Requirements for Deposits
Under FINTRAC rules the following is required by law in Canada regarding deposits in a real estate transaction. FINTRAC stands for Financial Transactions and Reports Analysis Centre of Canada, the intelligence agency that assists in the prevention of money laundering and financing of terrorist activities.
Who Wrote the Cheque?
Let’s say Bob and Jessica Jones negotiates an offer to purchase a home. The deposit amount submitted with the Agreement is $35,000. The cheque, however, is in the name of another individual, a third party, not the buyers. Under this circumstance the brokerage is now mandated to obtain a FINTRAC Individual Client Information Record on the person from whose account the money came out of.
What’s Required in an Individual Client Record?
It’s the same Individual Client Info Record that has to be filled out for the buyers and the sellers. The client information record, among other things, must have the depositor’s name, address, date of birth and employment. The buyer’s agent must also fill out a Receipt of Funds Record.
Typically to Whom Does a Returned Deposit Go to?
But let’s say that the offer is conditional on mortgage financing and the buyer, for some reason, was denied the mortgage and the offer becomes null and void. The deposit now has to be returned upon signing of a mutual release between the buyer and seller. Typically the deposit money goes to the individual who wrote the cheque and this is stated in the mutual release. For example if Bob’s mother submitted the deposit, the release will state that the deposit shall be returned to the mother.
Are There Exceptions?
We have had instances when the release, duly signed by both buyer and seller, states that the deposit shall be made out to the buyer, in spite of the fact that the money was submitted by someone else, in the example Bob’s mother. In this case it’s prudent for the deposit holder to question the cooperating salesperson as to why the buyer is being refunded the deposit instead of the issuer of the money. Yet provided the signatures match on the release and the Agreement to Purchase, the deposit holder must comply with who the parties are agreed to disperse the deposit to.
Why can this happen?
As the buyer’s agent initiates the mutual release, he/she or their brokerage can unwittingly prepare the release stating that the deposit shall be returned to the buyer instead of the issuer of the funds. The listing brokerage must comply with the signed release as agreed to between the buyer and seller. Yet it’s questionable whether the buyer and seller understand or are aware of what they have signed and agreed to: that the deposit shall be payable to the buyer and not the person who submitted the money. It can be problematic if the depositor was expecting the money. Further and to avoid FINTRAC’ requirements, it might be better to have the money deposited into the buyer’s account and the cheque written from there. This, however, might conflict with lender requirements that the money must be in the buyer’s account for the last 90 days.