ToToronto real estate: IntroductionThis Brandon’s Blog is about Toronto real estate and what happens when the purchaser experiences buyer’s remorse. “When the residential real estate market is a rising market, most people – perhaps with the exception of first-time buyers, are happy homeowners and investors. When the market turns and drops, it is not for the faint of heart.” This is how Justice M.L. Edwards begins his Reasons for Decision in Gamoff v. Hu, 2018 ONSC 2172 (CanLII).
The realities of this situation show how one family came to be involved in a bidding process. Determined to get their dream house, they exhausted their ability to fund the acquisition of that residence. We will describe this case which is similar to several people my Firm has helped overcome their financial problems after being found liable for similar amounts the defendants, in this case, were found responsible for.
Toronto real estate: The Toronto real estate market news facts
Douglas and Sheila Gamoff (the “Gamoffs” or the “plaintiffs”) were the owners of a residential property. The home was in Stouffville, Ontario (the “Home”), part of the GTA. The plaintiffs listed the Home for sale on the multiple listing service on March 29, 2017. Within a fairly short amount of time (March 29, 2017, to April 2, 2017), there were 18 offers.
The defendants, Yixing Hu and David Lea, saw the Home with their real estate agent on April 1, 2017. They state that they told their real estate agent that they had an interest in acquiring the Home. They also didn’t want to be involved in a bidding price battle.
The defendants originally submitted their written offer on April 1, 2017, with an offer of $2,050,000. On April 2, 2017, the defendants were told by their real estate agent that there were several deals for the residential property. Their realtor also told them that their offer of $2,050,000 was not accepted. In spite of having informed their real estate agent that they did not intend to end up being in a bidding war, they inevitably submitted a new offer for $2,250,000. The vendors accepted the revised offer.
The deal had no conditions. The agreement of purchase and sale read that the purchasers provided a deposit in the amount of $30,000 upon acceptance of the offer. It further read that a second down payment tranche of $90,000 would be made on April 6, 2017. The date for the second deposit payment was then amended to April 10, 2017. The closing day for the acquisition of the Home was August 30, 2017.
Toronto real estate: It did not take long for buyer’s remorse to arise
On the same day, the defendants called their real estate agent. They suggested to him that they thought that they had actually paid way too much for the Home. Their issue here was no doubt created by the fact that they had just found out that, a mix of their mortgage loan funding and the value of their house yet to be sold, would not be enough for them to get the essential funding to close on their purchase.
David Lea emailed his real estate agent stating to him that he and Ms. Hu had actually slipped up aiming to acquire the Home. Mr. Lea went on to say in this email that he is begging, please contact the vendor’s agent with a new firm offer.
As I previously stated, the agreement of purchase and sale did not have any conditions in it to allow them to end the agreement and get back their first tranche deposit. The agreement certainly was not conditional either on their obtaining satisfactory mortgage financing or the sale of their existing home. That is enough stress to cause anyone to panic which no doubt led to their buyer’s remorse.
Toronto real estate: The purchaser’s default
On April 10, 2017, the purchaser failed to pay the 2nd payment needed by the change to the agreement of purchase and sale. On the following day, the defendants visited the property. They informed the plaintiffs face to face that they did not actually have the funding needed to complete the purchase.
Toronto real estate: The vendors’ mitigation
The Gamoffs first consulted with their lawyer. Then on May 1, 2017, they listed the Home for sale again on the multiple listing service for $2,250,000. From May 1 to May 16, 2017, the plaintiffs got no offers on the Home.
The Gamoffs lowered the listing price of the Home to $1,998,000 on May 17, 2017. This was because of a recommendation from their real estate agent. In between May 17, 2017, and June 6, 2017, they obtained no deals on the Home.
On July 28, 2017, the Gamoffs, based on the further advice of their realtor, lowered the price of the Home again to $1,798,000.
In between June 6 and July 26, 2017, the Gamoffs got no offers on the Home. On July 31, 2017, they got an offer to purchase the Home for $1,700,000. After some back and forth, on August 9, 2017, the Gamoffs accepted a brand new agreement of purchase and sale. It was with an arm’s length buyer for $1,770,000. That deal closed on October 3, 2017.
Toronto real estate: The Court’s decision
The plaintiffs sought a summary judgment for the difference between the defendants’ offer of $2,250,000 and what the Home eventually sold for, $1,770,000. The defendants opposed this on several grounds, including, that there was an issue that required a full trial.
Based on the evidence, the judge disagreed. He awarded the plaintiffs the difference between the defendants’ offer of $2,250,000 and what the Home eventually sold for. The judge also awarded costs to the plaintiffs. The judgment was for $470,000 plus costs. Add that to the $30,000 down payment the defendants lost, this aborted deal cost them half a million bucks!
Toronto real estate: Our own case studies
My Firm has been involved in several matters helping people who have had judgments like the one described above made against them from failed real estate deals. We have been involved as a result of failed real estate deal judgments in:
- a bankruptcy caused by the plaintiffs (the vendors) who could not yet collect on their judgment filing a Bankruptcy Application with the Court and obtaining a Bankruptcy Order be made against the defendants;
- a consumer proposal for a defendant which was successfully completed;
- the successful proposal of the defendant who had a large amount awarded against him by the judgment; and
- an assignment in bankruptcy filed by the defendant who did not have the ability to attempt a proposal to get relief from the judgment against them.
In each case, the only way that the defendants could get relief, voluntarily or involuntarily, was through an insolvency process. In the one case caused by the Bankruptcy Order, it was the plaintiff who took action. The plaintiff was able to get a payment for all the unsecured creditors. The insolvency process requires that the distribution is shared among all creditors. That result was better than the plaintiff not being able to collect on its judgment without the insolvency process.
In that specific case, it was a combination of the Trustee’s powers and the plaintiff’s judgment and specific knowledge, that joined to produce the recovery for all creditors. The Trustee’s powers were required to get enough leverage resulting in the recovery.
Toronto real estate: A tough lesson to learn
The effect of this Court’s decision will definitely have a significant result on the defendants. The judge said that he had every compassion for them.
With the adjustments in the realty market in the Greater Toronto Area, I have every reason to believe that there will be extra instances where buyers discover that they have not protected themselves and will not be able to complete their real estate transaction.
Buyers would certainly be well advised to think about making their deals to acquire real estate subject to satisfactory funding, as well as for the sale of their existing residence if they have one. The cost of entering a bidding war and getting the property unconditionally could turn out to be a very expensive one just like in this case.
Toronto real estate: What to do if you have too much debt
If you have too much debt because of a judgment against you, either because you have made the real estate in Toronto news from a failed real estate deal or for any other reason, there is no shame in looking for a professional to help you out of your financial jam. A licensed insolvency trustee (formerly called a trustee in bankruptcy) will look at your circumstances and assist you to get to the very best option for your issues. The Ira Smith Team will give you a free consultation.
Ira Smith Trustee & Receiver Inc. is right here to help. We’re government supervised and adhere to a rigorous code of ethics. Our experienced team provides a high-quality service which will create a unique and an affordable solution made just for you. I feel your pain and know how to end it.
Don’t wait until we read about you in the real estate in Toronto news Canada. Call us today to end your stress and experience our pleasant, non-judgmental technique to solve your financial problems and get you back on the right track to stress-free living, Starting Over, Starting Now.