Your Mortgage Fell Through After Subject Removal: What Happens Next in BC

You removed your subjects, the deal went firm, and then the call came: the appraisal was low, the lender wants more documents, or the approval has been pulled. Completion is weeks or days away and the money is not there.

This is a stressful spot, but it is not always the end of the purchase. What you do in the next few days matters, and some steps can make your position much worse. Here is how to think it through.

Why financing can fall apart after the deal is firm

Many buyers remove their financing subject on the strength of a preapproval or a commitment that still has conditions attached. The Financial Consumer Agency of Canada is blunt about preapprovals: a preapproval is not a promise that you will get the mortgage, and a lender could refuse you even if you were preapproved.

The common reasons a lender changes its answer late in the process include:

• A low appraisal. The amount a lender will advance depends on the value of the property and your down payment. If the appraisal comes in below the price, the lender may reduce the loan and leave you with a gap.
• Unmet conditions. Commitments often depend on verifying income, employment, the source of the down payment, or documents about the property, such as strata records.
• Changes in your circumstances. A new car loan, a job change, a drop in income or a new credit inquiry can change how a lender sees the file.
• The property itself. Lenders verify that a property meets their standards before they approve the loan, and some properties or building types fall outside a lender's guidelines.

Your legal position: the contract is still firm

Once your subjects are removed, the contract is generally unconditional. A lender's change of mind does not, on its own, give you a right to cancel. Our article on backing out of a purchase after subject removal explains why.

Check one date first. Under section 42 of the Property Law Act and the Home Buyer Rescission Period Regulation, a buyer of most residential property can rescind within three business days after the date the acceptance of the offer was signed, by written notice served on the seller. The buyer must pay the seller 0.25% of the purchase price, and the right cannot be waived. Leasehold property, property on leased land, auction sales and court-ordered sales are excluded. If your subjects came off very quickly, this window may still be open, but the notice has to meet the regulation's requirements.

Act in the first 48 hours

Speed matters, because every option narrows as completion approaches.

• Get the reason in writing. Ask the lender or your mortgage broker exactly what changed and whether anything can fix it: a second appraisal, more documents, a larger down payment or a different product.
• Look at other lenders. A broker may be able to place the mortgage elsewhere, including with lenders that cost more but have different criteria. Higher cost may still be cheaper than default.
• Close the gap with other money. Savings, a family gift or loan, or a co-borrower may cover a shortfall caused by a low appraisal. Family help needs to be documented in the way your lender requires; our guide to help from parents with a down payment explains the options.
• Tell your lawyer or notary now. Your lawyer needs mortgage instructions and funds before completion day to register the transfer and the mortgage. The earlier they know about a problem, the more room there is to manage it.

Asking the seller for more time

If new financing is realistic but will not be ready by completion day, you can ask the seller to extend the completion date. The seller does not have to agree. Sellers sometimes agree in return for an additional deposit, a price adjustment or other terms, especially if they have their own purchase to close.

Any extension should be in a written amendment signed by both buyer and seller. Do not rely on a phone call between realtors. BC contracts commonly make time of the essence, so a missed completion date without a signed extension can let the seller end the deal and claim against you.

Be careful what you say while you are negotiating. Telling the seller you cannot or will not complete may be treated as a refusal to perform the contract. Get advice on how to frame the request before it goes out.

What is at risk if you cannot complete

If the purchase does not close because of your financing, you are likely in breach of the contract. The usual consequences are:

• The deposit. In Tang v. Zhang, 2013 BCCA 52, the BC Court of Appeal held that a true deposit is generally forfeited when a buyer fails to complete, without the seller having to prove a loss.
• Further damages. If the seller resells for less, the seller can claim the difference and other provable losses, with the deposit taken into account.
• A stalled deposit. The BC Financial Services Authority explains that a brokerage holds a deposit as a stakeholder, so both parties must agree in writing before it is released, or the money is paid into court and the court decides.

Section 24 of the Law and Equity Act lets a court relieve against penalties and forfeitures, but it is discretionary and not something to plan around. Our article on remedies when a BC real estate deal collapses covers this stage in more detail.

Avoiding this on your next purchase

• Do not remove the financing subject on a preapproval alone. Wait for a written commitment and read every condition in it.
• Know whether an appraisal has been done. Ask your broker whether the lender has confirmed the value before subjects come off.
• Keep your finances still until completion. Avoid new credit, large purchases or job changes until the purchase closes.
• Build in a buffer. A cushion for a shortfall, higher rates or closing costs gives you room if something changes. Our guide to closing costs in BC can help you plan.

Financing in trouble before completion? Call us before you call the seller

Our real estate lawyers can review your contract and the lender's commitment, help you work through financing alternatives with your broker, negotiate an extension with the seller's side, and explain your exposure if the purchase cannot close.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.