Weilers LLP

Make Sure You Have Financing

Make Sure You Have Financing

September 24, 2022

By Mark Mikulasik

If you are signing an agreement of purchase and sale to buy real estate that does not contain a financing condition make sure that you have financing firmly in place before you sign. The same warning applies if you are asked to waive a financing condition in your agreement of purchase and sale.


Proceeding with an agreement of purchase and sale without financing in place is increasingly risky with interest rates and prices increasing at the same time. More people will find that financing is difficult or impossible to arrange. If the market cools, that can make the cost of failing to close disastrous.

If you fail to close because you cannot obtain financing you can not only lose your deposit, but you may also be sued for the shortfall if the vendor elects to remarket the property and sells at a lower price than you agreed to pay. This may happen because the market cools, or you may have agreed to overpay compared to market value.


These risks are nicely illustrated in the unfortunate case of Leaf Homes Limited v. Khan. The core facts are fairly straightforward. The Khans contracted to buy a new home for approximately $1.5 million despite having a family income of only $60,000 a year. The promotional advertising for these homes required perspective purchasers to show proof of financing at the time they signed their agreements of purchase and sale. The salesperson not only did not enforce that requirement, they instead suggested to the Khans that the vendor had a mortgage broker available on site to assist with obtaining financing. The agreement was 30 pages long. It did not contain an escape clause for the Khans if they could not obtain financing.

The Khans paid a $180,000.00 deposit towards the purchase and proceeded to attempt to arrange financing. They then learned that the appraised value of the property was approximately $1.1 to $1.2 million and that lenders would not provide financing unless Mr. Khan could pay the difference between the appraised value and the purchase price up front. The Khans did not have the funds to do so and defaulted on the agreement.

The vendors resold the property for less than $1 million and sued for the shortfall of approximately $400,000.

This disaster became worse for the Khans because the vendors obtained a default judgment and Mr. Khan did not discover the judgment until he later attempted to withdraw funds from his bank account. He then discovered that it had been garnished by the vendors, in an effort to collect on the default judgment. Although the case does not go into the chaos that this may have caused the Khans for their other obligations, imagine if you have preapproved withdrawals for anything from utilities to credit cards to your existing rent or mortgage and your bank account is frozen.

The Khans moved to set aside the judgment. They failed at the Superior Court level and appealed.


The Court of Appeal did reopen the judgment to allow the Khans to contest the amount of damages suffered by the vendors. They were not allowed to defend on the merits.

This is unfortunate because in our opinion it would have been interesting for the court to consider issues such as the conduct of the salesperson in allowing the Khans to enter into a bargain they simply could not afford. In the circumstances, the Khans lost that opportunity. Although the issue was briefly considered by both the Superior Court motions judge and the Court of Appeal, both decided that there was no arguable defence on that basis. It is much more difficult to argue these issues when the onus is on the defendant as moving party to set aside an existing default than where the vendor has to prove their claim.

The Khans did attempt to argue that the only reason that there was a default judgment was that they were unaware of the claim. However, both courts accepted the affidavit evidence of a process server that they had left the documents at the Khans’ existing home with a woman who met the description of Mrs. Khan. As the courts note, Mrs. Khan’s command of English was less than perfect. She may well not have appreciated the nature of the documents. Despite this, service was found to be valid.


  • Although the Khans will be able to fight to reduce the amount they owe, arguing that the vendors should have obtained a higher resale price, they are left exposed to a very substantial judgment.
  • This decision shows the onus that courts place upon individuals to be aware of the nature of documents that they are signing and the obligations that they undertake by signing those documents. This is a fundamental principle of contract law inherited from British law.
  • Just as with personal loans and guarantees, the courts have an inherent bias in favor of plaintiffs in these types of cases and it is very difficult for debtors to win on the merits.
  • The best way to avoid a disastrous judgment is not to be in this situation in the first place.
  • Read the entire document – a challenge if it is 30 pages of legalese.
  • If you are unsure about anything in the document, you ought to obtain legal advice and not allow yourself to be pressured to sign unless you are sure that you can perform your obligations. Though realtors have basic training in explaining contracts, they are not as knowledgeable as lawyers. Salespersons employed by new home builders are not always trained realtors, so the risks are higher if you do not talk to a lawyer before signing.


The real estate section at Weilers LLP carries on our proud tradition of advising clients about the risks and obligations that they are undertaking before they sign a contract.

If difficulties arise, we work with our clients and their other advisors to attempt to resolve the problems.

If the problems cannot be resolved on a friendly basis, then our litigation lawyers may be able to assist with damage control. Our real estate section may also help if an outside real estate lawyer has to act as a witness, or does not do lawsuits.

If you find yourself needing advice about your risks or obligations under a real estate contract, it is best to seek the advice early. Feel free to give Weilers LLP a call and see if we are the right lawyers for you.