Limit Liability for Husband and Wife as Buyers

We have a very straightforward situation. The husband and wife are trade up Buyers. They wish to sell their $1 million dollar property and buy a $2 million dollar property. Their Seller is going from a $2 million house to a $3 million house.

If everything works perfectly, there are no problems.

But, here’s what happened:

  1. The Bank of Canada raised interest rates,
  2. The market fell,
  3. The Buyers couldn’t sell their house,
  4. The Buyers defaulted on their purchase,
  5. The Sellers couldn’t close on their deal and defaulted.

The result:

  1. Buyers lose their $50,000.00 deposit,
  2. Buyers have to make up the difference in sales price to their Sellers (20% drop, think February 2022, or August 2017), namely $400,000.00,
  3. Commissions amount to $100,000.00
  4. Carrying charges were $50,000.00
  5. Total losses: $550,000.00.

That’s a lot of money. If this was a commercial deal, then the losses would have been capped at the deposit or double the deposit.

The difficulty here is that the husband and wife both own their matrimonial home together and they BOTH signed the Agreement of Purchase and Sale. Only ONE of them should have signed. That would keep their own house out of the equation. Their own house should have been registered in ONE name, that is, the name of the person who did not sign the Offer.

Then, if things went well, the second person could sign as “guarantor” of any mortgage or they could go on title to the new property.

From the perspective of collecting money from the Buyer, the Seller would be restricted to the one person who doesn’t have any assets. Obviously, a negotiated settlement would be desirous by the Seller.

So, the safer conclusion:

  1. Have the first property in one name alone, and
  2. Use the other person to submit the Offer.

Brian Madigan LL.B., Broker

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