How safe is condo purchase deposit money?
Real estate lawyer says it's rare for trust money on condo purchases to go missing
If you're buying a condo, how safe is your deposit money?
That's the question many are asking after yesterday's news that a group of would-be condo buyers allegedly stand to lose thousands of dollars each in deposit money over a failed condo project.
Lawyer Meerai Cho, who represented a developer of the now cancelled Centrium condo project, is facing 75 charges and has been temporarily suspended by the Law Society of Upper Canada.
It's alleged deposit money that was supposed to be held in trust for unit purchasers was not returned to them when the project was cancelled.
Police announced yesterday that Cho faces 25 charges each of fraud over $5,000, possession of property obtained by crime and breach of trust.
According to police, purchasers allegedly stand to lose between $40,000 to $700,000 in lost deposits.
How could this happen?
Audrey Loeb spoke about the issue Wednesday on CBC Radio's Metro Morning.
A lawyer at the law firm of Miller Thomson specializing in condo law, Loeb said it's rare for money held in trust for condo purchases to go missing.
"This is a very unusual set of circumstances," she told host Matt Galloway.
Loeb said purchase deposits are protected under Tarion — a warranty program for buyers of new homes in Ontario — but deposits are only protected to a maximum of $20,000.
"If someone put in $700,000 they have a serious problem in terms of recovery," said Loeb. "There's no question."
The law requires that money held in trust must stay in a law firm's trust account until title is transferred to the purchaser.
"Typically if you go to a law firm that has a history of being in this business, you are totally and completely protected," she said.
She said condo buyers can request that as part of their purchase agreement, their deposit be covered by a separate insurance policy. However, she noted that this insurance can be expensive.
"Honestly, for the number of times that this has happened, I'm not sure that it's not an overreaction," Loeb said.
She said if the lawyer in this case is found to have acted negligently, insurance carried by the lawyer's professional indemnity company could pay buyers who lost their deposits.
The Law Society also has a fraud indemnification fund, but there is a cap on the claim amounts, meaning many purchasers would likely lose a large portion of their deposit.