Seller Has No Equity in Property

Appreciated Source: Investopedia


What are the scenarios for the buyer on closing, when there is no equity to cover the outstanding mortgage on the property?


If you are on the “buy side”, maybe you’re not moving and there’s nothing you or the Seller can do about it.

The Mortgagee can’t be paid, so, there’s not sufficient funds to close the deal. That means the Mortgagee will refuse to accept a partial payment and execute a Discharge of the Mortgage.

The Buyer’s options are:

  • Walk away, and buy something else,
  • Ensure that the Seller pays the shortfall from another source,
  • Negotiate an arrangement where the Buyer assumes the existing mortgage,
  • Negotiate an arrangement where the existing Mortgagee lends the “shortfall” to the Buyer and holds a second mortgage as security,
  • Encourage the Mortgagee to sell by way of Power of Sale.

This information was likely available at the outset. A title search over GeoWarehouse could have been undertaken. That would have raised some questions.

In this situation, the real estate commissions are also at risk.

Brian Madigan LL.B., Broker

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