What Happens if the Buyer Dies before Closing?

By Brian Madigan LL.B.

This is “bad news” for the buyer, no matter how you look at it.

But, just exactly what does this mean from the seller’s perspective?

In order to evaluate the risks to the seller, we have to examine two different time periods. Let’s assume that we have an Offer that was submitted by a prospective purchaser, conditional upon financing for 10 days, and to close in 90 days. The Offer is accepted by the seller, and then sometime later, the buyer dies. What happens?

Conditional Period (10 days)

If the buyer passes away during this time period, there are really two possibilities. Courts will presume “good faith” on the part of the purchaser, but since the purchaser is no longer alive, the mortgagee will not be able to approve financing. Consequently, the deal will not firm up, and the seller will have to return the deposit.

The answer, of course, would be somewhat different, if the approval was given, the buyer waived the condition and firmed up the deal. If the buyer then dies after the deal is firm but prior to the expiration of the 10 day period, the purchaser’s estate is still at risk.

Completion Period (80 days)

The same is true thereafter. Once the agreement has become firm and binding, the risk of the buyer’s death before closing, transfers from the seller to the buyer.

In this case, the Estate is obligated to complete the transaction. It may not have the funds to do so, but the Estate is still obligated. This means, at the very least, that the deposit is at risk. The Estate would also be responsible for any additional losses sustained by the seller, over and above the deposit.

This continuing obligation arises by reason of the paragraph “this agreement is binding upon successors and assigns…”. The term “successors includes the estate. It could also include an Attorney (appointed pursuant to a power of attorney) or someone in a similar appointed capacity, acting in the lifetime of the buyer.

Comment

The buyer, or the buyer’s Estate could have elected to proceed with the transaction during the conditional period, if it still wished to proceed. This might be the case, if the buyer had bought a condo with an extended closing, but still had a long period of time during a conditional period. If the price has escalated substantially, the Estate might elect to proceed with the transaction.

All in all, it’s still bad news for the buyer!

Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com