Can’t close on your pre-construction condo? Five steps to take

A guide in the Mortgage Trouble centre

A low appraisal, a mortgage refusal or unexpected closing costs can leave you short of money to complete a condo purchase. These five steps help you compare financing, an agreed exit and advice about debts you cannot manage.

For fuller analysis, see Pre-Construction Real Estate Deal Blow-Ups, featured in Insolvency Insider, and A condo purchaser’s nightmare, revisited: closing, default and the cost of ownership, featured by Canadian Mortgage Professional. This guide focuses on five practical steps you can take now.

1. Confirm your closing date and legal options

Send your lawyer the purchase agreement, amendments, deposit receipts and any notices. Confirm the deadline and whether an extension has been agreed. If closing has already failed or a demand has arrived, tell your lawyer immediately and establish the response dates.

2. Add up the closing costs and appraisal shortfall

Get the current appraisal, the lender’s written commitment and a closing-cost estimate from your lawyer. Include adjustments, taxes and legal fees.

Cash needed to close = purchase price + closing costs − deposit paid − confirmed mortgage funds.

Compare that amount with cash you actually have. An appraisal below the purchase price may reduce the mortgage available without reducing what you agreed to pay. A manageable monthly mortgage payment can still leave a large closing gap.

3. Check whether another mortgage would work

A licensed mortgage professional, such as a mortgage broker or agent, can explore financing beyond your bank, including institutional alternative lenders.

If a bridge or private mortgage is offered, ask your broker for the cash available after fees, every payment and the balance due when the term ends. Identify how you will repay it. Include condo fees, taxes, insurance, living costs and other debts in your budget.

A short-term loan can work with affordable payments and a realistic exit. Test what happens if a planned sale or refinancing takes longer than expected.

4. Ask about an assignment sale or negotiated exit

Ask your lawyer whether an extension, assignment sale or settlement is available. An assignment transfers your purchase rights to another buyer; it does not automatically release your obligations. Have your lawyer confirm what responsibility remains and what the developer has agreed to in writing.

If the purchase has failed, get advice on any claim and the cost of responding. A demand is not a judgment. Losing the deposit may not end your exposure. One bad deal may call for a negotiated solution rather than an insolvency proceeding.

5. Get debt advice if the household cannot carry the plan

If the closing commitment or payments afterward exceed what you can manage, speak with a Licensed Insolvency Trustee. Bring the purchase and lending documents, income, living costs, assets, debts and guarantees.

After assessing your whole financial position, a Licensed Insolvency Trustee can explain whether a consumer proposal, a Division 1 proposal or bankruptcy is available and appropriate, or whether a solution without filing is better.

A consumer proposal may not be available in your circumstances. A Division 1 proposal has different requirements and risks. Have the trustee explain them before you decide. A low appraisal or investment loss alone does not establish insolvency.

For an Ontario debt assessment, contact Paul Franchi or leave a voicemail at 647-492-9283.

Already completed the purchase? Read The condo that no longer pays. Browse all Mortgage Trouble guides for related help.