
- Negotiate a mutual release. Both sides agree to walk away, often with the deposit returned or split.
- Get legal advice before signing anything. A lawyer can tell you what the agreement in your province actually allows.
None of this is a substitute for legal advice, and outcomes vary by province and by contract. The safest position is always the same: understand your obligations, keep your financing solid, and never waive a condition you can't live without.
Frequently asked questions
What happens if I can't close on my house?
If you fail to complete on closing day, you are in breach of the purchase agreement. The seller can keep your deposit as damages, sue for any shortfall if the home later sells for less, or in rare cases seek a court order forcing you to complete. Speak to a real estate lawyer in your province right away.
Do I lose my deposit if my mortgage isn't approved?
Only if your offer had no financing condition, or you already waived it. While a financing condition is still in place, you can usually exit without losing the deposit. Once it's waived, the deposit is at risk and the seller may keep it. Review the exact wording with your lawyer or realtor before waiving anything.
Can a seller sue me if I can't close?
Yes. Keeping the deposit and suing for damages are separate remedies, and some agreements allow both. If the home later sells for less than your agreed price, the seller may claim the difference plus carrying costs such as mortgage interest, property taxes, and utilities. Whether a claim succeeds depends on your contract, the province, and the facts.
Can I get an extension on my closing date?
Sometimes. An extension is a negotiation, not a right — the seller must agree. They may ask for a fee, a higher purchase price, or a deposit top-up. If you expect a delay, ask in writing as early as possible and have your lawyer handle the amendment. A mutual release is another option if talks stall.